It should be no surprise that the establishment of the backbone for a cryptocurrency or blockchain business (legal entity, banking, payments solutions, licenses, etc.) is not as straightforward as it is for an e-commerce business, for example. In this post, we will explore the reasons for this phenomenon, the available options for obtaining a bank account as a crypto business, and the ways in which Nexpay is providing essential infrastructure and support to this rapidly evolving industry, whose true value and potential are currently only partially understood.
There are only a small number of jurisdictions worldwide that regulate crypto businesses and offer a legal framework for their operation within a defined scope, despite their rapid expansion. For instance, Estonia and Lithuania have implemented regulations that are exceedingly transparent, which facilitate the establishment of cryptocurrency businesses within those jurisdictions. Other jurisdictions, including the United Kingdom, Liechtenstein, Switzerland, Gibraltar, and a few others, have also implemented a variety of crypto licenses in response to the increasing adoption of the AML 5 directive in Europe.
Traditional banking institutions are slow to adapt to new regulations
The majority of conventional banks immediately avoid the term “bitcoin” and diligently inform you that they are unable to establish an account for you as a result of internal policies. Or, in the most extreme case, they establish a bank account, only to inform you after a period of time that it has been suspended and that you have 14 days to withdraw funds. However, it is not entirely unexpected that the risks associated with serving crypto businesses are not worth risking the substantial existing business for traditional banks, given the amount of negative media surrounding cryptos and blockchain and the potential for money launderers to use it for their operations. The establishment of legal frameworks for the operation of crypto and virtual asset businesses is undoubtedly aiding financial institutions in their transition to the new financial landscape. However, the fact that Estonia, a location where a significant number of crypto businesses are establishing operations, has only one bank (LHV) that is somewhat crypto-friendly, demonstrates the sluggish pace of change. Large financial institutions are lagging behind in the adoption of this new finance world, despite the fact that regulation in Europe is beginning to catch up and establish clear guidelines regarding the regulatory framework and KYC/AML.
Nevertheless, this has generated an opportunity for innovative upstarts such as Nexpay to intervene and assist businesses in need with their banking needs, thereby enabling them to conduct their business. While adhering to all government and AML/KYC regulations, we are capable of providing superior service to crypto enterprises in comparison to traditional banks.
First-hand experience with cryptocurrencies is extremely important for providing financial services to the industry
Our founding team at Nexpay has direct experience in the development of a crypto business and comprehends the implications of operating in this sector. This enables us to gain a comprehensive understanding of our customers and their enterprises. We have obtained an e-money license from the Central Bank of Lithuania through Nexpay. The central bank of Lithuania directly holds the client funds, which is one of the primary advantages of a Lithuanian license. Our unique position is derived from our firsthand experience with the operation of a crypto business, which enables us to offer a highly secure environment for our clients to store their funds and conduct transactions with their clients and partners.
The most challenging aspect of opening a bank account for a crypto enterprise is ensuring that all necessary documents and compliance procedures are in order. The cryptocurrency industry continues to be subjected to heightened regulatory scrutiny, which is why the majority of conventional financial institutions are unwilling to establish accounts for any business that is associated with cryptocurrency. It is intriguing to observe that a significant number of our crypto clients have already implemented systems and processes to ensure that they are adhering to the highest standards of KYC and AML. Nevertheless, the majority of traditional banks either lack understanding or have been slow to adapt, despite the apparent positive trend.
At Nexpay, we have adopted the opposite strategy and have allocated the necessary time and resources to establish a rapport with organizations that are typically classified as “high risk.” Before onboarding a company, we ensure that we have gathered all the requisite documentation and information about the business to ensure that the account remains open. The most critical aspect of this situation is the complete disclosure of the anticipated flow of funds and the current or intended business model. We possess a comprehensive understanding of the client’s business and can ensure that our interests are in alignment, as we have previously operated a crypto business. Certainly, there are no assurances that sustained collaboration will be possible, as ongoing client surveillance is essential for ensuring that suspicious behavior is appropriately addressed.
Understanding how to navigate the high-risk segment
Essentially, we, as your prospective banking partner, must be aware of and comprehend your business model and operations, the individuals who are responsible for the business, the methods by which the funds were obtained to establish and operate the business, the counterparties you have, and the methods you employ to ensure that your compliance and security processes meet regulatory requirements and our standards. Ensuring that this information is provided expedites the process of opening an account and guarantees that the account operates smoothly after it is opened. We, as your banking partner, are also interested in ensuring that the regulatory requirements are not only adhered to in writing but also implemented in practice throughout the organization.
