Posted on

Former S&P President Leads Seed Round for ICO Compliance Startup

Regtech and compliance startup iComply has just completed a seed funding round led by former Standard and Poor’s president Deven Sharma.

The firm – which seeks to develop standard compliance tools and services for other blockchain startups and in particular those which launch initial coin offerings or ICOs – announced Monday that it raised a seven-figure number during the round, although it did not provide an exact figure. DMG Blockchain and Block X Capital also participated in the round.

In its announcement, iComply also revealed that former CFTC official Jeff Bandman, former Nasdaq and Financial Industry Regulatory Authority (FINRA) executive Manny Alicandro, MIT fellow Praveen Mandal and attorney Thomas Linder have joined the startup as advisers.

In conversation with CoinDesk, Sharma said he chose to invest in iComply specifically because of the startup’s “focus on compliance and risk services for ICOs.” Compliance, he said, will help ease regulator concerns by providing transparency into ICO issuers.

Sharma also believes that the firm can aid adoption by supporting traditional financial services firms looking into the technology.

“My interest is to see iComply evolve into a benchmark that investors can use to assess credibility of issuers, sustainability of underlying services and the price of ICOs,” he said.

The startup’s founder and chief executive, Matthew Unger, said in a statement that new ICOs and exchanges will have to answer to regulators including FINRA, the Financial Transactions and Reports Analysis Centre of Canada and the Swiss Financial Market Supervisory Authority, among others.

As such, he said, “iComply’s patent-pending software enables both security and utility tokens to monitor and document compliance, governance and risk procedures, before a public blockchain executes an immutable trade, providing trust, integrity and transparency for our clients.”

Sharma explained that new tools like blockchain still need transparency to build investor confidence. Doing so, he said, “will allow for more growth of innovative ways of raising funds and investment – I see iComply as a critical component of making the entire ICO space more successful, because it provides the confidence.”

The concepts of transparency and trust, he said, were what sparked his interest in blockchain to begin with.

That said, Sharma said he has yet to invest in any token sales, telling CoinDesk:

‘There have been a few ICOs that had a fundamentally robust offering that I understood and did interest me [but I] missed the opportunity. Others that have transparency from a service like iComply, I would [invest in].”

U.S. dollars image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Coinbase Taps Regulation Veteran for First-Ever Crypto Compliance Chief

Cryptocurrency exchange Coinbase has announced the appointment of its first-ever chief compliance officer as it moves to become a licensed broker-dealer in the U.S.

According to a blog post published on Tuesday, the company is tapping the experience of Jeff Horowitz, who joins the firm following decades working for both banks and regulatory bodies.

Horowitz has spent the last 12 years leading the compliance team at Pershing, a BNY Mellon company and also one of the largest providers of brokerage custody. Before that, he worked at Citigroup and Goldman Sachs, as well as the Federal Deposit Insurance Corporation, a self-regulatory organization. All those roles saw Horowitz managing anti-money laundering and other compliance programs.

During his career, Horowitz has also taken efforts to shape financial regulation in the U.S via his involvement with industry associations such as the Financial Crimes Enforcement Network and the Financial Industry Regulatory Authority (FINRA).

Asiff Hirji, Coinbase’s president and chief operating officer, wrote in the blog post:

“His experience managing matters related to broker-dealer regulation, asset custodianship, and AML programs makes him a uniquely qualified leader for our compliance team.”

The appointment comes soon after Coinbase started offering a crypto custody service aimed at institutional investors and is taking steps to become a regulated broker-dealer in the U.S.

The company said earlier this month that FINRA had already approved its acquisition of three licensed broker-dealers, inching the firm a step closer to potentially listing crypto tokens deemed as securities.

Coinbase image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Bermuda's Blockchain Strategy Goes Beyond Just Winning New Business

When it comes to regulating the blockchain industry, size really does matter.

Government size, that is, according to the Bermudian officials driving the island’s regulatory efforts around the nascent technology.

