You’ve probably heard some version of LinkedIn founder Reid Hoffman’s quote suggesting “starting a company is like throwing yourself off the cliff and assembling an airplane on the way down.” Now imagine you’re building a transformative product within a highly regulated industry where few understand the technology and even fewer agree on what the rules are. Welcome to the world of cryptocurrency regulation.
Amber Scott is the founder and ‘chief anti-money laundering ninja’ at Outlier Solutions, a compliance consulting firm helping companies navigate the complex rules of financial regulation. “We help any type of company that has anti-money laundering obligations in Canada,” explains Scott. “Regulated companies that Outlier serves would include banks, money service businesses, credit unions, jewelers, anyone that falls under being a contract regulated entity. We also work with unregulated entities; Bitcoin exchanges other cryptocurrency exchanges, or payments companies that have chosen to do voluntary compliance.”
The rapid rise of Cryptocurrency-based business (and the expansion of traditional financial services businesses into the crypto space) has shot ahead of the pace of regulation. For companies that want to move fast and NOT break things (like the law), Outlier provides an essential service in keeping businesses rightside up. KYC and AML are the two terms you’ll hear about the most. AML (short for Anti-Money Laundering), and KYC, which is Know Your Customer, are often used interchangeably, says Scott. “KYC refers to anything that you would do to know your customer, that might even include things that you’re doing from a marketing perspective; all of the data that you’re collecting about your customer. Anti-money laundering, on the other hand, are things that you have to do if you’re a regulated entity to prevent your company from being used to launder money or finance terrorism. And this can include collecting KYC information. So if we think about it as a Venn diagram, there is some overlap.”
“I think one of the biggest challenges for companies, and the Fintech space, is that technology is instant and its global – and that’s a beautiful thing.” says Scott. “But regulation is very local, and it’s very slow. So we will often have companies that come to us and ask about doing business globally, and find themselves shocked to discover that in each jurisdiction, there are different regulations. And the minutiae matters.”
As Scott continues, it’s clear that her views on regulation extend well beyond ensuring businesses stay on the right side of the law. “I don’t think that people understand regulation,” suggests Scott. “And generally speaking, I think that consumers feel powerless, especially when it comes to the use of their own data. So one of the funny things that happened to me recently is I went to Disneyland and they had to take a thumbprint for me to get in and they said, ‘Are you ready to have fun today?’ And I said, ‘Yes, apparently, I’m also ready to trade my biometric information for park entry’, which was not something the woman was prepared to have a conversation about at all. But as I stood and watched the line for good 15 minutes, there was no real objection to it, it was just a thing that people did.”
I would say that Disney is allowed to do what they do, because collecting biometric information is isn’t a regulated thing yet. This will seem like kind of a weird answer as a compliance geek, but I think that we generally speaking, have too much regulation already. I don’t think that more and more complicated regulation is going to be helpful in the long term. I think that we need to start to think about things in a way that is principles-based, that is results-oriented, that looks at intent, that looks at the effect on society, that looks at things in broader terms and makes decisions based on that.”
Jan 1 • 3 min read