In our experience, limited up-front funding and difficulties with identifying a vast range of regulations in numerous jurisdictions make compliance especially challenging for crypto businesses. Non-compliance can jeopardise a crypto project, and have serious implications for its founders and team.
Knowing how to prioritise a vast range of regulatory considerations is key, combined with an overall understanding of the policy approach countries are taking.
Inspired by the World Bank’s ‘Easy of Doing Business’ rankings, Lupercal is among the first to pioneer a comprehensive database on cryptocurrency regulation. Our Crypto RDB provides you with the tools you need to cost-effectively identify regulatory considerations, and prioritise where action is required.
This article explains why using regulatory databases can be the best approach to regulatory risk management for small to medium-sized crypto businesses, early-stage ICO projects, and to keep on-top of rapid regulatory developments.
The cryptocurrency industry is experiencing an extraordinary period of growth. The price of many cryptocurrencies is at all time highs, and more and more entities are looking to run an Initial Coin Offering or Token Generation Event (which we’ll collectively refer to as an ICO in this article).
The ICO boom has attracted the attention of regulators around the world — including recent cautionary messages from the US SEC.
Regulation of the Cryptocurrency Industry
Complying with regulation is becoming increasingly important consideration for all cryptocurrency businesses, as there is an increasingly real risk that regulatory investigations could be just around the corner.
Being non-compliant could carry significant penalties that, in extreme cases, can put an end to a crypto business.
Most attention so far has been focused on ICOs, but regulation has a significant impact all types of crypto business: post-ICO projects, cryptocurrency exchanges, and entities looking to adopt cryptocurrency into their existing business. Despite the early days image of crypto thinking of itself as outside the law, failing to comply with any regulations is not a commercially-viable option.
Regulation’s Market Impact
Regulation continues to have an extremely significant impact on the market, as highlighted recently by the rapid panic-selling following the 11 January South Korean proposals to ban crypto exchanges. Successful ICOs have a keen understanding of optimising their platform in the crypto market — staying up to date with regulatory changes is key to doing this.
The Regulatory Problem for Crypto Businesses
Crypto businesses typically operate internationally. Usually, as businesses grow, so does their international reach — they may start in South Korea and, as their revenue grows, gradually expand their supply chain to include China and Malaysia, or their sales to Japan and Singapore, for example. This means that they can prioritise what regulatory advice is needed as their business develops.
The international nature of crypto businesses doesn’t give them this luxury. They often have to consider all jurisdictions’ laws at once (potentially before any revenue has been raised). This can be overwhelmingly complex, and potentially very expensive.
Why is it so Difficult?
It is widely known in the industry that the US approach to securities law for ICOs can be problematic. And that China’s approach to crypto regulations generally can make it difficult to operate it. And that anti-money laundering regulations are important to consider.
But this is just the tip of the regulatory iceberg. What are the securities law considerations in the UK? Or the EU? Or Hong Kong? Or Australia?
If the tokens aren’t securities, do other financial/corporations law regulations apply?
Are there options for protecting intellectual property?
What consumer law considerations could come into play?
And what is the general approach of a country’s governments —this policy approach will likely inform the regulations of the future.
The answer in one country may be completely different in another country. The risks of not addressing certain regulations can vary dramatically. And to make matters worse, most countries have yet to issue public guidance on how they will apply existing regulations to cryptocurrency.
The Answer — Regulatory Databases
The key to successfully managing regulatory risks is knowledge and prioritisation.
For smaller projects, engaging specialised advisors to address all potential regulatory issues can be costly and potentially unnecessary. But missing particular issues can have major consequences for the project’s future.
Regulatory databases — like Lupercal’s CryptoRDB — provide the tools crypto businesses/ICOs need to help identify:
- a check-list of key regulatory considerations;
- an outline of what regulatory issues could arise;
- which jurisdictions are easier and harder to carry out crypto projects in (and which jurisdictions to avoid);
- the policy approach of governments (long-term) and regulators (short term).
Regulatory databases therefore provide you with the tools you need to identify when advice may be required, to cost-effectively oversee certain regulatory issues in-house, or to go to advisors with a better understanding of what’s needed.
Check our Lupercal Capital’s CryptoRDB — the world’s leading database for cryptocurrency regulation.
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