It’s no longer the Wild West for virtual currency startups — all 2,000 of them. The regulators (and tax collectors) have virtual currencies in their cross-hairs, and the startups must learn to operate in a regulated space.

There is tension in the bitcoin community over compliance. There will always be an anarchic element to virtual currency enthusiasts,  but it seems likely that the companies that are compliant will have a better chance of surviving, and the others will go the way of Liberty Reserve, Silk Road, BitInstant and Mt.Gox.

“Virtual currency is no longer unregulated,” said Brian Stoeckert, chief strategy officer for New York-based CoinComply. “There is a lot more guidance today there previously was.”

At about the same time Stoeckert spoke, U.S. Attorney General Eric Holder was speaking to a Congressional panel, saying, “More than ever before, the department’s law-enforcement work today must contend with new and emerging technology, including virtual currencies such as bitcoin.” More on Holder’s testimony is here.

Stoeckert’s main point to the audience at Inside Bitcoins today here in New York was that digital currency companies must register with FinCEN, the Financial Crimes Enforcement Network, as a money service business (MSB). Further, the companies must have a designated compliance officer. The startups must understand a host of FinCEN regulations, including the Bank Secrecy Act, Anti-Money Laundering programs, Suspicious Activity Reports, and Know Your Customer procedures. (These are known in the industry as BSA, AML, SAR, and KYC, for those fond of initialisms.)

Bitcoin startups face another challenge in getting money transmitter licenses in the 50 states. This is a daunting task many startups face, Square had to pay $500,000 in fines to the state of Florida for failing to procure this.

A cautionary tale of registering with FinCEN but not having a dedicated compliance officer is BitInstant and Charlie Shrem. Shrem duly registered with FinCEN, a process that takes all of five minutes, according to Stoeckert, but then failed to follow up and implement the programs FinCEN recommends. Shrem also took on the role of compliance officer, one of many hats he wore, rather than designating another for the role. All of this led to the January arrest of Shrem, who was personally being targeted by law enforcement, rather than the exchange itself. Shrem’s personal assets were seized by the government. “This freaked the banks out,” Stoeckert said.

Virtual currency startups must learn to play nice with banks, which are extremely wary of forming relationships with virtual currency players, and not just because of Shrem’s arrest. Capital One Financial Corp. closed the account of a company selling bitcoin memorabilia in October 2013. “Cryptocurrency startups need to understand the compliance and risk departments of banks,” Stoeckert said.

“When banks undergo a regulatory examination, in the initial letter they are asked, ‘Who are your high-risk customers?’ And their riskiest customers are MSBs and virtual currency companies,” he said. It is a challenge for banks to manage their money-service-business customers, Stoeckert said, but these customers are often among the most lucrative.

“MSBs pay anywhere from a couple hundred to a couple thousand dollars to have a relationship with a bank — usually more than one,” Stoeckert said. Having multiple accounts is usually the best strategy, to distribute risk. “The requirements for money service businesses sound significant — and they are,” Stoeckert said. “Banks are charged with knowing everything — they have to do their due diligence. They have to vet left, right, back and center.”

The reality is that it is a challenge on both side for banks and MSBs. An audience member asked, What is the best route for a money service business to secure a bank account?

“You are not entitled to a bank account,” Stoeckert answered. “You are always at risk.”