TenX Compliance Q&A Livestream Question List

TenX
TenX
Sep 5, 2018 · 15 min read

Everything discussed in our Compliance Q&A, put in a simple easy to read format on our blog!

Before we begin with the actual questions, please read below to understand the difference between “legal” and “compliance”

What is the difference between Compliance and Legal?

Legal area is to define “what does the law say about this or that”. Compliance area is to interpret “what does it mean for my product or my internal processes”. For example, Legal department would draft Terms and Conditions for the service or the contract with the financial partner. Compliance department would review, which fields or data points must be collected or how to respond to a customer complaint or which policies must be written and followed by customer support or other teams.

In general, legal work is more externally focused and compliance work is more internally focused.

Themkde asks:

Why is there such a hold up with:

  1. token structure (its in the works for at least 8 months, more like 10–12 months), you had a legal opinion but still no clear, desirable use case released

I agree, this must be very annoying; what we want to achieve with the token structure is a few things:

Our token holders see a clear value for them in holding and using the token

Our promises and rights granted to token holders do not compromise the potential ability of the token to be listed by various exchanges and supported by cryptocurrency wallet providers. For example, if based on the rights of token holders it is determined that the token is a security token or a financial product, only those platforms that have a license to list and support financial products (for example, the license of an investment broker) can list it and everyone else would have to de-list it, if they want to follow the law.

Our vision for Pay token is that it is a part of our product offering and we would like all Pay token holders to be our customers and the users of TenX services. Like it or not, but the biggest disadvantage of being in a regulated business is that you cannot just do things, you have to get a license first. So, before we can offer some special benefits to our future customers/ Pay token holders, we must have a live product, and to have a live product we had to go through a very tedious process of setting up various tools and security and anti-fraud systems, completing 3 audits in 2 continents, undergoing multiple reviews by Visa, banking partners, regulators, payment processors and everyone else to get in.

This is a business where entry barriers are high, long and expensive. But we got there in Asia and we are very close in Europe. As soon as we have a live product, we will be legally allowed and happy to offer various benefits, special offers and other exclusive features to our Pay token holders. This will be our loyalty program.

2. banking license, you should have received the response by now judging by all we know (Q2 long passed)

Just to be clear clear — statistically, only about 5 % of all applicants who apply for financial licenses actually get them, most companies drop very early in the process and decide to use someone’s white-label; solution. An average waiting time for a license is about 1 year, and i personally know of a case where for one crypto company it took almost 2 years. The package involves dozens of documents, many of them must be audited, notarized, translated and collected all over the world in all countries where members of of team have lived, worked or studied. Yes, i wish it could be faster, but the best we can do is to follow the process and be respectful of our regulators and their time, we see that they are doing their best. Licensed financial institutions with multiple licenses is still a pretty exclusive club.

We just met with our regulators last week and got their feedback. They asked us to answer about 10 questions which we think we can do within the next week. Their feedback was that from the moment of where they have “no further questions” it will still take about 6–8 weeks to receiving the actual license, and the process will involve just final reviews and sign offs by various teams within different governmental institutions. There will be many departments who will receive a package of our thousands of pages and they would have to review, understand, be comfortable and sign off.

Yes, its hard, and we did not choose the easiest jurisdiction. We chose respectable serious regulator with solid experience in financial industry, however, the benefit of that is that from that moment on it will be much easier for us to talk to different banks and partners and companies like Visa or PayPal or Amazon or Mastercard or WorldPay or others. Maybe there are places where it’s possible to do things faster, but you have to ask yourselves — is your license going to be passportable to other European countries? What can you do with your license? Is it a real license or some kind of a sandbox exception that does not have a solid ground for international expansion or formal recognition and can be revoked at any moment in time? How many banks will open you a bank account? WIll big boys and providers like PayPal or WorldPay agree to work with you?

