Hosting is a very different landscape. Cloudflare and AWS and such are enormous and can exert a lot of control. But you can still ignore them and just do your own thing and it works fine. There are plenty of smaller cloud providers you can use instead. You can still colocate your own hardware in a data center. If nobody in your country wants your money, you can host your service in some other country that doesn't care so much about whatever morality is at issue.

This demonstrably works. There are plenty of porn sites out there, plenty of pirate sites, plenty of places selling illegal stuff, even Wikileaks is still up.

To your last paragraph, I think we can draw the line at "allow any transaction that you reasonably believe is actually authorized by the people who own the accounts." I don't care about being fair to payment networks. If we're going the regulatory route then we've decided that this stuff is critical infrastructure and the needs of the many etc. If individual people at the company don't like handling transaction for porn or whatever, they're free to find a new job. Different risks do make it trickier, but I think we can add some language to allow holding on to money for a certain period before paying it out, or requiring deposits, with some limits on what criteria they can use to make those determinations and how long/large the period/deposit can be.