Introduction

For more than a decade, offshore crypto exchanges operatedunder a simple assumption: if the company was not incorporated in the United States, the SEC and the CFTC would leave it alone. That assumption has now collapsed. Over the last year, the two principal U.S. market regulators have made one message clear: jurisdiction follows the user. If an exchange allows U.S. persons to trade cryptoassets, derivatives, leveraged products or staking services, the platform may fall within the scope of U.S. law even if its entire corporate structure sits in the Caribbean, Hong Kong, Dubai, Estonia or BVI.

Recent enforcement actions, public advsories and litigation filings reveal a coordinated strategy targeting offshore exchanges that fail to prevent U.S. access or that operate without proper registration. Civil complaints now cite failures in KYC, inadequate market surveillance, unlawful derivatives trading, and insufficient manipulation controls. For global Web3 businesses, this signals a decisive shift towards extra-territorial enforcement.

This Insight examines what the CFTC and SEC are doing, why enforcement is accelerating, and how founders, investors and offshore operators should respond.

Insight / Analysis

1. The Regulatory Landscape Has Shifted

1.1 The CFTC’s Foreign Board of Trade (FBOT) Pathway

Historically, the CFTC focused primarily on U.S.-based derivatives markets. In 2024 and 2025, however, the agency clarified in a series of advisories that offshore exchanges offering access to U.S. persons may require registration under the Foreign Board of Trade (FBOT) regime.

This regime allows non-U.S. exchanges to serve U.S. clients legally, but only if they meet conditions relating to:

• supervisory cooperation between regulators
• robust market surveillance
• transparent reporting standards
• controls for manipulation and wash trading
• access-control mechanisms for U.S. participants
• financial resilience and custody arrangements

The clear implication is that offshore venues can serve U.S. users, but only if they operate at the compliance standard of a domestic U.S. exchange.

1.2 The SEC’s Parallel Enforcement Agenda

While the CFTC focuses on derivatives and leveraged products, the SEC is intensifying its focus on:

• crypto assets considered securities
• staking-as-a-service programmes
• yield-generating digital products
• offshore entities offering investment-like instruments to U.S. retail investors

Recent actions demonstrate that the SEC will pursue non-U.S. entities if they:

• solicit U.S. investors
• communicate with U.S. residents via social channels
• allow U.S. IP addresses to access trading or staking services
• process payments or withdrawals from U.S.-linked bank accounts or wallets
• market themselves at U.S. conferences or through U.S. promoters

Together, the SEC and CFTC are signalling that geographic registration does not shield entities from U.S. requirements when U.S. users are involved.

2. Enforcement Trends: What the Regulators Are Targeting

2.1 KYC Circumvention and Weak Access Controls

Regulators now classify insufficient access controls as intentional circumvention, especially when:

• U.S. users bypass geo-blocking without additional verification
• VPN usage is widely tolerated
• onboarding involves minimal identity checks
• compliance teams ignore suspicious patterns

For many offshore platforms, the days of “light KYC” are over.

2.2 Market Manipulation and Lack of Surveillance

The CFTC has criticised exchanges for inadequate:

• real-time market surveillance
• detection of wash trading
• monitoring of insider trading
• prevention of self-matching
• liquidity anomalies and frontrunning

Offshore platforms seeking institutional liquidity or U.S. access must implement market monitoring capabilities that rival those of traditional exchanges.

2.3 Derivatives Offered Without Registration

Leverage, perpetual swaps, margin trading and futures products trigger CFTC jurisdiction. Offering these to U.S. persons without registration is now considered a serious, often wilful, violation.

2.4 Staking and Yield Products Regarded as Securities

Under SEC analysis, staking-as-a-service programmes may constitute investment contracts. Offshore platforms offering these services to U.S. retail customers face a high probability of enforcement.

2.5 Misrepresentation and Non-Cooperation

The SEC and CFTC now treat non-cooperation as an aggravating factor. Platforms that fail to preserve records, audit logs, email correspondence or user access reports expose themselves to harsher penalties.3.

