Author: Uldis Teraudkalns, CEO of Nexpay
If you’re a cryptocurrency or blockchain business, it should come as no surprise that setting up the backbone for your business (legal entity, banking, payments solutions, licenses etc ) is not quite as straightforward as let’s say an ecommerce business. In this post, We’ll break down why this is the case, and what are the options to get a bank account if you’re a crypto business and how with Nexpay by Globitex, we’re providing crucial infrastructure and support for this quickly developing industry, whose true value and potential only few understand today.
There’s only a handful (even though rapidly expanding) jurisdictions in the world that regulate crypto businesses and provide a legal framework to operate such a business within a clear scope. For example, countries like Estonia and Lithuania have already come out with quite clear regulations that help crypto businesses easily set up their operations in those jurisdictions. With the AML 5 directive being adopted by more and more countries in Europe, other jurisdictions like the UK, Liechtenstein, Switzerland, Gibraltar and a few others have also introduced various types of crypto licenses.
One of the key challenges that we see companies that operate in the crypto space face, is getting and maintaining a bank account so they can pay their employees, suppliers and serve customers.
Most of the traditional banks shy away as soon as they see the word “bitcoin” and diligently inform you that they’re not able to open an account for you due to internal policies. Or in a worse case scenario, they do open a bank account and then after some time you’re suddenly informed that your account has been frozen and you have 14 days to withdraw money from your account. At the same time it’s not perhaps that surprising, that considering the amount of negative media around cryptos and blockchain and how money launderers can potentially use it for their operations, that the risks involved with serving crypto businesses are not worth risking the substantial existing business for traditional banks. The introduction of legal frameworks around operating crypto and virtual asset businesses is ofcourse helping financial institutions to adapt to this world of new finance. But considering that even in places like Estonia where a lot of crypto businesses are choosing to setup their operations, there’s only one bank (LHV) that’s somewhat crypto friendly, shows how slow change is to happen. Despite the fact that regulation across Europe is starting to catch up and provide clear guidelines in terms of KYC/AML and regulatory framework, large financial institutions are extremely slow to catch up to this world of new finance.
This however, has created an opportunity for innovative upstarts like Nexpay, to step in and help out those businesses in need with their banking requirements, so they can go about their business. While following all AML/KYC and government regulations, we’re able to serve crypto businesses better than traditional banks.
Here at Nexpay, our founding team had first-hand experience with building a crypto business and understands what operating in that space means. This helps us to truly understand our customers and their businesses. With Nexpay, we’ve acquired an e-money license with the Central bank of Lithuania. One of the main benefits of a Lithuanian license is that the client funds are held directly by the central bank of Lithuania. Having first-hand past experience with running a crypto business, it puts us in a unique position, where we can provide a highly secure environment for our clients to store their funds and transact with their clients and partners.
By today, over 300 businesses have opened an IBAN account with Nexpay and we wanted to share some learnings on what a crypto business should expect and plan for, when thinking of opening a bank account.
The hardest part about opening a bank account for a crypto business, is making sure that all the documents and compliance procedures are in order when opening an account. Due to the fact that the cryptocurrency industry still faces higher levels of scrutiny from regulators, most of the traditional banking institutions simply refuse to open accounts for any business that’s associated with crypto. Interestingly enough, we see that a lot of our crypto clients already have systems and processes in place to make sure that they’re doing KYC and AML to the highest standards, however for some reason most of the traditional banks either don’t get it or have just been slow to adapt, although the trend is going in a positive direction it seems.
At Nexpay we’ve taken the opposite approach and we have invested the time and money to be comfortable working with companies that would normally be labelled “high risk”. When starting to onboard a company, we make sure to collect the necessary documentation and information about the business so we can be confident that when we open an account, it stays open. Critical aspect here is full disclosure of the current or intended business model and expected flow of funds. Having run a crypto business ourselves, we are able to understand the clients business well and make sure that our interests are aligned. Of course, there are no guarantees for sustained collaboration as ongoing client monitoring helps us ensure that suspicious behaviour is appropriately addressed.
On a high level, we, as your future banking partner need to know and understand your business model and how the business operates, who are the people behind the business, how were the funds to open and run the business acquired, who are your counterparties and how do you ensure that your compliance and security processes are up to regulatory requirements and our standards. Providing this information helps to open an account fast as well as to ensure smooth account operation after opening. As your banking partner, we also want to see that the regulatory requirements are not only adhered to on paper but have also been implemented in practice throughout the organisation.
If you’re thinking of starting a crypto business or are already running one and are looking to open a bank account, Here’s what we typically see as being key showstoppers when starting to open an account:
Where your company is registered and whether your business requires a crypto license.
