How to talk with a regulator?

Transcript

[Music] so the purpose of my talk today is to not to give you another talk about extra Gregg's at the regulation but maybe give you an insight about my my work as a lawyer in the crypto industry and the thing I have witness the tips I can give you and basically it's a good like maybe the good way or the better way than we have today to talk to your regulator I'm William Arak lawyer in Paris thunder of a law firm named la vaca with we which advise a lot of crypto crypto company in Paris and abroad and for while now I give some lectures in some very

beautiful and famous University in France we organized with my law firm some some talk about for instance Libra at least I'll burn it was a 1 months ago we were interesting with the former governor of the Bank of France and I also participate in some public representation like I helped the community and the associations such as the Adhan which is represented here by a symbol to help educate the public authority and give them like like how vision of how this industry should be regulated and it's very important because as you as you all know the legal

environment in crypto encryption set in crypto industry is currently building so if you want to turn in my point of view if you want to be a good lawyer you have to understand what will happen next because you could you could not stand on the legal texts that actually doesn't exist yet so yeah as I told you I don't want to do a talk about how to make a CEO compliance or gGPO blockchain that kind of stuff it's like boring for me and I think boring for you and my purpose was to yeah to give you some tips give you some anecdote about the life of a lawyer in the in the crypto industry and maybe what I what I would like to share with you it's a part of our jobs that lawyer to talk a lot because

we we are never asking for is a the way we build the legal strategy for clients the idea is you have regulation regulation is very actually hard for crypto related company because this technology like like touch a lot of different regulation it's a technology but value about trust and this these features usually attract a lot of regulation but at the same times a lot of you what for the most of the project we see at the HCC for instance our very small project and they are they are not able to fulfill all of this obligation right now so other legal strategy is the

idea its I will be regulated I want to know what what what will be my regulatory environment in 1 2 3 4 5 5 years from now so this is my objective the goal I want to succeed and the idea is - yeah - can - can know in advance what you will need to do what will be the step and to smooth the regulatory burden over time what regulation are we talking about there is like a lot of regulation as you know like maybe - maybe too much there is like very common regulation I don't want to talk talk with for instance consumer law that apply if you're selling project to consumer so individuals it's a kind of really important regulation there is

also business law if you are doing business with some other professional but in the creep to industry what you are what you what you have to be very focused on is this kind of frequent fight it is the main one regulation the first one is of course on to money laundering it's a very hot topic because from now from the last European directive about money laundering we adopted in May 2000 18 the crypto actually some crypto activities has subject to this regulation and trust me it's it's a regulation you don't want to be subject to if you don't have to really be subject to this regulation why because on to money laundering for first

first of all it's not negotiable it's something like I I like this sentence about MC solaar the context is more important as a concept even if your concept is very descriptive and knew the context is there is terrorism the risk tax evasion the risk criminal activity and the regulator when they are talking about only money laundering they are not like innovatively only anymore it says that for the other kind of regulation so you have to fulfill this regulation first first of all you have to understand that this regulation is subject to certain kind of very precise activity so your first goal will be to understand if your activity will be subject or not to aunty money laundering and if you are not subject be very careful to ha to try to do not exist

kind of activity that on turn to the scope of and money laundering like made you often listen that is not I often see client who say I believe my activity is subject to on to Milan during because I have crypto assets in my in my my business model that's not like is that's not automatic actually you could you could have activity with crypto asset without be subject to a money laundering regulation and that's very important the other regulation quite important it's tried trade secret protection and GDP are why this one is important it's less touchy in my in my vision because like collecting and collecting and processing personal data is less like touch is that like managing

crypto asset of course found usually but this regulation like is is like may may attract this regulation is own fault bye-bye regulatory body such as like the GPU in in in London the Canadian France and this this regulatory body they have power to like sanction you they have power to like made inquiries on you to ask you some some compliance document it's like a kind of police of personal data and because of this kind of power you have to be very careful because even if you are if you have not problem with one of

