This past week COTI was in Gibraltar at the offices of the Gibraltar Financial Services Commission (GFSC) to present its case for complying with the 9 principles set out by the GFSC, which is required to obtain a distributed ledger technology (DLT) license.
In today’s world, Know Your Customer (KYC) and anti-money laundering (AML) procedures are an integral part of the onboarding process of many financial service businesses. KYC/AML legislation, however, does not address legislatory execution, which is why KYC and AML requirements often differ from bank to bank. This shortcoming becomes all the more magnified as KYC/AML procedures are difficult to outsource due to divergent regulatory requirements around the globe. Therefore, it is more effective to institute KYC/AML procedures within the framework of a functional payment ecosystem.
COTI, Currency of the Internet, is one such payment network that aims to provide KYC/AML services for its users in line with applicable laws and regulations. COTI’s onboarding process is streamlined through its partnership with a number of reputable identity verification providers, such as globaliD, banks and exchanges. Users that join the COTI network can select their preferred identity verification provider to perform all relevant KYC/AML procedures. KYC/AML data in the COTI network is also used to calculate Trust Scores, which determine transaction fees and payment confirmation times.
While identity verification may not be a problem for well-banked populations in developed countries, it is a major challenge in developing countries. COTI offers a functional solution for the unbanked population, which amounts to two billion people around the world without access to financial services, by providing a simple, convenient and regulated onboarding procedure.
Carlos M. Martins
Carlos M. Martins, COTI’s Gibraltar business director, recently explained the importance of this license along with COTI’s regulatory status in our Telegram AMA. In the Q&A, Carlos also answered the community’s questions regarding COTI’s legal, compliance and regulatory framework.
Carlos, how are you helping COTI?I run COTI’s Gibraltar office and make sure that all COTI processes and procedures are compliant with local regulations. I also ensure that the KYC process works as smoothly as possible.
How would you say your role at banks, such as Soc Gen, has helped prepare you for this role?Having worked at Credit Suisse and Soc Gen, I was able to accumulate plenty of insights into the banking sphere. Some of the major banks are still struggling with cryptocurrency concepts, but they will get there eventually. As a result, the understanding of how payments are traditionally processed highlights certain imperfections of current payment systems and helps to improve the industry.
Is COTI regulated?COTI has applied for a DLT license in Gibraltar. The license for the exchange is currently in its final stage. The exchange platform and the ICO are both regulated in line with local regulatory frameworks.
Why is COTI registered in Gibraltar?Because Gibraltar was one of the first jurisdictions in the world to create a legal and legislative framework for DLT technology. As COTI’s aim is to do business in a prudent manner and to provide clients with the safety of having a clear regulatory framework, we decided that Gibraltar was a very viable option. Aside from that, the government is very welcoming, the regulator is business-minded, the local lawyers are at professional and we have 300 days of sunshine per year.
In which countries does COTI plan to have an operational license?We are looking into other countries that are crypto-friendly with a sound regulatory framework. Canada, Luxembourg, Switzerland, Japan and Australia are some options, as well as other countries.
What is a DLT license?DLT stands for Distributed Ledger Technology, but it’s not only about blockchain, Bitcoin and Ethereum. DLT covers the whole spectrum of operations linked to blockchain technology. COTI is using a DAG that is based on DLT technology. If a legal entity wishes to operate in Gibraltar using blockchain technology, it will need to apply for a DLT license. Such licenses need to be approved by the regulator. You are welcome to read more at the following link
www.fsc.gi/dltWhy does it take a long time to obtain such a license?You need to demonstrate that you comply with the 9 principles set out by the local regulator. It is not only a matter of saying that you do something, but providing evidence that you effectively do what you say. Unfortunately, there are players in the market that have nice and shiny whitepapers, but do not live up to the expectations they have created. Before issuing a license, regulators need to make sure that they are not licensing someone who does not play by the rules. These things take time. In Gibraltar, as compared to other jurisdictions, it will take 3 to 4 months to receive the license from the date of application.
What are the 9 principles?The principles are: honesty and integrity, customer care, resources, risk management, protection of client assets, corporate governance, systems and securities access, protection against financial crime and resilience.
What will getting a DLT license mean for COTI?It means that the COTI ICO and exchange will be operating from Gibraltar.
What do we need KYC/AML for? How reliable are these procedures?We need to make sure that the clients we onboard do not have a criminal background or any association to money laundering or terrorist financing. Our procedures are fully aligned with the 4th Anti-Money Laundering Directive (4AMLD), as well as 5AMLD. So this is quite reliable and well ahead of the game.
Why is the KYC registration process taking so long? Can you do something to speed up the process?We have asked our clients to complete KYC/AML registration in order to prepare them for the upcoming ICO. Due to high demand, we have received a large influx of whitelist registrations. We value your patience during this time and apologize for any inconvenience this may have caused.
Why is the US restricted?We have an appetite to conduct business in the United States and plan to expand into it in a prudent and responsible manner once our regulatory environment is well established. From a legal standpoint, the US government has instituted restrictions for citizens and residents participating in ICOs and cryptocurrency-related endeavours. Therefore, registration from restricted countries will not be possible in the initial stages, but we do plan to become widely-adopted globally.
Carlos, how would you convince people to trust you with their documents?As of 25 May, 2018 the updated General Data Protection Regulation (GDPR) was released. The GDPR sets forth very stringent regulations regarding how client information is stored and managed. COTI complies with all such regulations for its KYC procedure. You can view the GDPR requirements online and how COTI complies with them.
What do you think about the future of cryptocurrencies?In my opinion, this is a major revolution that will change everything. For the time being, the majority of regulators are trying to assess the crypto space according to what they know and the models that are familiar to them. They are growing into the space like everyone else and are learning at the same time. I am sure that DLT technology will be used to make regulations more efficient, effective and less cumbersome in some aspects in the future.
Do you have anything to say to the community before the community pre-sale registration ends?It is great to have you all there supporting this project. You are making it happen, and we are very grateful for all the support you have provided us with. We are incredibly grateful to have such a loving and supportive community.
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