Interview with Adam Baker from Mercuryo On Crypto Regulatory Landscape
07 August 2021 - 12:45AM
NEWSBTC
The regulatory landscape on cryptocurrencies and the blockchain
industry is changing, many expect a global crackdown on this
industry. The atmosphere is tense, as the United States, China, and
Europe seem to be moving to tackle a topic long overdue. Adam
Berker, Senior Legal Counsel at global payment network Mercuryo,
conducted a research on some of the most relevant points in terms
of regulations, money laundering policies, and more. To have a
better grasp of the current regulatory outlook, we asked him for a
more detailed look into his research. This is what he told us. Q:
Can you talk more about your background, your work at Mercuryo, and
how you got involved with the crypto industry? A: My first
experience with the cryptocurrency industry was in 2019 when I
worked at Musaev & Associates law firm. I received a request
from a private investor for participation in Telegram Open
Networks’ (TON) ICO. Even though telegram did not launch its
cryptocurrency, I managed to finish this investment project and
really got interested in the crypto industry. Later, in 2020 I
joined Mercuryo as a Legal Counsel and started providing full legal
support to the group of companies with entities in the UK, Cyprus,
Estonia, and Cayman Islands for conducting its activity all over
the world. I also undertake performing AML & KYC/KYB checks and
onboarding procedures in financial institutions. Under my
management, Mercuryo expanded its activity to the US, Canada, Latin
America and considerably enlarged the number of companies in the
corporate structure, obtaining corresponding crypto and payment
licenses. Furthermore, I provided legal support in developing
partnerships with crypto industry leaders for such products as
Cryptocurrency Widget, Acquiring & Crypto-Acquiring,
Over-the-Counter deals. Additionally, I provided legal support in
securing a $7.5M Series A funding led by Target Global, a major
international VC fund with €800M+ under management. Q: Recently you
conducted research on crypto regulation on a global scale, what are
some of the key points and takeaways from your investigation? Would
you say that regulations are leaning more positively or negatively
for cryptocurrencies around the globe? A: According to my research,
we may divide regulatory authorities’ approach to the 3 categories:
Business-oriented. These jurisdictions prefer to ease the process
of incorporation, obtainment of licenses and ongoing operation so
that crypto businesses would be more interested in them. One of
such jurisdictions is Canada, as the whole process of incorporation
and license issuance is made online and very quickly, they require
a minimum package of documents and the local Anti-money laundering
regulation does not require crypto companies to obtain proofs of
address from the end-users. Control-oriented. These jurisdictions
usually impose very strict requirements for the crypto entities
regarding the Know-Your-Customer (KYC) procedure of the clients.
For example, if you want to operate from Lichtenstein, you would
need to obtain information about the client’s address of residence,
the origin of assets and even professional occupation. In
Australia, you will only need to identify your customers, but if
you do this using electronic tools (as most crypto services do),
you would need to obtain two identification documents. Though, it
does not matter for the local regulator AUSTRAC that some customers
may only have national ID. All these additional requirements
negatively affect business metrics, as customers don’t like
undergoing long KYC procedures. “Gray” jurisdictions. There isn’t
any specific crypto regulation, neither AML, nor financial
services’ laws formally apply to crypto in these countries. Yet,
these states are open for crypto companies and they are definitely
working on ways to implement crypto into their legislative systems.
For example, Brazil has introduced “auxiliary financial services”
as a special type of activity for crypto companies and they will
surely go further with it. In general, regulations are leaning more
positively on the cryptocurrency industry as they help businesses
understand the local “rules of the game” and protect customers from
fraud and scams. Q: Why do you think it has taken regulators so
long to approach cryptocurrencies, and crypto-based companies and
services? Do you agree with the statements made by government
officials claiming that cryptocurrencies and the crypto space are
“highly unregulated”? A: A few years ago, many governments used to
be against any crypto and they tended to ban anything related to
this sphere. Now they understand that it is a huge economic sector,
and for that reason, they try to take part in it. Of course,
nowadays crypto regulations of many countries are not as developed
as the regulation of financial services, for example. Nevertheless,
it is definitely not a “highly unregulated” field, since there are
such jurisdictions as Estonia and the UK, where local lawmakers
developed very advanced and clear rules for crypto companies,
including those related to licensing, customer onboarding, ongoing
monitoring and reporting. In general, we may say that most of the
countries opt for crypto regulations that would be similar to
financial services’ regulations, especially to electronic money
institution regulations. For example, in the U.S. you should
register your business as a Money Services Business with FinCen on
a federal level and then obtain Money Transmitter authorizations in
the states where your business is planning to provide services
(except for Montana since there is no MT license requirement). In
most states, you will be able to provide both money transmission
services (in general: cash checks, transmit money, own and operate
ATMs, and provide electronic funds transfers) and provide
crypto-related services. The main problem with the U.S. is that
companies have to obtain MT licences separately in every state.
