​MiCA will protect investors by increasing transparency and putting in place a comprehensive framework for issuers and service providers including compliance with the anti-money laundering rules. The new rules cover issuers of utility tokens, asset referenced tokens and so-called ‘stablecoins’. It also covers service providers such as trading venues and the wallets where crypto-assets are held. This regulatory framework aims to protect investors, preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector.

It also introduces a harmonized regulatory framework in the European Union which, given the global nature of crypto markets, is an improvement compared to the current situation with national legislation in some member states only.

This article is co-authored by Susan O’Neill of SuLu Solutions and Peter Oakes of Fintech Ireland*.

17 July 2023 - find New Version of this Registered Virtual Asset Service Providers Map, V 2.0 HERE

[Updated on 12 April 2023 to add Kraken to the article which appear on the VASP register today]

Ireland has a small number of registered Virtual Asset Service Providers (VASPs). In Ireland it is a criminal offence to carry on the business of a VASP in the absence of registration from the Central Bank of Ireland (CBI). VASPs came within the scope of Ireland’s Anti-Money Laundering (AML)/Countering Financing of Terrorism (CFT) legislation in April 2021.  As per the CBI Anti-Money Laundering Bulletin issued on 8 July 2022 (CBI AML Bulletin), “In the intervening period, a significant number of firms have applied to the Central Bank for registration.”

If a significant number of firms have applied to be registered as VASPs – the question arises as to: “Why, 2 years later, Ireland has issued only six (6) VASPs?” This begs further questions: Is Ireland behind the curve compared to its international peers? Are the firms applying in Ireland sufficiently resourced to become VASPs? How do we, more specifically, compare to our neighbours in the UK?
​

​Of the six (6) registered VASPs –two of the registrations are held by Coinbase. The UK has 41 cryptoasset firms registered with the Financial Conduct Authority (FCA). The FCA also have a list of 82 unregistered cryptoasset businesses (as at 31 March 2023), down from close to 250 during 2022, but perhaps this is a topic that deserves an article all of its own!

The UK’s population is 13 times larger than that of Ireland (UK 67.33mn versus Ireland 5.033mn according to World Bank, Eurostat 2021 figures). Accordingly, the UK has one registered cryptoasset firm for every 1.64mn persons.  Whereas for Ireland it is one crypto firm for every 838,833 persons.  By that comparison, Ireland has more crypto firms per head of population than the UK. Based on those numbers Ireland is not only holding its own vis-à-vis the UK, it is exceeding it by a large margin.  If Ireland registered say another 9 VASPs (to get it to 15 VASPs) it would have one cryptoasset firm for every 335,500 persons. Is this something that policymakers, the government and the CBI take into account as part of their respective cryptoasset strategies? 

The CBI AML Bulletin noted the following “In its assessments of applications for registration as a VASP, the Central Bank has identified significant and widespread weaknesses in the proposed risk and control frameworks of the vast majority of applicants. These weaknesses are such that the Central Bank is not satisfied that firms will have the necessary and appropriate controls in place to effectively manage and mitigate the ML/TF risk to the firm, the sector and society.”


Widespread weaknesses in “the vast majority of applicants” does not inspire confidence in the future of VASP applicants in Ireland. However, it is relevant to note that the FCA too has, as recently as 22 March 2023, criticised the quality of cryptoasset applications received by it, particular in areas relating to business plans, comprehensive description of products and services, risk assessment, risk management, policies, systems & controls, Transaction monitoring and blockchain analysis coverage, Group structure and reliance on group policies and procedures, Outsourcing, Training, Suspicious Activity Reporting and regulatory disclosures.  The FCA reminded crypto asset firms of its concerns on 5 April 2023 (see below).