your user you can be sanctioned so it's it's approximately the same like kind of regulation of what money laundering regulation and if you have a crypto financial activities and once again the scope of crypto financial activities is very very restrained actually it's some kind of very precise activity you can be subject to virtual assets service provider regulation for instance in front we have we have this kind of regulation for less than a year now this regulation is not so wide actually and and and and do not carry too much like kind of obligation except that the the

idea of this regulation it's to subject you to the odds on to money laundering regulation which is once again the main and the first step of the regulation of crypto said because it's that she is because it's risky this is the kind of situation I lived I live when I when I when I advise a crypto company in before the regulator you have a crypto company we say we are blogging the few project investment over culture as I said lending 12 passengers pulling all that kind of stuff and the regulator in front do not live in the same world as you so you could find your project very cool and usually would say something like it was very interesting it's not means that

it will invest in your project it's a it's a red button this guy like this activity is dangerous my point here is I am very surprised to see a lot of crypto project who by themselves and at a very early stage come to go and to meet the regulator I mean of course the people who work in regulatory body on crypto asset are very nice people usually they are like tech savvy young the you can meet them in this kind of conference but do not never forget that regulatory bodies are not your friends they are not here to help you or to solve your problem they are here to regulate so my advice as a lawyer it's takes your time

it's not it's not a problem if you see there later one years later but just when you go in front of the regulator when you meet them like choose your world and know what you want to do what what is the purpose of this meeting like it's not like it's not like a pitch before investors is when you met a regulator they will write down what you say and the nice guys 25 years old in front of you very fond of luck Shen in two years it will be someone else and you will have maybe a very like regulatory shark in front of you and you will have all the information about your activity and it will be like it's not in advantages security token offerings it's my it's my

it's my favorite concept I like to destroy like in security token offering there is security security against security low security low it's approximately 60 years of regulation so they don't wait blockchain Satoshi and and all of you to have a very very strong regulatory environment on security law so it's girl pain and money for us it's very perfect because security law it's a lot of job for for lawyer actually for army of lawyers but don't believe that security can referring is a good way to escape from regulation you can of course that that is the case if you want to sell security

token to the public you can be service provider for someone with doing this job a bank financial industry but for what I have I witnessed today's with financial industry is not ready yet to deal with security token offering and I understand that there is more like security to can offer any platform that asset which has tokenized right now yeah so actually I I already told a regulator regulate not your friends not here to solve your legal issue and regulate the people work in regulatory bodies it change every two or three years because they are their public officer so they turn and the the

first wave of regulate of people walking on this hippy things there are young people very very small very very nice maybe in five years like it will it will have a war against a fee for instance and you will really regret to have see this guy too Hurley the idea about the regulation it's you have this kind of regulations that may apply yeah it's like be smart do not try to avoid a regulation of course if you want to do security offering you have to apply the regulation like paired if you want to do gambling do it but don't come to me to explain me what you want to do because it's not of my business gambling is prohibited in France in private in

Europe you know I go to cross our or Malta and do it there but if you want to do like a crypto asset activities in Europe and USA like the idea it's deal with the regulation and do a legal strategy like to understand what is the risk actually that's very important to understand the regulation it's not something like on/off it's a there is risk there is a regulation and following the risk like more user more volume more risk whatever the risk is more you have to be like careful about the the compliance to compliance to implement into your project but you don't need to be like more compliant than a bank if

you have two or three user of course so that's something very problem because I have often a lot of client who come to my my love him and say I want to be compliant with the GDP air and I often answer them by start your services first regulation is like drugs so those mega arisen actually and that's that's something very important it's sorry this slide should be at the beginning but anyway the the regulation it's not bad by itself of course it's it's it cost a lot it's you you it's time-consuming but regulation it's a matter of trust I mean when I for instance come to the first Bitcoin meeting in Paris it was like something

