By: Vlad Centea, Co-founder of Morfin.io
Photo: Serge Deuces
I had never expected this. Me, alone in a room with the people from Commission de Surveillance du Secteur Financier (CSSF). All of them on one side of the table and me on the other. At our offices, not theirs…
Let me back up a little. Morfin.io is a member of the Luxembourg House of Financial Technology (LHoFT) — an initiative that does exactly what you would expect, offering support to the financial services sector (innovation and tech-wise). It’s a public/private affair that lends a great deal of support to its members, in one of the most positive and relaxed environments I have met in this industry so far.
Two weeks ago Emilie Allaert , Head of Operations and Projects from LHoFT sends me a heads up that the local regulators want to have a one-on-one meeting with Morfin.io. „They will come over to your offices on Thursday so make sure you’re there early”, she tells me.
I oversee the regulation side of Morfin and I know an official visit from regulators is more of a grilling than a barbecue.
All I could do until Thursday was to review again our compliance manual, especially the crypto part and to make sure I can cover any possible question on AML and KYC. In all my 12 years working in the financial sector in Luxembourg (for big banks), I learned CSSF instills some fear in the hearts of CEOs. It was my turn on the grill now and my biggest worry was that I had to explain crypto in the most traditional manner possible and create that bridge of understanding between the community and the institutions. Can crypto dress nicely and wear a three-piece suit? Does blockchain really HAVE to wear a tie in order to impress some government agents or will they understand its true, quirky and geekish personality?
Forget about the tie and the three piece suit and let’s have an honest conversation
I make sure I am early. They are early too and ready to start. They are waiting for me in the meeting room. For some reason, I could already imagine myself in a dark room, with a bright spotlight in my face, answering rapid-fire questions and shouting with my last breath “You don’t understand, I will never betray crypto”. Nerves make me a bit overly dramatic. I enter the office and it’s just as cozy as I remember it. No, they didn’t install a grilling table, they are not frowning over their papers and ours and yes, they are friendly, relaxed, real human beings capable of smiling back and shaking your hand candidly.
The conversation had some informal flavor to it. They had notepads and took notes all the time. But their curiosity was genuine. They didn’t seem to follow a script or a line of questioning. They had just a broad agenda which they disclosed from the beginning — they wanted to understand what we do and who the people behind the project were. They asked what services we provide and followed up with questions until it was clear how exactly we plan to provide it. Their questions were valid and it was obvious they had a good understanding of blockchain and crypto. The focus was always moving towards customer protection rather than their potential criminal activities. Everything revolved around the means to protect customers’ money, rather than AML and KYC procedures. In many ways, it was reassuring. These were people who understood that so many crypto users, honest participants to the ecosystems, have been scammed out of their money or lost savings due to attacks on exchanges that acted as custodians for their funds. This is where they drilled into details. They wanted to know how we store the funds in the cold wallets and challenged me with different scenarios.
They wanted to know details about the cold wallet technology, if is multi-signature, how many people in the company will have access and which would be the procedures, how we would react if an employee go rogue, how much of the total funds will be in the cold wallet if we plan to insure the crypto funds somehow, and so on… They also wanted to understand our business model and how we differentiate from exchanges.
I explained that we see Morfin.io as a personal finance manager application rather than an exchange application. We are a platform with the crypto USERS in mind and secondly for the crypto traders. Another main differentiator is that we go in the direction of decentralization and peer to peer services rather than pushing towards our customers our own financial products.
Here are the conclusions of my first encounter with the regulators:
- Genuinely supportive
Yes, Luxembourg is amazing with helping local businesses rather than shutting them down. In this industry, you can expect grilling and you are definitely prepared to answer harsh, long questionings. Yet you are human and no matter your level of experience, you will be at your best when the people on the other side of the table are friendly and treat you fairly. They proved o be advocates for fintech and I appreciated their effort to connect with blockchain and crypto.
- Knowledge on the technology
They are confident in engaging discussions about crypto and blockchain and have a good understanding of the field. The law allowing issuing of securities on blockchain passed this year in the Parliament and this confirms again that all branches of Government embrace the new.
Yes, they are overwhelmed with requests for licensing and the process of applying for a license may take a long time. There is no regulatory sandbox in Luxembourg to allow startups to kickstart a business and run an MVP.
- Priorities on their agenda
They have an amazingly practical approach towards FinTech. They were client-oriented in every possible way and their main priority was “how do we safeguard customer funds?”. This tells us two things about the priorities of CSSF: they take blockchain companies seriously and are ready to support them. It’s not about the law vs crypto anymore, it’s about a well-tuned featuring. They are doing their jobs making sure customers are protected and have a healthy list of priorities.
- Why am I talking about this?
Because my general feeling is that we are at the end of an era. You might have felt it too. The wild west of cryptocurrency is getting civilized and there are plenty of perks coming our way. Yes, crypto is still the rebel of the pack, but it has a good cause and institutions, especially in Europe, tend to harbor that. And I think this is what we were waiting for — to get closer to the center of the economy instead of staying at the fringes.
If you’re interested to see step by step how to create a crypto banking platform from scratch and have a good look under the hood, follow us on tweeter Morfin Blockchain Banking and on Medium. Since we are committed to transparency we are going to share with the community all the details of our journey.