WASHINGTON — The virtual currency industry received a shot across the bow from regulators this week after Ripple Labs, widely considered a white hat within the sometimes Wild West-style digital currency world, was slapped with a $700,000 penalty for anti-money-laundering violations.

While the penalty is a blow to Ripple Labs, it could have significant implications for the industry at large and its efforts to legitimize itself in the eyes of regulators and banks.

Following are four lessons from the fine and its potential, well, ripple effects:

Anti-money laundering compliance must be in place from the get-go:
In March 2013, the Financial Crimes Enforcement Network issued guidance recognizing virtual currency businesses as money transmitters, which effectively subjected them to existing anti-money-laundering regulations.

But Ripple Labs facilitated transactions for months after the guidance was issued without proper AML protections after registering its subsidiary, XRP II, as a money-services business, or MSB. That was a key reason the firm was fined, despite the fact that it later put AML protections in place.

"Fincen clearly has the intention to hold entities responsible from the time they flip the switch to turn on their business model," said Carol Van Cleef, co-chair of the global payments practice group at the law firm Manatt, Phelps & Phillips. "Compliance is expected from the beginning; they make a big point of the fact that [Ripple Labs] was operating for a period of time without being properly registered as an MSB."

The enforcement action sends a message to other digital currency startups that they must be hyper-vigilant about AML compliance, said Houman Shadab, a New York Law School professor specializing in the regulation of digital currency.

"In this area, it's probably better to be safe than sorry if the law is unclear; it's best to ask for permission rather than forgiveness," Shadab said. "If you're the type of digital currency startup that engages in exchanges or transmissions of funds, you're going to fall under the category of money services businesses that need to comply."

Ripple Labs' Bank Secrecy Act officer, Antoinette O'Gorman, who was hired after the events that caused the Fincen fine, agreed that startups should learn from the company's example. "Once [regulators] issue guidance, everyone needs to respond to the guidance immediately," she said.

Jerry Brito, executive director at Coin Center, a nonprofit cryptocurrency advocacy group, said the penalty shows that "Fincen is actually very serious about compliance," and "companies that operate in this space have to comply with those rules."

It's still unclear if this helps or hurts the perception of virtual currency:
The action's impact on the rest of the industry can be argued either way. On the one hand, it has the potential to scare away banks, many of which are already hesitant to partner with digital currency startups. Traditional financial institutions tend to perceive the virtual currency field as high-risk, particularly when it comes to the potential for run-ins with regulators over AML and consumer compliance issues.

"In terms of immediate impact, it's likely to cause at least a few potential bank partners to pause and say, 'Should we really be doing this or not?' " said Van Cleef.

On the other hand, some experts said that the settlement may actually wind up reassuring banks that digital currency firms are not so different than any other money-services business.

"One takeaway is there's nothing inherently risky about digital currency businesses," said Shadab. "We know now what compliance looks like, and it looks like it does with any other business: it requires knowing your customer, filing suspicious activity reports, and adopting written AML policies."

Brito said that it disproves "the idea that virtual currencies are this unregulated space," and added that "virtual currency are actually one of the most regulated industries."

The exact impact on banks' partnerships with digital currency firms may not be clear for some time.

"Right now it is too soon to tell how banks are going to react," said Steve Kenneally, vice president for payments and cybersecurity at the American Bankers Association.

"Now it looks like Ripple addressed the issues and paid the fine and are moving forward and that is how it usually works when a bank or a casino or another money-services business is involved. Although that it happened isn't great, the process that is working like it would with any other participant could work in Ripples favor."

More enforcement actions against digital currency firms are likely on their way:
While the enforcement action against Ripple Labs was a first, it is unlikely to be the last as Fincen ramps up its oversight of the evolving industry.

Ripple Labs' O'Gorman said Fincen's action "definitely makes a statement to other entities in this space that they need to be aware of compliance obligations going forward."

"We're the first example of many more to come, potentially," she said.

Van Cleef agreed that more penalties were likely to come down the pike.

"Fincen is only beginning its enforcement examination process of MSBs in the digital currency space; as with any industry in the first round of compliance examinations, we're likely to see a number of companies being cited for compliance shortcomings," she said.

Ripple's protocol is staying intact:
As part of the enforcement action, Ripple Labs agreed to make "enhancements" to its protocol, which incited much speculation on Twitter as industry observers tried to assess the impact on the company's business model.

But a more in-depth explanation provided by Fincen clarifies the nature of the updates. The firm will implement AML transaction monitoring across its network and improve its analytical tools for reporting on counterparties and the flow of funds.

"The 'enhancements' are to transaction analysis and risk monitoring" of the protocol but not to the protocol itself, according to O'Gorman.

This will come as a relief to players in the digital currency space who worried that regulators were overstepping by mandating changes to the Ripple software.