Bitbond is an up-and-coming small business lending platform powered by blockchain regulated by German Federal Financial Supervisory Authority, also known as Bafin. The firm helps connect entrepreneurs — mainly online vendors in areas such as fashion and electronic retailing — with investors for small value loans. The company has extended loans to companies in many Asian countries including India, Malaysia, and the Philippines. Bitbond CEO Radoslav Albrecht spoke to BAR on the recent global cryptocurrency regulations and how they might stifle innovation where it is needed most – the developing world.
By Tsering Namgyal
Q1: How would the FATF AML/CFT regulations on crypto assets be implemented across jurisdictions?
A: It’s going to be difficult for the proposed regulations to be implemented across jurisdictions, especially since the level of security features on identity documents varies worldwide. Proof of identity requirements often disadvantages the users who stand to benefit most from cryptocurrency access. That said, we should use regulations like this as an opportunity to lobby for the better provision of identity documents, so we can compliantly engage wider swathes of the global population.
Q2: FATF is hitting where it hurts – which is transparency in what is anonymous transactions thus far. How challenging would it for crypto exchanges, crypto fund managers and custodians to comply with these rules?
A: Businesses that provide on- or off-ramps between fiat and cryptocurrency in most cases already are regulated, and thus compliant with AML/CTF regulations. That said, these measures should only apply to companies that are holding user assets, like exchanges or custodians. Software or hardware providers who merely provide the infrastructure that allows users to hold digital assets but don’t provide storage as a managed service should be exempt from AML/CTF regulations. We’re pioneering the adoption of these regulations with our newly-announced partnership with Gibraltar Stock Exchange. This collaboration is a step in a new direction for both parties, and we hope to create a framework for others to follow. It is in everyone’s interests that user assets are protected, but regulators need to be mindful of the burden their measures put on what are still fledgling businesses.
Q3: How would companies like Bitbond preparing to comply with FATF regulations? How long do you think it would take for these rules to be implemented, if implemented at all by the industry?
A: As Bitbond is already a regulated financial services provider, we ensure that our users are verified under AML/CTF requirements, so we comply with regulations that aim to improve control and ensure the security of financial services as well as cryptocurrencies. It’s no easy process, and the regulators should be careful that they don’t force innovation out of the industry by being too hardline in a space that is still undergoing rapid change.
Q4: Could FATF achieve AML/CTF goal with softer measures?
A: There’s always space to improve regulation, through a collaborative process. The newly proposed rules read a bit like an overreaction. There could be a better differentiation between the multiple types of service and software providers in the digital assets space. I think for this to happen an even deeper understanding of how digital assets and the ecosystem of service providers around them work is necessary. For this to happen both, regulators and the companies operating in the space have to work together closely. Regulators have to continue to be open to take feedback from the industry while startups should dedicate the time to engage in these conversations.
Service providers that do not hold or manage a user’s private keys should not have to comply with these regulations, as they have more in common with software providers than financial services. There’s no recourse for these businesses to comply when they don’t control their customers’ funds.
Q5: What would be potential implications of these new rules?
A: On the one hand, it will hopefully encourage businesses to consider customer needs and safety, and the regulatory framework they’re operating under – after all, it’s easier to build a compliant business if the rules you’re complying with are clearly laid out. More established market participants will find it easier to cooperate with businesses that operate within a transparent legal framework that they comply with.
However, if these regulations become an overkill, extending beyond what is necessary and create a high bar for businesses to comply with, then the rules become counterproductive. Not only would this drive some parts of industry underground, it could serve to stifle innovation, as business leaders or developers may err on the side of caution instead of taking risks that could revolutionise the way our financial systems operate.