like four four years ago maybe four five years ago we were like maybe fifty people at least in front they were like few thousand people maybe I don't know of course we are dealing with Bitcoin it was a very very small community everybody know when it shows everybody was really concerned and really deep knowledge insecurity in how Bitcoin was working it's not the same anymore we are like thousands of people there taxi drivers are they are trying to buy Bitcoin and these people like don't trust this community so-called community or don't trust the people who are watching this field so that's why we need regulation regulation here to protect at the beginning the purpose of

the regulation it's to protects investors protects the random people we can be stupid we can like we can don't know how Bitcoin or deafies working of course and that's why that's why we need actually regulation like in my law firm we we we have we defend a lot of victim of scams or we also define a victim of like miss miss functioning of platform for instance like people who lose money because the custodian of like I've lost and most of the time the platform is registers in a offshore jurisdiction like seashell or km or something like

that actually it doesn't exist legally and we called we can do nothing actually so that's why regulation is is needed like at least to let the people ask to ask to the phone back as to - to this platform to be held liable for what they did wrongly but for you in your in your in your area in this area especially in a fee because their fee will be regulated sooner or later actually for most of the day fee is not decentralize enough I'm sorry - to be outside of the scope of regulation the the regulation will come like like depending relevant factors number of users democratization volume in the law or in our nature data

you collect if you are in the data you know that business so the idea is to have a regulatory strategy like understand your risk to understand your is it with two kind of risk the first one is a legal one it's what will be the next regulation so to to be aware of this job of course we can go to a lawyer but I'm not here to sell my my business there is also a lot of way like a smart way and cheap way to be aware of the regulation be close of the Association who are like representing the crypto industry before the before the regulator because actually it so it's a one-stop-shop to

have information about what happened in the regulatory environment and it's usually cheap free free or really cheap there is some people who ask directly to the regulator as I told you it's not often a good idea but you can also ask to the other compliance officer while working in the field if they accept to share with you this kind of knowledge and the idea is found me what we can what we try to do with our client is we advise them at the beginning we talk we try to build a bigger Ettore strategy say ok you are for instance you have like one two three four kind of regulation on the left like this is the factors of risk like if you reach for

instance 10,000 users something should lighten on your head and say ok I maybe I have a problem with the GDP - I should be compliant at this at this step because the risk is increasing and I have to invest into a GPA in GDP our compliance policy this is for the obligation of course you are you you can delay some some regulation you count for instance on tea money laundering in France if you are selling crypto asset against against a euro you have to implement onto money laundering from the beginning of course but my idea is to to really add up to smooth like regulatory approach do not beer don't try to be

outside regulation if you are if your activity is financial of if there is risk we don't try also to be more compliant that everyone else is does that make sense you will not be competitive yeah it's to just smooth things off I have already finished my talk so I thank you for your attention and I will be very glad to answer your question about what you want thank you very much you can do the questions now do the questions any questions you talked about dealing with exchanges and

exchanges that have been hacked have you been able to retrieve money for people whose account has been hacked for the big exchanges like cracker not going bears or French ones no it it may happen it's it's not easy actually because of course the exchanges know that if they start to pay back to give give back the phones there will be a lot of people who asks the same it will it will spread but usually what we are doing as a lawyer in this because we advise both we advise we can advise exchange or platform and also individual who have problem of course not with the same platform and we we always try to negotiate the idea is to

like to show little bit the muscle it's what usually these people hire an advocate lawyer so we we we say that we want to take a legal action of course but usually we also like what we like to do in my law firm it's to play with the regulation they say ok you are not clean like 100 percent clean on your own money laundering policy you are not only clean on your consumer regulation so we will basically call the SEC or Kohler the regulatory body yeah that's that's not that the game as it is player right now and that's why that's why I say like it's depend of the risk

if you have two users this will never happen if we start to have 10,000 users if you lose the phone of one users it will be like it will become crazy and we will help him to recover the phone found me or of course another love him and the regulator usually don't don't spend too much to watch what happened in the market it just wait for the anonymous call saying as this factor is wrong on this side and it's it's true for tags like anti-money laundering GDP our compliance also a little bit about regulatory arbitrage and is it something

is it a strategy that you can implement in Europe is there I mean are there are significant differences between countries in the euro zone is it something that's worth thinking about yeah of course it's always in the table if the project is big enough and it's it's the regulatory shopping it's between a lot of regulation it could be the tax the tax level it could be the labor charge it could be but about the anti money laundering which is one of the most important like regulatory burden for this kind of project it is it is implemented at the