Keifer_southerland asks:

If TenX receives a banking license, will you legally be able to institute a cash back rewards program that is tied to the number of PAY tokens associated with an account? Something analogous to paying an annual fee for certain credit cards. If not, do you know how companies like Visa can do this legally?

Financial license has nothing to do with rewards program, you can think of multiple retailers or airlines who are not financial institutions doing that all the time. The important factor, however, is that those rewards points or loyalty points are paid to customers who are using the services of the airline or buying the products with the retailer. We do want to offer a loyalty program, similar to that, but it must be linked to the activities of the customers using our products and as soon as we can offer more and more different products, those loyalty points will obviously be more and more interesting. You have to keep in mind that we should not mix loyalty points offered to customer with dividends paid to shareholders or other form of investment income paid to investors who invested into a particular project or a company. Dividend or interest or investment payments require a completely different level of registrations, declarations and formalities.

In order to pay some form of returns on investment, any company must first register the investment as such, make some declarations, do a lot of formalities and then we (or any other company) will be able to distribute returns on investments. It is a very complicated process, we have some ideas about it, but we are not ready to talk about it.

Mr-Tokk asks:

If it’s possible, can you explain us the missing steps before you can officially release the cards? Ex: We have our BIN number, now we need two more signatures from there and there, seal a pack with them, etc. Since you can’t know “when” then tell us “how” Im sure the community would appreciate :)

In order to have the cards live, you need more than just 2 signatures. Our card partner has around 3–4 systems tests that we have to pass before cards go live. This is to ensure that when cards do fo live, we do not see any downtime or at least little downtime. You need a lot of technical integrations, and successful testing, that can only happen after the BIN is granted, You need card processing tools talk to AML and fraud management tools and they need to talk to bank reporting tools. Unfortunately, some of these integrations can happen only when the previous step is complete. Fortunately, after the BIN is issued, we have more control with respect to technical implementation.

Flexmens asks:

Hi Julian, Could you please explain in details what creates the delay in moving forward with TenX expansion. I know that you mentioned legality, but that is a broad domain. If we knew the details, it would create a better understanding of the situation, and it could bring trust back in the community. Make us ICO investors part of your Info-plan, so we can feel connected and perhaps even think with you and TenX.

I suppose that by TenX expansion here means more cards and more licenses in more regions. We have covered it earlier. To offer more products we either need our own license or we need a financial partner willing to work with us and lend us their license. Look that the statistics: average lead time to sign up a partnership between a fintech and a traditional financial institution lasts 2 years. Average licensing time i quoted also earlier. I hate these timing, but they are what they are. The only thing we can do it to see the next step and react to the new information you receive from the regulators and the partners and move to the next step. Very often, our financial partners have their own resistance inside their organizations, they have to convince their peers and get people on board, they have to seek internal approvals to be able to work with us.

Just to give you an example: in June 2016 i remember i received the approval for the deal between PayPal and M-Pesa. I was the head of regional compliance at PayPal at the time and it was my job to review and approve that deal. I was super passionate about it, i loved that project and it took me about 5 months to do that. Then i left PayPal. Do you know when this deal actually went live — 1 months ago!!! More than 2 years.

Kkarl_pm asks:

On which compliance regulations do you orient yourself? In my mind the highest standard ist the compliance standard of the european banking system. Do you use these standards (or parts) too?

Regulations are driven by a few factors: where is your legal entity, where do you offer services to and where are your partners. When we setup our processes or tools or AML controls, we orient ourselves to the highest possible standard of those 3 areas. European regulation is very strong in terms of consumer protection, fraud management and fraud protection, privacy, security, outsourcing requirements. So, we apply European standards across the board, so that we have to build our systems just once. However, in some cases, our partner required us to complete a few audits that were not required by the law, but they call the shots and we had to do it. In another case, Singaporean law requires us to keep certain records for 7 years instead of 5 as in Europe, so we would have to have the capabilities to do that.

1zoomzoom asks:

Dear TenX, I know you guys are balancing on what “info-to-share” and what info “not-to-share”. But please know we are very excited about the project and we can’t wait to know EVERYTHING.