If you are contemplating the establishment of a crypto business or are currently operating one and are seeking to establish a bank account, the following are the primary obstacles that we typically encounter when initiating the account opening process:
- The jurisdiction in which your organization is registered and whether it necessitates a crypto license.
For instance, even if an offshore company is licensed, the majority of financial institutions will not accept it. Therefore, it is important to take into account the jurisdiction and how it will affect the service providers you will require to operate your crypto business when establishing it. In our experience, integrating companies that are registered in the EU, particularly Estonia, is the most straightforward process due to the fact that the AML regulations are transparent and a significant amount of the requisite information, such as the Articles of Association, certificates, and license information, is publicly accessible. The AML 5th directive has resulted in a degree of regulation for the crypto exchange industry in the majority of EU countries. Consequently, it is inevitable that regulation will be implemented in all countries. Ensure that you are aware of the regulatory framework in your jurisdiction when establishing an account, as no one will open an account for a regulated business without a license. - Document translation and notarization
Documentation regarding the organization and its shareholders is necessary, as is the case with any financial institution. The fact that those documents must be presented in a manner that is acceptable to the financial institution’s jurisdiction is frequently disregarded. For instance, in the case of Nexpay, which is subject to regulation by the Central Bank of Lithuania, a significant number of the documents must be translated into English, notarized, and apostilled to ensure their validity. - Making it difficult to comprehend the structure of your business
We understand that corporate structures are occasionally complex and contain numerous strata. The most effective method of guaranteeing a seamless onboarding experience is to assist the onboarding team in comprehending the operations of your business. What is the source of the money, where does it travel, and where is it subsequently transferred? It is incumbent upon us, as a financial institution, to comprehend your business from both a regulatory and product and service perspective. Frequently, the delay in establishing an account is due to our inability to comprehend the fundamental nature of your business. In the event of a multilayer corporate structure, the supporting documentation for the group companies must frequently be notarized, apostilled, or legalized to ensure their validity. - Improved due diligence
Due to the fact that crypto/virtual currencies are regarded as a higher risk, banks are required to conduct Enhanced Due Diligence (EDD) in accordance with AML laws. The primary requirement is to comprehend the source of funds and wealth for the company and its Ultimate Beneficial Owners (UBOs). The collection and examination of all documents pertaining to the company’s source of funds or its UBOs/UBOs are necessary. This is a legal requirement in all European countries under AML law. A component of the EDD process is the examination of your organization’s procedures for the collection and management of client data. It is crucial to observe that the organization has implemented procedures to identify potential risks associated with money laundering and terrorist financing and that these procedures have been carefully implemented by the AML directives. - Lacking an adequate level of compliance
AML and fraud risks are inherent in the services that the majority of crypto businesses offer, which are analogous to financial services. Our clients are required to maintain a specific level of compliance. We will be unable to provide you with the services you require unless you have a professional compliance officer, a comprehensive AML policy and its corresponding procedures, and software for ID verification, transaction monitoring, and blockchain monitoring. Preparing for a license will significantly advance you toward that status; however, our experience indicates that gaps frequently persist even after the license has been obtained. It is crucial that these procedures are not only documented but also implemented in practice. - Providing ambiguous responses to compliance forms and inquiries
Open an account with greater ease and speed by providing additional information regarding your business and operations. Occasionally, we observe clients who are ambiguous in their descriptions of the flow of funds, account opening, and other matters. This will merely necessitate additional back-and-forth until we have a comprehensive understanding of the situation.
Who can set up a crypto-friendly IBAN account with Nexpay?
We would be delighted to accommodate all of our customers’ banking requirements; however, this does not necessarily entail that we can establish an IBAN account for each individual who requests this service. For instance, we will be unable to create an account for you unless you have a license in order to operate a crypto exchange in your jurisdiction. Of course, we can establish an account with specific restrictions to facilitate transactions such as the payment of share capital. However, if you wish to begin accepting customer funds, we would require access to the license information.
Final thoughts
Opening a bank account that is fully compliant for a high-risk industry company is undoubtedly not a five-minute task, despite the claims of some companies. However, the process does not have to be excessively lengthy. Typically, we observe that it is feasible to establish an account within a few days, provided that all necessary documents are submitted. However, the process typically requires a slight extension of time due to the fact that certain documents must be notarized, apostilled, or translated prior to submission. Our team is always available to provide assistance with any inquiries that may arise, and it is crucial that we maintain open lines of communication with our clients. Beginning with a solid foundation is crucial, as our ultimate objective is to serve as your business partner for an extended period.