BitMEX, the huge Hong-Kong based crypto exchange, is actively closing the accounts of customers in the U.S. and the Canadian province of Quebec. According to the South China Morning Post, the new wave of shutdowns is a response to action by Quebec’s financial regulator, the Autorité des marchés financiers (AMF), which says BitMEX isn’t licensed to operate or serve customers in the province. The action is also a reminder that BitMEX is subject to sudden regulatory action, possibly leading to lost user funds.

The U.S. Securities and Exchange Commission has also already taken strong action against international exchanges illegally serving U.S. clients, giving BitMEX, which trades more bitcoin than any other exchange, plenty of motivation to clean up its act. What remains unclear is just how effectively it’s doing so. In theory, Americans and Quebecois should never have been trading on BitMEX. But because its identity verification (KYC) practices have historically been lax, it has been possible for U.S. traders to access the service using location-masking Virtual Private Network, or VPN, tools. BitMEX has been accused of “turning a blind eye” to that misuse.

BitMEX has shut down U.S. accounts before, notably that of high-profile crypto trader and analyst Tone Vays. Vays said in November that his account was “terminated on suspicion of being a U.S. citizen.” That came amid a reported wave of similar suspensions following SEC enforcement action against a non-KYC’d Marshall Islands-registered crypto exchange called 1Broker. Many took the 1Broker action as a shot across the bow of larger exchanges with similarly loose practices, including both BitMEX and Binance. The SEC can move against any entity that offers unlicensed services to U.S. citizens, regardless of its home jurisdiction, or even claims of “decentralization,” as seen in the same month’s action against the founder of the EtherDelta exchange.

After we published this post, BitMEX reached out with what it termed a “correction.” BitMEX emphasized that its terms of service prohibit U.S. and Quebecois residents using the service, and that BitMEX has the right to terminate any such accounts. They also sought to rebut SCMP’s claims that U.S. traders made up a large portion of BitMEX’s volume: “Trading in the US has been banned since 2015, therefore it is untrue that it was BitMEX’s other major market or saw any traction in the past few years.” BitMEX did not dispute our characterization of its KYC practices. We’ll leave readers to make their own judgment about how effective a Terms of Service clause likely is in deterring U.S. traders who want to use the platform, and whether this nominal ‘ban’ proves that U.S. traders don’t make up a large portion of BitMEX volume.

Binance has responded to rising enforcement pressure by implementing KYC requirements, at least nominally. BitMEX isn’t taking that obvious route, for one very simple reason: money. According to BitMEX itself, the exchange did a jaw-dropping $965 billion in trading volume in 2018, and SCMP sources claim that 1/7th of that, or about $138 billion, was from illicit U.S. accounts. Though BitMEX’s fee structure is complex, even one percent of those U.S. accounts is a huge amount of revenue. Most of that would be lost to robust compliance, just as tighter rules hurt the (much smaller) ShapeShift.

So it seems one of the world’s biggest crypto exchanges plans to continue shadowboxing with the world’s strongest regulator (and make no mistake, CEO Arthur Hayes is far more concerned about the SEC than Quebecois provincial regulators). They’ll delay imposing KYC that would hurt their bottom line, while shutting down just enough U.S. and Canadian accounts to try and mollify regulators.

Inevitably caught in the middle, of course, are the actual traders who use BitMEX. Americans and Canadians will keep wondering if and when their accounts will be shuttered, whether by the exchange or by regulators. And every BitMEX user has to worry that the entire exchange could be suddenly shut down. One thing’s for certain: You shouldn’t leave much money on BitMEX, or any other exchange, particularly of the unregulated sort. When 1Broker was suddenly shut down by the SEC, users lost access to their funds, and exactly because they hadn’t confirmed their identities, one observer predicted the shutdown would be “a total loss for most [1Broker] users.”

Update 1/16/2019: Updated with statement from BitMEX.