  1. Which compliance-targets do you want to accomplish this month?

This months we want to reach a point with our regulator in Europe that they don’t have any further questions about our European license that we applied for on April 4th. We want to open a dialogue with another regulator we have not talked to yet about another type of a license. I cannot comment on other topics.

2. TenX has shared that Europe and the APAC countries are on your priority-list for future card rollouts. What info can you share on Korea, Japan, Singapore and Hong Kong? Rumours of a banking-license in Korea?

We want to be everywhere and customers want us to be everywhere, but we also want to focus. Regulatory projects require laser focus and follow through. One thing i can confirm that we are fine in Singapore. We have everything we need from the regulatory perspective to launch our products out of Singapore. When the new Payments Act comes into force in Singapore, we would have to do some extra steps.

3. Some community fans have discovered TenX-group companies. Care to share?

Yes, we have registered a few entities worldwide, because we would like to offer our products to many customers.

Senjorekneissl asks:

What does it exactly take to get the AML Compliance Specialist job in Vienna? The requirements read very simple but the job offer exists now since nearly five months.

We have hired an AML Compliance specialist in Europe, she started in June. We were looking for experience with AML, digital payments, and experience of being a self-starter and fast learner. As we scale, we may be hiring more compliance people, stay tuned.

Geertjen asks:

  1. Can you explain what the relationship is with litecoin foundation. Any differences between cards etc?
  2. Can you tell more about the cards? Credit /Debit?

The first product we have in mind is a debit card that is linked to your account with TenX that is used to top-up the card. Later on we would like to be able to issue credit cards, but statistically, the numbers and volumes of credit cards are declining and debit cards are on the rise worldwide.

3. Can you tell more about your team. I’m sure there are many people working around the clock for testing and releasing the cards.. they should receive thanks from the community and not be bombarded with the when question. Quality takes time…

Currently TenX has about 70 people, legal is 3, compliance is 2, risk is 2, and we are hiring,

Halyconstudio asks:

Is the banking license based on Europe or Singapore? If so, will the card be prioritized for residents of Singapore?

Financial licenses are not directly linked to ability to issue cards. To issue cards you must either apply for the direct membership with Visa and MasterCard or work with a partner. To apply for the Visa or Mastercard partnership, a local financial license is required. Yes, it is region specific. We will go as fast as we can in both APAC and Europe, but those are two separate tracks.

PwentSmash asks:

  1. What are the compliance hurdles TenX has to solve to ship working cards? Can you ship cards now and just not have them active, then “turn them on” once that compliance is met?

No, it does not work like that and this is not so much a compliance issue, At this point it is more a technical integration testing issue that can only happen after we have received the BIN numbers.

2. How do and what compliance issues does crypto to crypto have?

Crypto does not get any special treatment in terms of compliance, the regulatory framework is there: like, you have to respect contracts, you have certain obligations around security, privacy, transparency and disclosures, you should not lie, steal and run away with other people’s money. You should not use confidential information to derive personal benefits, you should keep the information given to you safe… list goes on… All the regulatory provisions apply to crypto.

3. What compliance issues does TenX face if the PAY token isn’t currently or eventually considered a security but the original offering of the PAY Token was? It seems most tokens regardless of use are not securities but the initial offering constitutes a securities offering. Example is ETH is not a security but the initial offering and purchase of the tokens was a contract that was purchased with the expectation of future return. It seems the utility of the token doesn’t matter much but how it was offered does. In that case TenX is on the hook regardless of what PAY is now or does now. ??