For example most financial institutions won’t onboard an offshore company, even if its licensed. So when setting up your crypto business, it’s worthwhile to consider the jurisdiction and how that will also impact the service providers who you will need for operating the business. In our experience, onboarding companies that are registered in the EU, especially Estonia is the easiest because the AML rules are clear and a lot of the necessary information like Articles of Association, certificates, license information is publicly available. Crypto exchange business is regulated to some extent in most of the EU countries due to AML 5th directive, which means that eventually it will be regulated in all countries. When setting up, make sure you are informed about the regime in your jurisdiction as no one will open an account for a regulated business without a license.
Translation and notarization of documents
As any financial institution, we need to collect documents about the business and its shareholders. What oftentimes gets overlooked is that those documents need to be presented in a way that’s acceptable to the jurisdiction of the financial institution. This means that for example in the case of Nexpay, which is regulated by the Central Bank of Lithuania, many of the documents need to be translated into English and notarized as well as apostilled in order to provide sufficient proof of the validity of the documents.
Making it complex to understand your business structure
We get that sometimes corporate structures are not simple and there’s many layers. The best way to ensure a smooth onboarding experience is helping the onboarding team understand how your business operates. Where does the money come from, where it gets sent, where is it further transferred etc. As a financial institution, it’s our responsibility to understand your business both in order to be able to provide a great product and service as well as from a regulatory standpoint. Usually when account opening is delayed, it’s because it’s hard for us to understand your underlying business. As a side note, in case of multilayer corporate structure, the supporting documentation for the group companies needs to be oftentime notarized/apostilled/legalised in order for them to be valid.
Enhanced Due diligence
As crypto/virtual currencies are considered higher risk, this means that due to AML laws banks have to do Enhanced Due Diligence (EDD). Main requirement is to understand source of funds and source of wealth for the company and its Ultimate Beneficial Owners (UBO’s). All of the documents related to source of funds for the company or its UBO’s/UBO need to be collected and reviewed. This is a legal requirement by AML law among all European countries. Part of EDD process is actually checking also your company’s processes when it comes to how your company collects and manages client data. It’s important to see that the company has processes in place to identify risks around potential money laundering and terrorist financing and that those processes have been put well in place in line with the AML directives.
Having insufficient level of compliance
Most crypto businesses are providing a service which is similar to financial services and has inherent AML and fraud risks. We require our clients to have a certain level of compliance. We will not be able to serve you if you don't have a comprehensive AML policy and respective procedures, a professional compliance officer, software for ID verification, transaction monitoring and blockchain monitoring. Preparing to get a license will get you a long way to get to that level, but our experience shows that often there are gaps even after the license has been acquired. It’s not just important that these processes have been put in place on paper but also applied in practice and can be supported by documentation.
Being vague in responses to compliance forms and questions
The more details you share about your business and operations, the easier and faster it is to open an account. Sometimes we see clients being vague in their descriptions for account opening purposes, flow of funds etc. This will only mean that we have to go back-n-forth more until we have a good understanding of what’s going on.
While we’d love to be able to serve everyone and their banking needs, it doesn’t necessarily mean that we can open an IBAN account for anyone that would like one. For example, if you’re starting a crypto exchange and your jurisdiction requires a license to operate that exchange, we won’t be able to open an account for you unless you have a license. We can of course open an account with certain limits to do things like paying in share capital, however if you’d like to start accepting customers’ money, we’d need to see the license information.
Opening a bank account that’s fully compliant for a high-risk industry company is definitely not a 5 minute task, despite what some companies might claim, however it doesn’t also have to be too long of a process. Usually we see that it’s quite realistic to have an account opened in a few days provided that you’re able to submit all the documents. Normally it takes a little longer though as some documents need to be notarized/apostilled or translated before they can be submitted. Our team is of course happy to help answer any questions along the way and it’s important that there’s open communication between us and our clients. In the end of the day, we’re aiming to be your business partner for many years to come, so starting off on a strong foundation is key.
If you and your business are ready to get started with setting up an IBAN account, then getting started is quite easy and our team is happy to help you along the way. First thing to do is to start the signup process on paynexpay.com and to fill out the information about the business (name, website, jurisdiction etc) as well as the information about the legal representative of the business (normally that’s the director of the company). Then you should do ID verification where a selfie is taken as well as the pictures of a valid government ID (such as passport or ID card). Once these steps are done, our onboarding team reviews the submitted information and let’s you know directly what documents and information is required in order to finalise the account opening. Usually gathering the necessary documents and information is where the bulk of the time is spent. We recommend asking us in case there’s anything that’s confusing and our onboarding team will be happy to explain things in more detail.
We hope that’s helpful and will make your journey of opening and operating an account for your business a little bit easier.
We’re excited to announce that we have partnered with Ondato, to run all KYC, AML, and e-signature processes through Ondato’s compliance management platforms. We will gain an increase in security and usability for our customers while Ondato continues to show that its compliance platforms are suitable to the most demanding use cases...