​So, what can be done to support applicants, and thereby improve applications? There is no doubt that the crypto industry is going through the growing pains of a market that needs regulation, but regulation needs to put the guard rails in place to support its users, while also ensuring it does not stifle innovation. There is a very real opportunity here to ensure that Ireland is at the forefront of positive regulatory changes – Ireland could become a hub for the crypto ecosystem.  There are already a number of very large players based in Dublin.  In the same breath, the cryptoasset firms and VASPs referred to in this article are themselves not ‘regulated’ but are merely registered for the purposes of anti-money laundering and terrorist financing laws, i.e. VASPs and cryptoasset firms in Ireland and the UK are not authorised.  However some such firms have a separate authorisation, for example Archax, which is both a registered cryptoasset firm and a UK authorised investment services firm and multi-lateral trading facility, subject to extensive conduct and prudential rule books.  As the crypto industry continues to mature, expect to see numerous ‘digital asset’ firms seek to differentiate and distance themselves from the speculative trading and exchange-driven cryptoasset firms which are falling under evermore regulatory scrutiny such as Binance, Coinbase and Kraken and the failed FTX and Genesis Trading (both of which have filed for bankruptcy protection in the US).
​

​In order to address some of the concerns noted above, the European Union’s trailblazing Markets in Crypto-Assets (MiCA) Regulation is set to come into effect across all member states in 2024, but will it be enough? Dubai’s Virtual Asset Regulatory Authority is the world’s first independent regulator for virtual assets.  Dubai is fast becoming a hub for the crypto ecosystem. Could Ireland benefit from a similar initiative? This is highly unlikely as Ireland traditionally follows the EU’s lead on new financial services regulations and there has been nothing issued by the Department of Finance to suggest that this time is different.  In April 2022 the UK Government announced its plans to make the UK “a global cryptoasset technology hub”. The UK government intends to bring stablecoins into the regulatory perimeter and has launched a consultation on the country’s proposed central bank digital currency or ‘digital pound’ as it is called.  The UK also caught many in the industry unawares when on 31 January 2023, without warning, it published a consultation on the Future financial services regulatory regime for cryptoassets.
​

​So, who are the companies that have managed to obtain the elusive Irish VASP registration and what services are they registered to provide?

​The first registered VASP in Ireland was Gemini Intergalactic Europe Limited, registered on 19 July 2022 under its then name Gemini Digital Assets Limited. Next up was Zodia Custody Ireland Limited, registered on 29 July 2022, followed by both Coinbase Custody International Limited and Coinbase Europe Limited on 20 December 2022.  Paysafe Payment Solutions Limited joined these with a registration date of 19 January 2023.  The most recent VASP to appear on the CBI’s register is Payward Europe Solutions Limited (aka Kraken) whose registration appeared on 11 April 2023.

The services these VASPs are registered to provide is summarised in the table below.

​In recent months, many similarities have been drawn between the current crypto bear market and the dot com crash.  Many wrote off the collapse of US-based Silvergate Bank and Silicon Valley Bank as being completely different from previous financial crises.  However the failure of Credit Suisse - at one point in history the eighth-biggest publicly owned bank by market capitalisation - is making people wonder whether we are seeing the start of a financial crisis like that of 2008.  Increased regulatory scrutiny in the US continues to put pressure on the entire crypto market, regulators recently closed Signature Bank. Signature Bank and Silvergate Bank were widely used by crypto companies. With so much uncertainty there has never been a greater need for carefully considered regulation that will give crypto companies (and their banks) the clarity they need to operate in a compliant regulatory environment. There are many uphill battles ahead for the crypto ecosystem, only the strongest crypto firms will emerge successfully from this bear market. It will be interesting to see which VASP will appear next on the CBI’s register- watch this space!

​There was widespread reporting in Irish and international media about comments made by Gabriel Makhlouf, the Governor of the Central Bank of Ireland during his appearance before a committee of Dail Eireann (lower house) in the Oireachtas (Irish Parliament) earlier this year.  Reuters reported that Mr Makhlouf urged lawmakers on to ban the advertising of crypto assets targeted at young adults and likened crypto not linked to any underlying assets to a Ponzi scheme saying “Unbacked crypto is essentially a Ponzi scheme... People who put their money into unbacked crypo, and most of the significant stock of crypto out there is unbacked, they are essentially gambling.”  Coindesk headlined with “the Governor Gabriel Makhlouf said crypto has ‘no social value whatsoever’”.  Whereas Bloomberg wrote “Makhlouf ‘Very Concerned’ About Crypto”.  