“Small ships can turn quickly. That’s the beauty of Bermuda,” Premier David Burt told CoinDesk.

Bermuda is one of several small territories and microstates striving to leverage their nimble governments to attract blockchain and crypto businesses by creating regulatory certainty where other, larger governments have failed to deliver thus far. Liechtenstein, Malta, Gibraltar and, most recently, San Marino have joined the race alongside Bermuda, all offering proposals – and in some cases formal legislation – that promise “comprehensive blockchain legislation.”

Typically such schemes entail detailed guidance on how initial coin offering (ICO) tokens will be viewed; secondary market controls; investor and consumer protections; and anti-money laundering (AML), know your customer (KYC) and counter-terrorist financing (CTF) measures.

And to date, Bermuda’s strategy has proved fruitful.

Since launching a blockchain task force in conjunction with the Bermuda Business Development Agency (BDA) in late 2017, the government has passed legislation on ICOs and created a regulatory sandbox for those companies, put forth a Digital Asset Business Act and partnered with BitFury to shift the island’s property deeds system to the blockchain.

But most recently, and perhaps most notably, the U.K. territory inked a $15 million investment agreement with major crypto exchange Binance, demonstrating that the tiny island’s blockchain push is attracting real industry heavyweights.

This result is one reason, Burt argues, that Bermuda stands apart from its peers.

“We have a very simple mantra in my government, and it’s ‘show, don’t tell,'” Burt said.

But with the competition here fierce, Bermuda is attempting to diverge from other places luring crypto and blockchain startups by moving beyond regulation, and incorporating its blockchain aspirations into its own public policy agenda – including re-envisioning its youth education and immigration policies.

With this, Burt said:

“We believe over the last nine months that our government has shown that not only are we open for business, but we mean business.”

The old with the new

Understanding Bermuda’s blockchain strategy, and more importantly, what sets it apart also requires a historical view.

One feature which distinguishes the island from other aspiring hubs precedes the blockchain entirely – Bermuda’s multi-billion dollar insurance and reinsurance industries which have “full regulatory equivalence” with both the U.S. and the EU.

The maturity of these industries means that there are existing robust investor protection measures and other pertinent rules that regulators have been able to build on to create the Digital Asset Business Act, explained Sean Moran, head of business development at the BDA.

“We’ve had to tweak them, of course, to make them appropriate and fit for purpose for this industry,” Moran told CoinDesk, “but we have a model that we can work from that takes all of those protections and disclosures into account, and that’s what we’re working from.”

The dominance of Bermuda’s reinsurance and insurance industries has also resulted in a burgeoning compliance-oriented sector, which Burt envisions as a critical resource for the blockchain businesses he hopes to attract.

“If you cannot meet, match the Bermuda standards, if you cannot pass our high bar, then we don’t want you,” Burt said.

He explained that part of creating desirable regulatory conditions is implementing high compliance standards for companies that are made in consultation with industry players – like Binance, for example.

“That is squarely in our sweet spot,” Wayne Caines, Bermuda’s minister of national security, told CoinDesk.

More than a haiku

And that sweet spot will be especially beneficial for ICO issuers and the various stakeholders of that burgeoning industry. While industry has been waiting with baited breath for the U.S. Securities and Exchange Commission (SEC) to come out with formal guidance – since it was revealed that the regulator was closely investigating ICOs – Bermuda regulators have already set up a framework for those companies.

The territory will not only require ICO issuers to scrutinize potential investors, but Bermuda itself will also scrutinize the issuers by requiring them to outline beneficial ownership structures and to create more robust white papers.

According to John Narraway, an emerging technologies consultant at the BDA, this is particularly helpful since:

“The regulations around what must be in an offering document or a white paper is critical because a white paper can be something like poetry or a haiku.”

He thinks this collection of standards will greatly mitigate the potential for Bermudian blockchain companies to engage in fraudulent activities.

And these regulations were also based off an existing regulation, the Companies Act, that officials merely tweaked.