Though, 29 states concluded a Multistate Licensing Agreement for
MSBs and companies may file one application that will be reviewed
by all the participants of the Agreement. Nevertheless, this system
still needs time for development and proper implementation as each
state has its own requirements for the money transmitters. By the
way, one of the main, but not quite obvious, problems nowadays is
an inconsistency between regulations in different countries, which
is a serious obstacle for businesses as most of the crypto
companies conduct their activity in the international arena. The
best solution for this is a unifying agreement between countries.
For example, the European Union may implement some kind of
passporting system which is now used for financial institutions.
This system enables companies that are authorised in any EU or EEA
state to conduct their activity freely in any other state with
minimal additional authorisation. Q: Many believe that a U.S.
crackdown on the industry will have a negative global impact on the
entire crypto industry. According to your research, are there any
safe havens for companies that want to operate without hostilities?
Can the U.S. really have a global reach when it comes to
cryptocurrencies? A: The U.S. already impacts the whole industry
with their regulations since even foreign crypto-companies that
want to provide services to the U.S. citizens need to comply with
their laws. For that reason, most of the crypto projects try to
avoid any relations with the U.S. For example, we may often see the
U.S. in the list of banned countries in many ICOs. However, most of
the regulated jurisdictions allow entities to provide services to
foreigners under local laws. In my opinion, the most favourable
jurisdictions are Canada, as I have said before, and Lithuania
since they don’t have strict KYC requirements, companies may have
foreign directors and the process of incorporation and license
obtainment is rather simple in comparison to other jurisdictions.
Additionally, I should underline that in Canada crypto companies
obtain Money Services Business registration which also gives them
the possibility to carry out currency exchange services, money
transfer services, issue or redemption of traveler’s checks, money
orders or bank charges, check cashing and ATM operation. Moreover,
Canadian regulator FINTRAC regularly issues detailed guidelines
which can be very useful for such companies. Also, many crypto
companies incorporate their legal entities in so-called “gray
areas” (unregulated jurisdictions) like the Seychelle Islands. This
also could be an option since they are not obliged to comply with
common crypto rules like in other countries. Nevertheless, problems
may arise later when these countries finally approve local laws
which may not be as favourable as in other jurisdictions. Q: Often,
we see regulators, government officials, and politicians asking for
a crackdown on the industry, especially in the U.S. Is this the
most efficient approach? How can users, consumers, and the
countries themselves benefit from clear regulations and fair
policies? A: Of course, no one will benefit from the crackdown as
new industries need assistance from governments for future
development. If lawmakers impose too many restrictions, companies
just will not start their businesses there. Nevertheless, clear and
fair policies give companies an understanding of the local rules,
certain consequences for their violation and ways to protect
themselves. Additionally, these regulations protect customers from
fraudsters since every diligent market player is licensed by the
correspondent authority and every customer may file a complaint in
case of unlawful acts. On the other hand, regulations help
governments control fiat money flows, fight money laundering, and,
of course, collect taxes. Q: Coinbase, Ripple, and others major
companies with revenues directly linked to the crypto industry have
been lobbying in Washington and other centers of political power
around the globe. Do you think this is something that more
companies should embrace openly? How can a crypto company or crypto
service provider approach regulators if they already have a
negative bias? A: It is clear that the whole industry gains an
advantage if such major companies achieve success in lobbying their
own interests. In this case, bigger companies create precedents and
regulatory authorities will follow these precedents in future cases
regarding other companies. My general advice for companies that
already have a negative bias is that they should always be in
contact with authorities and be ready to provide detailed responses
to official requests. Still, it always depends on the specific
case, country of incorporation, whether there were any serious
violations of applicable regulation or not. Q: Recently, Uniswap
Labs and other DeFi interfaces limited the users’ access to
specific tokens. Speculations point out a possible intervention by
regulators in the U.S. towards these companies. Many criticized the
decision and questioned the decentralized nature of the protocol.
How can this relation between DeFi companies, regulators, and users
work out in the long term? Do you envision a future where users
must use backdoors to interact with any DeFi product? A: Since
governments try to control the crypto sphere more and more, it is
obvious that DeFi companies also will be regulated, even though
they do not involve fiat transactions in their business scheme. As
there is no escape from the regulation, crypto companies should not
ignore this process. On the contrary, it is better for them to
build a constructive dialogue with authorities so that the latter
could understand all the needs of the industry. For example, today
it is clear that governments fight against anonymity in crypto and
this may also affect projects like Uniswap since they do not
require users to undergo any KYC procedures. In this case, using
backdoors to interact with DeFi products or any other crypto
products may be a possible option for users that do not want to
disclose their identity.
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