Hot potato: Getting a bankaccount for your ICO is difficult

Taco Potze • 11 July 2018
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So far in 2018 the amount of money raised with ICOs has surpassed the entire amount raised in 2017 (even excluding the Telegram private sale). As ICOs are becoming a revolutionary new way to fund start- and scale-ups, the lack of legislation in The Netherlands currently makes it difficult for Dutch crypto companies to run their business here.

Speaking from our own experience, one of the major issues currently with an ICO is getting a bankaccount as new crypto startup. But also maintaining a bankaccount when you already are doing business. The ICO will probably qualify as 'new business' that you need to report to your bank, and on that ground they might refuse to serve you. 

Most banks have not published a public statement on this yet. A transparent exception is a DSA Founding Father: Bunq. In their knowledge topic Can I open a business account as a cryptocurrency company? they state:

Due to the lack of regulatory clarity we do not currently accept companies in the following categories:

  • Companies that have or will organize an Initial Coin Offering (ICO)
  • Cryptocurrency investment funds
  • Miners and mining pools

So what does this lack of regulatory clarity mean? What do current financial regulators say on crypto companies? In the files attached to this blog you will find the sources used in this article. Most important are The Dutch Bank (DNB) and Financial Markets Authority (AFM).

 

DNB - De Nederlandsche Bank 

In a position paper by De Nederlandsche Bank (Dutch Central Bank) for Roundtable Cryptocurrencies/ICO's published on January 24, 2018 the central bank writes:

“We welcome the agreement reached between the EU Member States in December 2017 about extending the scope of the Fourth Anti-Money Laundering Directive to include crypto exchanges and issuers of crypto wallets. In our view, this must be implemented in Dutch law as soon as possible.

We also ensure that banks and other financial institutions that offer current accounts and other services to crypto firms take sufficient measures to adequately and demonstrably control the resulting potential risks of financial and economic crime.
This includes compliance with customer acceptance rules (customer due diligence). If those customer activities are integrity sensitive, which is the case for business-related crypto activities, our supervision will also extend to the operational management of financial institutions with respect to the derived integrity risks to which they are exposed."

 

While from a banking and legal perspective does makes perfect sense. As a startup you will have to take a deep dive into these specific regulations, customer due diligence processes etc. You could also hire a freelance compliance offer that speaks the language of the banks and can help you guide through this proces. 

What is basically comes down to is that you do not want to accept or handle money that is being laundered or used by sanctioned groups, let's say terrorists. While this might seems logical, there is a lot of 'dirty money' going around in traditional fiat money (dollars, euros etc.) and due to the anonymity of crypto currencies the system might being used for these illegal practices. How much exactly (and if it's more or less than the traditional economy) is not precisely known due to the current lack of oversight in the crypto currency system. 

Crypto currency

 

The EU extended the scope of the Anti-Money Laundering (AML) Directive including crypto. This gives you at least some idea when it comes down to compliance. However this directive is not easy to read, again you probably want a compliance officer to your team. Next the DNB mentions  banks need to take "sufficient measures ... to control ... risks". Since these measures are not described in detail, the DNB basically passes the hot potato to the banks themselves. If a bank is okay with your crypto company, than it's okay with DNB, but they will supervise the banks of course. This makes banks rather nervous. They are running a risk here in an unknown new area without much guidelines. How to deal with this strange new potato? Some unfortunately close their doors, others are more open to explore this innovation further. However no guidelines currently exists.

 

AFM - Authority Financial Markets

The AFM published a strict warning for dodgy ICO's on their website and it's good they are informing potential token buyers of the risks involved (we love the DAICO model, but that's for another blog ;). 

Important is to figure out if your token is seen as a security or utility token. The articles linked above explains the difference quiet well related to legislation.

At the bottom of the article you can find information for the issuers of ICOs and Information for financial institutions wishing to provide services relating to cryptocurrencies. The Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme, Wwft) and the Sanctions Act 1977 (Sanctiewet or 'Sw') apply to financial institutions.

Sumarized they state:

  • Institutions must continually establish and identify the identity of customers (KYC) and the ultimate beneficiary or beneficiaries (UBOs);
  • It must report money laundering or the financing of terrorism immediately as an unusual transaction (AML);
  • Institutions must screen anyone involved in a financial service or transaction for inclusion on national and international sanction lists

If your token is an utility token, currently no laws govern your ICO and it's hard to submit yourself voluntary. For example the Financial Intelligence Unit (FIU) Netherlands can't except your reporting of unusual transactions through their portal. You will have to go over yourself to your local police station. Try and explain them how you flagged a crypto transaction and want to report it..

Elliptic wallet check
Unlike fiat money, digital currency can be tracked and scanned for unusual transactions. For example by the Elliptic tool.

 

Holding startups back..

The current situation is holding startups as that of our members back. For example Kai, Founder and Chief Strategy at Blockport.io states it like this:

"At Blockport we are on a mission to build an user-friendly crypto exchange that bridges the traditional world of finance with the new digital economy of blockchain and cryptocurrencies. Early in 2018 we launched our ICO and sold out within 12 minutes, raising around 12 million euros. Now we have a team of over 30 people with our headquarters in Amsterdam. The crypto world makes it possible to launch your startup with lighting speed, but unfortunately, the Dutch banking- and payment industries are very conservative in their attitude towards us. We hope the Dutch government soon realises the potential of this online revolution. The next step for them would be to provide a clear framework that acts as guidance for both cryptocurrency companies as Blockport, as well as financial institutions, to stimulate collaboration in this new industry."

And Blockport is not alone. We have spoken to several startups that encounter issues when dealing with banks and regulators as legislation currently leaves them in limbo. These companies don't want a wild west situation as the crypto world is now seen. They want to same rights and opportunities as other companies and startups have.

How to move forward?

As the DSA we aim for start- and scale-ups to make their ICO possible in The Netherlands. We should not force our innovators to start companies in other countries, paying taxes somewhere else, building their networks out of our reach and making it impossible for them to report possible illegal transactions.

It is possible to create good standards for this new industry. For example the Swiss Financial Market Supervisory Authority FINMA sets out how it intends to apply financial market legislation in handling enquiries from ICO organisers.

We are setting out to form a partnership on getting favorable legislation for crypto companies. If you are interested in the subject or a startup doing an ICO, please reach out to us so we can share your experience where it matters.

Files