Why Offshore Incorporation No Longer Protects You

3.1 Jurisdiction Follows the User

The U.S. regulatory position is increasingly anchored in the principle that jurisdiction is determined by the location of the user, not the location of the company. If the user is American, and the platform services them, U.S. law may apply.

3.2 Marketing and Distribution Create U.S. Nexus

Promotional activity matters. A project incorporated in the Seychelles can still trigger U.S. jurisdiction if:

• social media campaigns target U.S. time zones
• ambassadors or promoters are U.S. residents
• AMAs or advertising are directed at U.S. audiences
• token sales accept U.S. participants through affiliates

3.3 Payment Rails Reveal Economic Reality

Even when incorporation is offshore, payment flows may anchor jurisdiction to the U.S., such as:

• USD on- and off-ramps
• U.S. correspondent banks
• dollar stablecoin flows from U.S. wallets
• exchange accounts held by U.S. citizens

3.4 Enforcement Coordination Is Increasing

Cooperation between:

• CFTC
• SEC
• FinCEN
• DOJ
• FCA
• MAS
• ESMA
• EU national regulators

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is steadily growing. The age of regulatory fragmentation is fading.

Application: What This Means for Web3 Founders and Cross-Border Entities

1. Structuring Alone Is Not Enough

A BVI, Panama, Dubai, Hong Kong or Marshall Islands entity still faces U.S. exposure if:

• the protocol is accessible to U.S. persons
• the team has U.S. founders or contributors
• marketing reaches U.S. audiences
• investors or LPs are U.S.-based
• the token is listed on U.S.-accessible exchanges

Corporate structure is only part of the equation. Regulatory perimeter now depends on operational conduct.

2. Smart-Contract Activity May Trigger U.S. Oversight

Even decentralised exchanges or yield vaults may face scrutiny if a U.S. person interacts with the protocol. This is especially relevant for:

• liquid staking tokens
• automated market makers
• derivatives-like DeFi structures
• protocols with governance-controlled parameters

The ideology of decentralisation does not override jurisdictional enforcement

3. Investors Must Reassess Counterparty Risk

U.S. enforcement risk can impact:

• token valuation
• liquidity
• exchange listings
• partnership deals
• institutional onboarding
• custody provider willingness
• insurance coverage

Due diligence now requires regulatory exposure analysis, not just technical checks.

4. Banks and Payment Providers Will React

Offshore exchanges facing U.S. scrutiny often lose:

• fiat rails
• correspondent banking access
• compliance partnerships
• institutional liquidity providers

This places operational pressure on the entire ecosystem.

Strategic Recommendations

1. Implement rigorous access controls such as IP detection, device fingerprinting and additional verification for high-risk jurisdictions.
   
2. Review product offering to determine whether any service resembles a regulated activity under U.S. law.
   
3. Strengthen KYC/KYT procedures and maintain audit-ready records for regulators and banking partners.
   
4. Assess whether FBOT registration is required for derivatives access.
   
5. Discontinue U.S. marketing exposure unless you intend to comply fully with the U.S. framework.
   
6. Adopt advanced market surveillance tools to detect manipulation and anomalous trading behaviour.
   
7. Revise token and protocol design with legal classification in mind.
   
8. Establish a documented governance framework including risk management, disclosures and conflict-of-interest controls.
   
9. Obtain legal opinions on U.S. securities exposure for staking and yield-bearing products.
   
10. Educate your teams on extra-territorial regulatory risk to avoid accidental non-compliance.

Conclusion

The era of regulatory ambiguity for offshore exchanges is over. The CFTC and SEC are no longer focused solely on domestic actors but on any platform that enables U.S. participation. Extra-territorial enforcement is now part of the global Web3 reality, and the distinction between “offshore” and “onshore” is quickly dissolving.

For founders, investors and cross-border operators, legal structure must be matched by governance structure. Compliance must be designed into the product, not appended after launch. The entities that survive this regulatory shift will be those that understand both the technology and the jurisdictional perimeter in which they operate.

At Humlor, we help international Web3 businesses navigate cross-border risk, structure their operations responsibly and build long-term legitimacy across global regulatory environments.