“We’ve kind of billed this as, if you will, the greenhouse off the side to start growing new things, but using the main house of structure and reputation with the success of the thing and the clarity that’s going to come from that,” John Narraway, emerging technologies consultant at the BDA said of the amendment.

Yet, those leading Bermuda’s blockchain efforts are also cognizant of the industry’s proclivity for rapid change, and believe their regulations are prepared to accommodate it.

“Think of it like software versioning,” Narraway suggested. “We know it’s not going to be 100 percent perfect, but it’s going to be as best as it possibly can be. If we can go from whiteboard to legislation in two months, how long is it going to take us to issue a ‘patch’ – to use software terminology?”

He added:

“We’re going to have [version] 1.1 probably pretty quickly because we’re going to be listening to the industry.”

Involving the locals

Likewise, another means by which the government plans to keep pace with the industry is by keeping communication lines open with the major industry players, and making sure to keep the island’s citizens in mind.

For instance, the memorandum of understanding between Bermuda and Binance stipulates that the crypto exchange will not only move its compliance center to the island, but also invest $10 million into blockchain-related educational programs and $5 million in blockchain startups over the course of two to three years.

In return, Bermuda will work to provide a steady talent pool for the company.

“We want to do it because we want those players and others to come into the market and create economic activity,” Burt said of the deal.

Echoing Burt, Narraway said, the arrival of such companies can bring Bermuda up to speed with the industry by converting and capitalizing on local talent, and ideally abet the island’s “brain drain,” whereby highly-skilled locals move to other places where the market for such talent is more competitive.

“We want to be able to pull [young people] back in and give them opportunities, real opportunities, to participate in the economy and to grow it and to develop their careers,” Narraway said.

According to Burt, the Bermudian government is in talks with other heavyweights from “the entire space,” though he declined to identify them. The officials plan to release further information on industry partners and legislation in upcoming weeks.

Narraway thinks local startups also stand to benefit, particularly because the industry presents new possibilities for raising early stage capital, which is in short supply on the island.

“I can tell you from the business development side, we’re having meetings every week with companies that are saying, ‘I think I’m going to do this startup, this is where I want to go,’ and now they’re saying, ‘explain to me this ICO as an option for doing my first round of funding,” he said.

Narraway concluded:

“So I think this is a huge opportunity for the local companies and local entrepreneurs in Bermuda.”

Minister Wayne Caines, John Narraway, Premier David Burt and Sean Moran image by Annaliese Milano for CoinDesk

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

A16z, Founders Fund Back $28 Million Raise for Tokenized Securities Startup

Tokenized securities startup Harbor has secured $28 million in funding from major Silicon Valley venture capital firms, the company announced on Tuesday.

The strategic round was led by Founders Fund, and included the participation of Andreessen Horowitz and Pantera Capital. Existing Harbor investors Craft Ventures, Vy Capital and Valor Equity Partners, as well as Future Perfect Ventures, 1confirmation, Abstract Holdings and Signia Venture Partners also took part in the round.

Harbor’s president and general counsel, Joshua Stein, told CoinDesk that the company will use the funding to further develop its ethereum-based R-Token platform, which he said provides for “compliance at the token level.”

In practice, this means that the protocol tokenizes real-world assets and uses ethereum smart contracts to ensure that investors can execute trades only if they satisfy pertinent regulations, such as know your customer (KYC) and anti-money laundering (AML) requirements.

The company also intends to direct funds toward the expansion of its team.

“We’ve had so much inbound interest from folks from different asset classes seeking to tokenize what they’re doing,” Stein said in an interview. “Now we need to build out the team and the platform and the protocol to be able to handle that inbound interest.”

Stein suggested that Harbor was able to attract prominent investors in part because the company has gained significant traction since its inception.

He told CoinDesk:

“There’s literally tens of trillions of dollars of real-world assets that would benefit from the ownership interest being tokenized, and that can unlock tremendous economic value.”

Pantera Capital’s Joey Krug echoed this point in statements.

