Hidden Road, a Citadel-backed brokerage firm, has officially halted access to the ByBit exchange for Hidden Road clients, who were notified of the impending change weeks ago.

According to Bloomberg, the restriction on services resulted from differences between Hidden Road and ByBit regarding Know Your Customer (KYC) verification procedures and Anti-Money Laundering (AML) regulations.

In response, ByBit claimed that it would conduct an audit of its brokerage business to ensure regulatory policy was being implemented correctly.

Related: Bybit CEO refutes insolvency rumors, shares proof-of-reserves

Know Your Customer verification and anti-money laundering regulations have become hot-button topics in decentralized finance, creating a divide within the crypto community.

Research published in the academic journal Policy Design and Practice found that AML regulations had a negligible effect on illicit financial activities.

"Anti-money laundering policy intervention has less than 0.1 percent impact on criminal finances, compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalized more than criminal enterprises," the report stated.

The academic research also found that total global proceeds from criminal activity accounted for only 3.6% of total GDP in 2018 and tended to stay close to this number for all previous years surveyed.

Several projects, such as Tornado Cash, Samurai Wallet, and the privacy coin Monero, have attempted to circumvent these regulations by offering crypto mixer and tumbler services to users.

In April, U.S. federal authorities arrested Keonne Rodriguez and William Lonergan Hill, the developers of Samurai Wallet, for allegedly violating money laundering laws.

The U.S. Department of Justice (DOJ) charged both devs with conspiracy to commit money laundering and conspiracy to operate a money transmission service without licensing.

Long before the DOJ targeted Samurai Wallet, the U.S. Treasury accused Tornado Cash of facilitating money laundering and moved to charge and arrest the founders of the popular mixing service.

U.S. officials and their European allies accused the Tornado Cash developers of laundering $7 billion in digital assets in 2022. Tornado Cash devs Alexey Pertsev, Roman Semenov, and Roman Storm were all subsequently charged and arrested for their work on the mixer protocol.

Pertsev was arrested and tried by Dutch authorities and is currently serving 64 months in prison for his role in the project.