How to Deal with Regulations As a Crypto-Powered Business

Alisa Tkach

Are regulations good or bad for crypto businesses?

Are regulations good or bad for crypto businesses?

During the past couple of years, different countries have started actively implementing cryptocurrency regulations. What suddenly triggered that? In 2019, FATF (Financial Action Task Force) issued ‘Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providerse’ advising member countries to assess the money-laundering risks associated with technological development. As a result, 37 countries began working out laws on digital assets and implementing them in practice. 

FATF has given the jurisdictions two choices. The first option was to prepare a comprehensive set of rules on how to handle cryptocurrency. The second one was to ban crypto whatsoever. Surprisingly, none of the members has chosen the easy way, but on the contrary, the countries were eager to get the new developments going. 

What’s even more interesting, FATF hasn’t applied any compulsory measures on whether one should treat crypto as holding, a digital asset, or a medium of payment. Instead, the task force just drew up the basic guidance and let the countries decide for themselves. 

Currently, we’ve got a whole market of jurisdictions to choose from.

Choosing the Best Jurisdiction for Running a Crypto Company

When choosing the best-fitting crypto jurisdiction, it is crucial to maintain the balance between regulations and the economic interests of your company. For instance, when looking into getting a license in a new jurisdiction, we always pay attention to the KYC/AML requirements and whether the new rules will make any of our procedures more strict. 

One of Mercuryo’s key objectives is to provide our customers, both businesses and individuals, with the easiest onboarding experience possible, and we aren’t ready to give it up. At the same time, we are dedicated to staying one hundred percent compliant with the law and carefully monitor all the transactions. 

Now, how did it all start for Mercuryo?

In 2018, at the very beginning of our journey, Mercuryo started as a single company based in Estonia. This company was holding a license for exchanging and storing cryptocurrency. A year later, we’ve opened a new company in the UK, obtained a payment service provider status, and currently applied for a license to work with digital assets. 

In 2021, things changed drastically. As of now, we’ve almost finalized registering Mercuryo in Lithuania and opened companies in Singapore, Canada, and Brazil holding various types of financial licenses. On top of that, we are currently choosing the best state in the US to get a money service business license.

“We are very serious about choosing the jurisdictions to work at, only considering getting licenses in well-respected ones. Mercuryo is determined to keep on expanding the list of areas of operation to provide safe and productive cooperation with banks, partners, and investors”, – says Aleksandra Ivanova, the Head of the Legal Department at Mercuryo.  

AMLD 5 and Unexpected Changes in Estonian Regulations

The foundation of all the crypto regulations is based first and foremost on anti-money laundering laws and regulations. All the banks, financial institutions, and regulators a priori consider crypto to be the primary tool for money-laundering activities. This point of view is, obviously, a stereotype. Nevertheless, it does influence the course of regulatory measures.

Anti Money Laundering Directive 5 (AMLD5) is the primary standard for all the EU member states that aims to prevent financial crimes without tremendously affecting the current economic system. The directive doesn’t force any mandatory instructions but sets a general trend of conducting AML/KYC procedures, allowing countries to implement regulations themselves. That’s why the list of documents required to pass the KYC on crypto exchanges differs depending on the country they are registered in. 

A few years ago, Estonia was one of the most crypto-friendly jurisdictions in the EU that required minimum documents for passing the KYC and light onboarding procedures in general. And then a major money-laundering scandal happened. 

Danske bank has transferred more than €200B of questionable funds through its Tallinn branch, and the country regulators had to tighten the AML rules. One of the new policies required companies to ask for a video interview with every client they’re onboarding. Obviously, that is a strict and impractical rule for a company with over a million users.

The new rule pressured Mercuryo’s legal team to research numerous jurisdictions worldwide and carefully examine corporate AML laws and regulations in over 20 countries. 

We’ve grouped the areas according to their general attitude towards crypto as follows: 

  1. Business-oriented ones with easy onboarding (Canada, Lithuania, UK, ADGM)
  2. Control-oriented ones that require additional documents to pass verification procedures (the US, Lichtenstein, Australia, Hong Kong, Gibraltar)
  3. Gray zones without well-defined status (Seychelles, Ireland, Austria). 

Eventually, we came up with a list of the best-fitting jurisdictions to focus on. 

However, based on what happened in Estonia, we always keep in mind the risks and diversify them. Any business-oriented country may one day tighten its laws and demand additional documents, new licenses, or stricter onboarding procedures. That’s why it is essential always to have a backup plan.

Conclusion

Regulations are good for everyone. They help protect businesses, their clients, and the country’s economy in general. The good news is that most governments across the world understand that banning cryptocurrency is not a solution. Instead, they choose to work out a set of rules that will protect everyone engaged in working with digital assets, from miners and traders to crypto exchanges and payment providers. 

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