​What did Governor Makhlouf actually say on 25 January this year?  You can read his comments before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach here, where ‘crypto’ received 50 mentions during the exchange with members of the Oireachtas, including:

​You can make up your own mind on Governor Makhlouf thinking on crypto, and by extension the CBI’s position on same.

On 5 April 2023, the UK FCA issued a letter to cryptoasset firms that market to UK consumers, including those based overseas to be aware that they will need to comply with the new UK financial promotions regime.  Set out in bold typeface the FCA warns the crypto industry that “The new UK financial promotions regime will apply to all firms making financial promotions of qualifying cryptoassets to UK consumers regardless of whether the firm is based overseas.”.  The letter issued by the FCA’s Val Smith (Head of Payments & Digital Assets, Authorisations) also reminded readers that financial promotions not falling under one of four permitted routes is a criminal offence punishable by up to 2 years imprisonment and/or a fine.  In the letter, the FCA reminded cryptoasset applicants that prior to submitting a registration application, they must ensure that they have provided all of the information requested in the application form.  The FCA also informed that in the two weeks following the 5 April letter, it will send cryptoasset firms a short on-line survey with questions about these firms’ UK businesses and their plans in response to the UK’s new financial promotions regime.  It looks like it will remain a busy time for cryptoasset and virtual asset services firms on the continent of Europe for the rest of 2023.
​

Enjoyed the article? Then please reach out to the Authors at their contact details below.

​About the Authors:

Susan O’Neill – CEO and Co-Founder of SuLu Solutions. Susan is a qualified accountant who has a wealth of expertise having held several senior management positions. SuLu solutions specialise in providing Fintechs with innovative digital asset strategy solutions that can help them stay ahead of the curve. Email [email protected].  Susan is on the Fintech Ireland Advisory Council.

Peter Oakes – Founder of Fintech Ireland and Fintech UK.  Peter is a board director of regulated MiFID, Emoney and Payments companies, and is an advisor to fintech and digital asset firms through international law firm Armstrong Teasdale and his specialist advisory business, CompliReg.  Email [email protected]

Maltese anti-money laundering regulators have fined cryptocurrency platforms Bequant Pro Ltd and Bequant Exchange Ltd nearly half a million euros in parallel actions that may herald stricter enforcement against virtual assets service providers, or VASPs, in Europe.

Inspections by Malta’s Financial Intelligence Analysis Unit, or FIAU, in 2021 identified egregious AML failures at both platforms, starting with inadequate assessments of customer- and business-related threats and a failure to conduct enhanced due diligence on high-risk clients, some of whom hailed from nations blacklisted by the Financial Action Task Force.

Bequant Pro and Bequant Exchange’s provision and management of digital wallets, tasks that often form the heart of a VASP’s business, proved just as problematic, according to FIAU, which disclosed the actions Thursday.

FIAU found that both platforms failed to vet the external parties with which their own clients sent and received cryptocurrency; failed to “determine whether the wallet being used … was a private or multi-signature wallet, or a custodial wallet;” and manually screened payments of more than €10,000 despite the high volume of ​such transactions.

Bequant Exchange neglected to verify the accuracy of the personal information submitted by 44 percent of the platform’s customers, and both companies failed to collect sufficient records on the source of their funds and the nature of their anticipated financial activity.

In one case, the only information that Bequant Exchange had on hand to identify a customer’s line of business and assess risk was a bank statement with a balance, precluding the company from monitoring his or her transactions effectively.

Malta’s enforcement actions against Bequant not only represent the first against VASPs in Malta, they also mark a turning point in Europe, where AML supervision of the sector is still in its infancy and penalties are few and far between.

French regulators withdrew Paris-based platform BYKEP’s permission to operate (https://www.moneylaundering.com/news/french-regulators-issue-first-ban-oncryptocurrency-platform/?) in September in response to “serious” AML failures, and German supervisors separately ordered fining U.S. cryptocurrency exchange Coinbase to strengthen internal governance, a broad concept that includes AML controls.

​The following month, Lithuania’s primary AML regulator fined two platforms, Alteway and Decentralized, and announced plans to conduct a round of targeted inspections after finding that 90 percent of the 195 VASPs they had examined by that point had yet to report a single suspicious transaction.

