Proving Crypto Exchange Credibility Is Harder Than Proving Payment System Credibility

Written by Serhii Mokhniev

For a crypto exchange, applying for a license is important for proving its credibility and transparency to customers, financial partners, and regulators. Usually, the licensing process requires transforming and enhancing numerous internal processes and practices, including AML/KYC procedures, funds safeguarding practices, corporate governance, and cybersecurity standards. Considering the riskiness of the crypto business, we have to be ready to show more of our inside kitchen than any other business.

For example, in case of meeting the DLT license principles (introduced by the Gibraltar Financial Services Commission as of January 1, 2018) crypto exchange proves to the customers and partners that a company is a mature player and runs a reliable business. If you’re a blockchain company, to prove the credibility of your operations you need to be prepared to answer more questions than, for instance, any fiat payment system.

First of all, an exchange has to be ready to apply for the license by holding an internal document audit regarding processes for countering financial crimes and eliminating fraud as well as strengthening cybersecurity, corporate governance, risk management, and conflict of interest management. In addition, an exchange has to update internal standards for personal data protection to align with GDPR. A crypto exchange should be able to show a budget forecast, complaints handling practices, disclose any outsourcing arrangements, adhere to anti-bribery rules, develop robust fraud prevention policy, business continuity and disaster recovery plans, demonstrate high corporate governance standards, disclose beneficiary information, and more materials to prove its credibility.

To get a license as a crypto business, you have to spend much more effort, human resources, time, and money than with any classic business, for example, a payment system. This is because the financial sector has already gained its reputation while blockchain businesses still have a lot to prove in order to change the perception.

One of the most efficient, but obvious ways to increase credibility for a crypto exchange is to go above and beyond customers’ and regulator’s expectations: leverage customer experience during the onboarding process applying RegTech solutions, provide state-of-art UX, ensure highest standards of cybersecurity, secure professional indemnity insurance, etc. By doing a bit more than required, a crypto business takes a great step toward future credibility, when any license for a blockchain company will be more secure than any license in a traditional sector.

Serhii Mokhniev, CAMS, Regulatory Affairs Counsel at CEX.IO. In recent years, Serhii has been dedicated completely to studying regulatory approaches to virtual currency exchanges in the world, as well as money laundering techniques involving virtual currency.