London Summit 2018 will begin tomorrow, and Finance Magnates is finalizing its interview series with some of the event’s leading executives and speakers. The latest piece touches on the shifting world of payments, having recently undergone dramatic changes by Visa and MasterCard. This included their respective impact on ICOs and cryptocurrencies. Where does the industry go from here?
ECOMMPAY’s Regional Partner & Director, Michael C. G. Charalambides delves into the recent shakeup and elaborates on the situation at hand, as well as compliance requirements for EU banks and brokers. Is ESMA just getting started or will 2019 portend a more subdued approach to regulatory changes?
We recently reported that Master Card and Visa will soon restrict payment processing for ICOs and crypto firms. Can you elaborate on the situation as you know it?
If we use the Boston matrix as a framework within which payment schemes evaluate industries, ICOs and crypto firms are somewhere between a question mark and “problem child”. It’s not easy to determine the intentions of ICO shareholders, the ICO business operations or even whether the ICO investment will take off and actually materialise.
So essentially, the ICO market itself may be a trend of the past three years. It’s already undergoing fragmentation, which will later force the industry through a scrapping process, in which a big chunk of ICO players will be relegated to “junk”.
Therefore, until regulation with risk classification and dynamic scoring inherited from the 5th AML directive and common pool of EDD sourcing for the initial ICO UBOs is introduced, I believe that Visa and Mastercard have taken the correct approach.
If indeed all products of crypto investment fall under High-Risk definitions in the credit cards’ view, what are the implications for the industry and what alternatives are out there?
Simply put, it means that these issues will be watered down to the members of the payment schemes and, first and foremost, the banks. This means that when the banks begin to reject and/or heavily scrutinise ICOs, PSD2 compliant fintech companies will be forced to adapt if they want to keep their services active in the EU banking jurisdiction.
However, this will potentially pave the road for 3rd country banks and schemes to tackle this weakness of Visa and Mastercard, taking on risk management and possibly opening this market in other regions.
What are the compliance requirements banks in EU are committed to for accepting (or rejecting) crypto products deposits?
With Ripple currently struggling after its dynamic launch, I believe that the ICO will not have a high degree of trust in EU banking institutions. PSD2 is giving way to PSD3, which, if it evolves correctly and manages the risk emanating from the East could “level the playing field” by allowing fintech-regulated EMIs and PIs to manage this ICO risk.
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This is a decision and directive that has yet to mature within the European Commission and the ECB, particularly within an environment where the US continues to influence SEPA decisions despite claims to the contrary.
How do the ESMA regulations affect EU brokers’ margin? Do deposits decrease, and is average deposit size changing?
ESMA is still trying to overcome problems with Binary Options and to understand how to regulate the crypto exchanges of its members. Under ESMA, each member creates their own terms for regulating crypto and some now enforce passporting restrictions to fellow members.
Therefore, ESMA still has a long way to go, especially in the competitive context of Brexit. So I guess that the current status for margins and leverage is nothing more than suffering – ESMA is responsible for members and licensed companies being what they are today, but now ESMA is trimming them while leaving an open window to allow trades via 3rd countries to EU citizens.
Visa and Mastercard beg to differ, and rightfully managed this risk by restricting the ability of PIs and EMIs to accept such businesses. This makes me wonder – shouldn’t ESMA position itself more clearly and create laws to address this?
ECOMMPAY is operating in many industries. Do you have any lessons for the financial services and crypto sector from working with other types of merchants?
ECOMMPAY continues to grow, managing risk proactively. We were among the pioneers of the industry when it came to enforcing the 5th AML directive and PSD2, as well as following payment schemes’ best practice and ensuring dynamic risk profiling.
However, what operators need to understand is that any windows in the legal framework (such as 3rd country “licensing” trading with EU citizens) are nothing more than spikes on their sales sheets, which will eventually decrease once regulation to tackle this enters into force. One of the most prominent examples I can think of is the lobbying of poker operators to classify poker as a game of skill rather than of chance.
This lobbying attitude and mentality should be adopted by cryptos in much the same way as it currently is in the UK. Likewise, Forex brokers should pool powers, resources, and knowledge to become one of the strongest lobby groups in the EU, representing their rights and driving the market based on substantiated findings rather than competing with one another on who will be first to find a new loophole in the law.
Forex operators have a deep knowledge of the market and a lot of resources, so if the mentality were to change, it would lead to long term organic growth as opposed to plasmatic sales spikes. If this happens, a bright future awaits!
Michael Charalambides will be speaking at the upcoming London Summit 2018, grappling the options brokers have after ESMA as well as the plausibility of expanding to other jurisdictions. The informative workshop will be held on November 14 from 10:00-10:45. Learn more and register here today!