In an industry where the playing field is still being constructed by regulators, as a new company, you need to get it right from the start. See how Cabital did it, as explained by Justin Choo, Head of Compliance & Money Laundering Reporting Officer
A financial services business is built on trust. Trust by regulators, customers, and business partners to do the right thing as required by laws, regulations and constantly acting in good faith.
But building trust in a nascent industry mired by past abuses relating to illicit activities and drug monies, as well as ‘get rich quick’ schemes is in fact, a tall order. After all, Warren Buffett has said that ‘It takes 20 years to build a reputation and five minutes to ruin it.’
Crypto without the crazy
Especially so for a new entrant to the burgeoning cryptocurrency industry that’s becoming increasingly regulated with each day that passes.
When I helped create Cabital, it became very clear early on to my co-founders and I that the journey to establish and maintain trust wasn’t going to be easy. Of key concern among our stakeholders and customers was our lack of a track record, questions about the controls we had in place to manage risks and the value proposition we sought to deliver.
While these weren’t easy questions to address, being the new kid on the block also meant that we didn’t need to deal with legacy issues that a number of established players had to, such as past issues with the law, or having dubious customers on our books. Put simply, we were in a position to set the record straight right from the start.
Placing the building of trust as a key pillar of our company’s success and sustainability, we sought to engage only industry leading risk management solution providers used by global players in traditional finance.
This allowed us to quickly establish controls in key areas of concern such as anti-money laundering that are immediately relatable to financial institutions that we were working to partner with.
We also sought to assuage their commonly held beliefs that cryptocurrencies were more susceptible to money laundering and sanctions evasions by explaining to them how transactions on the blockchain worked, and how blockchain analytics software such as Chainalysis (which we used) allowed us to clearly identify transactional risks (through comprehensive databases and automated fund flow mapping) that emanate even beyond the immediate counterparties that our customers were transacting with.
Comparing this with traditional wire transfers where financial institutions can only identify the immediate senders and recipients of funds, it became clear to our partners that cryptocurrency transactions are actually more transparent and traceable than they had thought.
This risk-centric approach to building trust is also a core component of our product design process. We recently launched Cabital Connect, our fiat on-ramp service which allows the customers of other cryptocurrency exchanges and Non-Fungible Token (NFT) Service Providers to connect to our fiat top-up and withdrawal capabilities.
Security and user protection, a top priority
Unlike other fiat on-ramp service providers, we recognised that the cryptocurrency and NFT industry was still in the process of being subject to regulation across the globe.
As such, in designing our fiat on-ramp service, we decided that the customers of the other cryptocurrency exchanges and Non-Fungible Token (NFT) Service Providers had to successfully complete our Know Your Customer process before they are able to use our fiat on-ramp service.
As an added level of security, we run an authentication process that requires successful matching of the personal identity credentials of the customer that we collected at our end against the personal identity credentials collected by the partner exchange or NFT Service Provider before the fiat on-ramp connection is complete.
Consumer protection is another key area of focus that we have invested a lot in to educate our customers that cryptocurrency-based assets isn’t a ‘get rich quick’ scheme. Across various avenues such as our blog and other social media outlets, we constantly publish content that covers how our product works and how volatility in the cryptocurrency markets should be best navigated through the principles of dollar cost averaging.
While we recognise that financial objectives do differ amongst our customers, we tend to adopt the perspective of someone who is looking to accumulate wealth through cryptocurrency investments over time to encourage our customers to invest in a sensible manner.
An industry still being defined by regulators
As regulatory attitudes vary from country to country, it’s probably fair to say that the cryptocurrency industry today is still being defined by regulators all over the world. Even in Europe, approaches vary from registration regimes in countries such as Lithuania (where we operate) and France to licensing regimes in countries such as Germany.
Attitudes towards marketing to the general public also vary amongst countries with some countries such as the United Kingdom having put in place strict guidelines on the marketing of crypto assets while others adopting a wait and see approach.
One key area where consistency is observed, however, is the focus for cryptocurrency exchanges to put in place robust Anti-Money Laundering controls and processes that are in line with those required by the financial services industry.
Lithuania has, for instance, updated its law on preventing money laundering and terrorist financing to provide clarity in requiring cryptocurrency exchanges to comply with its existing legislative requirements that are applied in its financial services industry. This is certainly something that we welcome as it provides the industry with greater clarity on what needs to be done, and legitimacy, since it implies that the cryptocurrency industry is now another branch of mainstream finance, something that should give consumers greater confidence in.
It also serves to level the playing field in the industry as all exchanges would have to adhere to these requirements and can no longer benefit from lack of regulatory clarity at the expense of their competitors who proactively manage their risks.
About Justin Choo
A compliance professional with global experience in the cryptocurrency, fintech and banking industry, Justin has led successful fintech licensing and registration initiatives in Singapore and the European Union. He is the current Head of Compliance at Cabital, and a member of the company’s founding team, responsible for global licensing and Compliance risk management initiatives.
Well versed with various regulatory requirements and financial crime risk management solutions, Justin has held regional Compliance leadership roles in leading fintech firms YouTrip and Airwallex, as well as previously heading the Global Anti-Money Laundering Policy & Governance function at United Overseas Bank in Singapore.