European level so it's not anymore something very important for the project but yeah the main the main things it's about tax hello how how would you deal with the situation when some stolen money came to the service so you can avoid it you know is a defi service so how would you handle this situation if you are defi service so you really have to be careful about what is exactly your power you know like like spider-man on kleban

great power great responsibility so it's the same with the law if you do not have any power on the on the way the script I set come in and comes out you could not be held liable for this but you really have to be careful of what is exactly so power is there is a reset button if you have a way to you can and you will so but once again it depend of about the

power you you you have the right and I encourage you as a lawyer like also dedicated in privacy and privacy law and privacy a subject to implement this kind of recommendation because actually like today so transparency of Bitcoin and if there it's a real problem like for privacy actually but that's another topic like if you do not have the power to see what your user is doing with I don't know money off instance or or services which is like obfuscating what happening the blockchain it's okay you you will be by itself outside of the scope of anti money laundering anyway onto money laundering subject into intermediaries and today in Europe these intermediaries is custodial

custodial services so the Bank of crypto and exchange fee had to crypto a crypto chief yet and in crypto to fee attic change of clothes onto money laundering of the fiat side it's it's right easy but it's something very very common now and on the crypto side we huge you you do not need to to have technical technical services such as analysis or this kind of thing it's interesting for me but it's not it's not the way we do on to money laundering on to money laundering you just have to know like if the people in front of you if I don't know you are student and you hand 1000 euros a month

and you dibbles it like 1 million there is a problem and I will ask you document but very like paper document like your revenue your tax audit that kind of stuff is that it has nothing to do about what you want to buy as what kind you want to buy the word con you want to deposit of course if you want to deposit 1 million of Maduro I will be a little bit more like it on TV but where it come from but yeah it's exactly the same when you have a tax audit by the French administration for instance they start to to control the taxpayer we have a huge amount of crypto they don't ask for the nature of the crypto on it don't care just as for the bank received and they asked for you revenue and

everything is current in euro and after that the other like quite precisely like pictures about where the money come from where where where you have English but well the information you you you give them you said that the regulatory activities should basically grow with your project right so you have a smooth transition what do you advise on the first day like on day zero of the project what kind of documentation or activities should I do on the first day

usually I start by creating a company I mean it seems obvious but no but I have some clients who arrive I'm dealing with five million dollar week in defect I'm I'm nothing so first created company be very transparent and like Implanon contractual bag save god because it's the beginning of the beginning I mean at least capture capture liability contractually we we at least will have a small weapon to death on ourselves for to death on you if somebody lost cellphone and want to see you and after that we are we we try to to rank the regulation that may apply which that

apply with a not apply and if find son if you're in the on T money-laundering regulation is very important to be fast on this to deal with the regulator to explain to the regulators that you are very small company because they are not used to deal with start-up at all it's the first time for the last two 20 years that they have like people like you and even even us in front of them usually it's a bank so it's financial industry you know always the same guys it's very very it was very convenient for them we try to explain them that you are young you are you don't have so much users you are starting and they understand like time two times they try to to slightly like slow down the regulation pressure on you

or to give you some times but yeah it's still it's still AML regulatory regulation so that can be the kind but for instance GD P R for me I always wait to see how many user you have of course it's it does not make sense to our GD player compliance policy if you have like like 50 users I mean you can call them like oh you have a telegram group there is a program file you know they know where you live when question users but my notes in the u.s. to us anew usually the regulation apply where you

are addressing the cell phone in the country you are addressing your services so if you are in Shanghai and you're addressing the French market you will have to comply with the French compliances environment I mean for the regulation like such as aunty money laundering or consumer law of course about the tax the tax compliance it's in the country you are based your base thank you very much goodbye