Trulioo — Case Study
The
Challenge
The world of blockchain and
cryptocurrency technology is a new
frontier. Like any financial frontier,
it is rich with opportunity, peppered
with risk, and somewhat fluid with
how it is regulated.
As regulations continue to mature, blockchain operators
are looking to grow their business while keeping abreast
of new regulations to ensure compliance. The Initial
Coin Offering (ICO) is one patch of territory where
the mystery, opportunity and regulatory demands of
the business combine. Similar in concept to the more
commonly known Initial Public Offering (IPO) where a
company issues shares for the public and investors to
purchase, an ICO serves as a fundraising mechanism,
potentially leading to future trade on a token or crypto
exchange. ICOs are quickly becoming a popular topic
of discussion for regulators, investors and crypto-
enthusiasts around the world, and performing Customer
Due Diligence is a necessary step in helping the ICO
comply with existing regulations. This fintech company
recognized the sophisticated complexity of compliance
and chose Trulioo to help them with their ICO.
Due to its relatively recent foray into society, ICOs
pose a unique set of challenges for investors
and regulators alike. Many people view ICOs as
unregulated securities or entities that allow founders to
raise a large amount of capital; others argue that ICOs
are an innovative take on the traditional venture capital
fundraising model. Often, there are restrictions around
who can participate in an ICO. For example, many
ICOs don’t allow residents from the United States to
invest due to the Securities & Exchange Commission’s
(SEC) efforts to regulate cryptocurrencies as
securities. Some ICOs only allow sophisticated
investors — people deemed knowledgeable enough
to deal with high-risk investments — to participate in
the funding.
Regulating an Emerging Fundraising Platform
ICOs are difficult to structure. Many continue to
exist in somewhat of a gray area due to confusion
around regulation and policy. Setting up an ICO
requires a heightened level of due diligence to
ensure it is completely compliant. The repercussions
for non-compliance include fines to jail time, not
to mention being associated with the “pump and
dump” scams that have made headlines and sullied
many reputations. No matter where you launch an
ICO, entrepreneurs need to be aware of a raft of
securities laws. Because ICOs can raise funds from
nearly anywhere in the world, these laws are not
only of concern in the ICO’s home country, but also
overseas — particularly in the United States. The U.S.
market represents one of the largest capital pools
with many investors keen to partake. One vital factor
is that investors must be verified and checked against
sanctions and watchlists to ensure that criminals,
terrorists and other bad actors are prevented from
participating in ICOs.