A high-level regulatory offering attracting the biggest global FinTech businesses
Duration: Client since 2018
Services: Financial Services Regulatory, Commercial
The Charles Russell Speechlys FinTech team were a fantastic partner to work with. Their in-depth knowledge of financial regulation was a valuable asset to the program. Additionally, their attention to detail, flexibility, and prompt turnarounds helped ensure a smooth and timely launch.
Situation
Cryptocurrency has grown in popularity in recent years following its December ’17 boom, but whilst popularity in acquiring cryptocurrency has grown, and become easier, they have been less successful in establishing themselves as a mainstream means of exchange. Relatively few merchants are prepared to accept cryptocurrency as payment for goods or services.
Coinbase, one of the biggest FinTechs in the world, specialising in cryptocurrency exchange and ownership, sought to tackle this challenge with the release of their Coinbase Card, a visa debit which allows users to pay for day to day products using their cryptocurrency.
Task
As with many innovations in FinTech, current regulation may not always be in the prime position to regulate new technologies, so it is essential that any new release be analysed by legal teams able to creatively ensure compliance between the product and existing regulation.
Having advised Coinbase on their European operations previously, Coinbase tasked us with providing the regulatory advice to ensure that the release of their Coinbase Card in the UK was compliant with existing regulations.
Action
The Coinbase Card is innovative because it is the first debit card to link directly with a major cryptocurrency exchange and allow consumers to use their cryptocurrency in the context of every day purchases.
Our team quickly analysed that regulations would cover, effectively, the two-stage process with the use of the Card: firstly the deduction and ‘fiat conversion’ of the user’s cryptocurrency, and secondly the use of this fiat currency to purchase. The critical pieces of legislation, the Electronic Money Regulations 2011 (EMRs) and the Payment Services Regulations 2017 (PSRs), had not been designed with this process in mind, so our team had to consider creative solutions to ensure that the Coinbase Card complied with these regulations.
Payments made using the Coinbase Card have an unusually complicated structure (in that a cryptocurrency conversion process precedes a standard payment card process) and Coinbase decided to involve a number of partners to deliver different aspects of the overall process.
We were responsible for working with the relevant parties to ensure that:
- each party knew its exact role
- no party was allocated a role for which it did not have the requisite regulatory status
- the “customer journey” was clear, and
- the overall process complied with both applicable laws.
The team’s initial focus was on drafting and negotiating the multiparty agreement between the different service providers, to which given the nature of the innovative product, there were no precedents for either the legal analysis or documentation; our team were responsible for putting these together from scratch. We also drafted the customer terms and conditions for Coinbase, and oversaw the terms and conditions that customers were entering into with the other partners, ensuring all the relevant documents were consistent with each other.
Result
The Coinbase Card was successfully launched in the UK in April 2019, and according to Coinbase CEO Zeeshan Feroz, the Coinbase Card has seen “extremely strong take-up” and Coinbase “blew past” the initial 1,000 Coinbase Cards it offered users for free.
Subsequent to its successful UK launch, the Coinbase Card has now been rolled out in France, Germany, Ireland, Italy and the Netherlands.
Evaluation
Our experience with Coinbase has allowed us to exhibit the effective regulatory advice that we are able to provide multinational clients in the FinTech sector, particularly when it comes to products that do not strictly have the sufficient regulatory backing.
FinTech will always be an area whereby technology will force regulation to catch up, and it is essential that legal service providers are able to both creatively utilise existing regulation to ensure FinTechs are compliant, but also anticipate future regulation. We benefit from a close relationship with regulatory bodies and technology lobby groups, and our reputation in FinTech enables us to be at the forefront of financial regulation.
Our work with Coinbase on this novel project exhibits the creativity we are able to provide when advising on existing regulation, both in the UK and internationally. Charles Russell Speechlys provides a simple, friendly outlet for firms seeking simple, friendly legal opinion.