“With Harbor, we could see things like funds tokenizing LP interest for illiquid asset classes, marrying the liquidity of markets with the illiquidity of the underlying assets owned by the fund. The infrastructure Harbor is building will unlock a range of new possibilities for capital markets,” he said.

Stein said Harbor’s efforts to create liquidity will benefit the larger blockchain ecosystem, and that he’s excited about the services and dapps emerging from the ethereum community.

“By driving a whole bunch of economic value around the public blockchain ecosystem, we help drive all those different companies, providers and developers,” he explained.

Harbor intends to roll out its platform for securities issuers and licensed broker-dealers this summer.

Handshake image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Chainalysis Raises $16 Million for Real-Time Crypto Compliance

Blockchain startup Chainalysis has today announced a new real-time cryptocurrency compliance tool and a $16 million Series A investment from Benchmark Capital.

Founded in 2014, Chainalysis provides cryptocurrency exchanges, international law enforcement agencies, and other clients with bitcoin transaction analysis software to help them comply with regulations, assess risk and identify illicit activity. Notably, the company helped investigate the Mt. Gox bankruptcy case.

“What we decided when we founded Chainalysis was that we need to solve how we can make the new world of finance work together with the old world of finance. Basically, how can we bridge the gap between banks and bitcoins?” Co-founder Michael Gronager, previously the chief operating officer of Kraken, told CoinDesk in an interview. 

More specifically, co-founder Jonathan Levin explained, that the firm builds a data set that links “real-world activity to cryptocurrency transactions so that we can uncover the underlying real-world purpose of the transaction.”

Until now, Chainalysis’ software has only allowed customers to analyze transactions retroactively. Its new tool, dubbed Chainalysis KYT (for “know your transaction”), provides transaction analysis in real time.

This gives exchanges, for example, the capacity to instantly know if they are dealing with a trusted financial institution or with suspicious entities, Levin said. Exchanges can then use this knowledge to inform how they treat deposits and withdrawals on their platform, he added.

Levin claimed that the rapid expansion of the cryptocurrency industry has made this software a necessity:

“When we started the business, exchanges were much smaller. They could use manual reviews and have the types of rules in place that allowed them to be compliant. Today, they’re onboarding the same amount of customers on a weekly or monthly basis. So now there are millions of customers who need automation tools to trigger reviews and to do investigations, and you need to have these investigations not take half an hour to 45 minutes. It needs to be right up front.”

The company has trialed the product with several existing unnamed customers, Levin said, adding that they’ve seen a “20-times improvement” in the speed of investigations.

And there’s more

Chainalysis’ software previously only supported the bitcoin blockchain, but the company announced on Thursday that it is rolling out bitcoin cash-compatible tools for its law enforcement and government clients. Furthermore, Gronager and Levin said the company will aim to support 10 cryptocurrencies by the end of 2018.

To fund this expansion, the company will tap some of the $16 million garnered from its funding round with Benchmark Capital. However, the funding isn’t the only thing Chainalysis has acquired from Benchmark, which has been investing in the industry since 2014.

The company also snagged Sarah Tavel, a general partner at the firm who was previously a product manager at Pinterest, for its board.

“Chainalysis is really an enabling technology that you need to participate in this ecosystem,” Tavel told CoinDesk.

The company’s appeal, she said, comes from its founders’ early recognition of the need to address compliance obstacles in order for the ecosystem to grow.

In her new capacity as a board member, Tavel said she hopes to use her experience at Pinterest to help the company scale.

“I think a lot of what I bring to the table is just the experience of having scaled through hyper growth and helping them, as much as possible, look around corners,” she explained.

Levin and Gronager don’t expect Chainalysis’ rapid growth period to stop anytime soon – but just not because governments and law enforcement agencies are becoming increasingly interested in the industry.

“We’ve seen just massive interest from the cryptocurrency market,” Levin said, adding:

“Actually, despite market conditions, that part of our business is growing stronger than anything else. It’s been exploding. We’ve got triple the number of customers in that segment than we had last year, and that growth is actually just accelerating.”

Magnifying glass image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.