Nobody can just say you are a security and then you become a security. You issue a security if you follow a certain process, that is very specific country-by country.. I personally don’t think that Pay token is a security, especially after we have revised the White paper, but unfortunately, it does not always matter what Yana from TenX thinks. Anybody in this world could say that your token structure is ambiguous or unclear or resembles a security. It does not mean that they are always right, they may just be cautious. What we can do is to engage with important players and resolve their doubts. We can modify token terms, we can adjust certain token features, we can do a lot of different things, but it is very clear that there is not going to be a universal happiness about it. There is no perfect security in this world either, because shareholders always wish that the company paid more dividends and had lower costs, and grew faster and spent less money on something and maybe did not have any negative news, and would be super ecologically friendly and did not consume any bad sources of energy and all that jazz. Security is a contract. Token is a contract. Any contract has a set of conditions that is limited. And there is always going to be someone who feels that something is missing. I don’t think it’s important if Pay will become a security or stays as a loyalty program, or we call it a digital tomato. What is important is that it provides real value and enough people see that value.

Jocen3 asks:

  1. What’s something you didn’t think would be an issue that turned out to be a huge problem?

We took WaveCrest partnership for granted and we learned that dependency on just one partner is a huge risk.

We did not fully understand in June 2017 how the market and regulators will treat security vs utility tokens.

Convincing traditional financial institutions to work with business models involving cryptocurrencies is still very hard.

Helau05 asks:

Julian, some months ago you said that after having a banking license you don’t need an external issuer anymore (like wavecrest, wirecard and the likes) but you can issue card by yourself — at least some months later.

  1. Is this still the Plan or will you start with an external issuer ? How happy and motivated will an external issuer be on day 1, knowing that you probably kick him a few months/quarters later out of your business relationship? Or is that different region by region ? Thanks in advance !

Yes, direct issuance rights are region specific. We have also learned that it is perfectly sustainable strategy to have redundancies in every region, so that even if we have a direct issuing license, for example, with Visa, it’s a good idea to work with a partner for MasterCard, or vice versa. Regulatory world is all about building redundancies to be prepared for surprises.

Enutrof75 asks:

Are there plans to give users the option to increase card/transaction limits with enhanced compliance e.g. kyc level 1, kyc level 2 etc. Most other crypto cards out there only offer daily limits to $10k, regardless of how much kyc is submitted.

Yes. It is very common practice in digital payments and it makes total sense. Those limits may vary by region, because sometimes the law is very specific about it. But regardless of the KYC, we may still need to pause a transaction, even if the KYC is fine. Let’s say if Yana is always logging in from the same IP address and always buying shoes size 36 from the same retailer using TenX card and suddenly we see that someone has logged in from Starbucks in Brazil and tried to gamble online with Yana’s card, we may have an issue. The modern way of doing things is so called dynamic monitoring, which means we always have to compare the likelyhood of the transaction being fraudulent or illegal versus false positive, which is pausing a legitimate transaction that looks unusual. This is where we spent a lot of time over the last months — selecting and integrating those tools.

Mmx99 asks:

How likely is that the TenX Tokens become Security Token, how easy is it to change that and what does it mean for the PAY holders ?

Issuing a security instrument does not just happen. To issue a security, you have to do a paperwork, do the prospectus, make certain disclosures to your investors, file documents with regulators, and then you have the securities issuance. If you do nothing, some players in the market may say that you have some securities features or they think that some token might be considered a security in a country A, but they cannot make you a security by just saying it. Essentially, if an audience is having doubts about your token, it could leave you in limbo, because someone can de-list you or not support your token, but nobody can just proclaim you to be a security and make it official.

Cryptofolk_io asks:

Many of us who purchased tokens in the ICO did so under the premise of card transaction rewards plus many other incentives. I understand that the landscape has changed and those terms would in today’s climate make the tokens a security which I appreciate. I do feel a little/lot short changed. Can you give us a really, really clear outline as to the tokens inherent value to quell any anxiety.

The most likely and easy to understand benefit of holding the Pay token is a loyalty program (we discussed earlier, similar to Miles and More or retailers rewards points), when you are a customer and you receive some special discounts, lower fees, special benefits for being a loyal customer of TenX platform.

That is the end of the Compliance Q&A Question list — Please keep an eye out for future Q&A’s to learn more!

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