Those inspections have already resulted in still-undisclosed penalties, but on a much smaller scale than those assessed in Malta, Alexandre Pinot, a founder of Amlyze, an AML firm in Vilnius, told moneylaundering.com. “Fines of this amount are still exceptional in Europe, but the tide is clearly turning,” ​Pinot said.

That same tide of enforcement applies to other categories of violations as well.

The Dutch central bank levied the largest regulatory penalty against a cryptocurrency platform in Europe last month, fining Coinbase €3.3 million for offering services in the Netherlands without permission.

European supervisors have moved from theory to practice in assessing whether cryptocurrency platforms have fulfilled their earlier pledge to build effective AML programs, said Peter Oakes, former director of AML enforcement at the Central Bank of Ireland.

“The promise to act in good faith is no longer enough,” said Oakes, now a consultant in Dublin. “Now supervisors are checking and politicians are pushing them to demonstrate they have oversight on this industry.”

​Contact Gabriel Vedrenne at [email protected]

Article in PDF here

Apparently, Ireland is one of the countries using Neobanking the most, with around 22% of Irish people using a digital-only bank according to an article appearing on the website of Seon Technologies.  It goes on to say that '[a]ccording to current population estimates, around 1,127,178 residents currently use Neobanking. Finder predicts this could increase to 34% by 2027.'  This is interesting because, Revolut said in July 2022 that it has 1.9million customers in Ireland.  

Beating Ireland to the top spot is Brazil at #1 with 43% of the population having a Neobank account followed by India in the #2 spot with 26% of Indians using a digital-only bank.

Seon Technologies, which used data from Finder, reported that around 356,553,704 of India's populatuion could be Neobank account holders, putting them in first place as the country that uses digital banking the most. Meanwhile according to current population estimate for Braziln at 91,719,000, digitization of its economy has been accelerated by both the pandemic and popular Neobanks seeing their client base grow exponentially (a bit of a cause and effect observation).  Brazil is also home to Latin America’s biggest Neobank, NuBank, which has over 48 million users.

In the BRICs, Neobanks appear to be offer their customers convenience, 24-hour support and often reduced costs as they help serve the unbanked and underbanked.

In January 2022, Finder released the above infographic on digital banking adoption in the UK. See Figure 2.

It reported at the time that about 1 in 4, in fact 27%, of Brits own a digital-only bank account. (1) It is hard to believe that the percentage has dropped in the period between January to July 2022; and (2) accordingly, why was the UK left off Finder's July 2022 update which showed that the top three spaces fell to Brazil, India and Ireland. At 27%, all things being equal, the UK at either the #2 (or #3) spot would have edged Ireland into 4th spot, right?

Looking at the above graphic, sourced from the links above, the United Kingdom is the clear leader when it comes to the amount of capital raised by Neobanks.  The collective total raised by UK Neobanks  Wise, Revolut, Monzo, Starling Bank and OakNorth ​(as shown above) equates to USD17.9million. It is probably worth noting that if the USD figures for UK Neobanks were converted from GBP to USD, then these figures might need to be revisited given the slump of GBP against the USD this year.

The US comes 2nd to the UK based on the above figures at $11.5mn, with Brazil and Germany in 3rd and 4th place at $3.9mn and $1.7mn respectively.

​Hats off to the Philippines, with around 13% of the population currently using Neobanks, Finder predicts (see link to source above) that by 2027 that figure will be around 33%, representing 33.3mn people. If correct that represents a 154% increase from 2022.  Mexico, in position #2 is expected to see a 141% increase from 2022 - meaning that by 2027, 41% of Mexican residents (51.6mn) will likely be using Neobanking.  Presently, it is estimated that 17% of people in Mexico currently hold a digital-only bank account.

No surprise to many of us in global fintech that Portugal makes the top 3 in this group.  Around 14% of the Portuguese population currently uses a Neobank, and an estimated 32% will use Neobanking services by 2027.  This indicates a 129% increase in Neobanking usage in the next five years.

​Check out Fintech Ireland's and CompliReg’s handy authorisation guides for e-money institutions and payment institutions at https://fintechireland.com/fintech-authorisations.html