There’s nothing that sends shock waves through the crypto markets like the prospect of regulation. And there’s also nothing so hard to establish on a global scale. After all, how can you regulate something when you can’t agree on what category it falls into, and when laws vary across jurisdictions and cultures? One Canadian exchange, Coinsquare, is taking an interesting approach that just might prove that in this fast-paced industry, slow and steady wins the race.
The Canadian Cryptocurrency Market
Canada is a country that believes in the potential of cryptocurrencies (the Bank of Canada even explored creating its own digital currency toward the end of last year), and Bill C-31 recommends that all digital currency companies register with the regulatory authority, FINTRAC. Moreover, the OSC (Ontario Securities Commission) recently announced their intention to draft innovative regulation in 2018.
Despite all this, not everyone’s playing ball. Coinsquare, in fact, is one of the only regulated trading platforms in the country. They self-submitted themselves to FINTRAC and are now fully regulated as a money services business (MSB).
There’s a pragmatic wisdom about Coinsquare’s founder and president Virgil Rostant, and CEO Cole Diamond, that most of their competitors don’t have. Looking back to Mt. Gox and the inexperience and mismanagement that led to its demise, Coinsquare was founded with a mission to do exactly the opposite.
Cole explains, “Virgil saw what happened at Mt. Gox; he saw it as both a failed cryptocurrency exchange in terms of lack of security and in terms of internal mismanagement control. He felt he could do a better job, so he built his own.”
Inserting themselves in the market just in time for it to take off, Coinsquare hired their first employee in April of last year, and have since become a team of 140. As well as focusing on security and mismanagement control, Virgil took a strong stance on regulation from the start. “If you’re not compliant with local regulation, your business is at risk,” Cole states simply.
And Coinsquare isn’t in the market for in-and-out profit. They aim to be around for the long haul, favoring slow and steady growth over rapid international expansion – an approach that seriously curbs their earning power.
Says Cole, “We pay a price for moving significantly slower than a lot of our international competitors. Our position is, don’t make a mistake so we can be around for the long haul.”
As a platform that’s open in Canada to Canadian customers, only accepts money from Canadian financial institutions, and abides by all existing regulations, Coinsquare is fully compliant. However, they “leave a lot of money on the table by taking this approach – some 98 percent of the world market and trading volume.”
So, why limit their potential profit when they could easily open up their customer base?
Expansion Through Partnership
“One of the biggest problems is that the AML rules are different between Canada and Colombia, Colombia and South Africa, and certainly South Africa and the US. So when you accept funds from all around the world, there could be an issue from local regulators in different jurisdictions.”
Instead of building one international platform while unfamiliar with the regulatory authorities in any other country, they decided to find partners in various locations around the world instead, and power those platforms. The first of these partnerships will come to light over the next few months in the EU, and the second in the United States in June.
These partners will comply with all regulations in their jurisdictions. That may mean listing different coins, using different payment rails, and fulfilling different AML requirements. But by partnering with fully compliant businesses in their areas, Coinsquare creates a closed loop system in which each country takes its own position in terms of regulation, what can be listed and what can’t.
“I think this is a model that could apply to all countries,” says Cole. “Worldwide regulation isn’t something that’s going to happen in 10 years or even 20 years, which is why we’ve taken the approach that we have. We could be making major dollars, significant dollars, we could be doing those numbers, and we’re not so that we can be around for the long term. But we believe that a lot of international platforms will be pulling out as we go in.”