Abiding by FATF’s international regulatory framework is becoming more standard for cryptocurrency-related startups seeking to legitimize their business.
Global blockchain security organization CoolBitX’s founder and CEO Michael Ou sat down with Forkast.News Editor-in-Chief Angie Lau to discuss how compliance with standards set forth by the Financial Action Task Force (FATF) — an international effort to combat money laundering and terrorism financing — is becoming increasingly important for the cryptocurrency sector.
“The world is shifting from the original ‘wild west’ crypto space to a more compliant space,” Ou said. “Why? It’s because FATF has announced that all countries should implement FATF rules to regulate anti-money laundering in crypto.”
CoolBitX recently announced a $16.75 million Series B funding round to expand its first-to-market, FATF compliant solution Sygna worldwide along with the continued development of credit card-sized hardware wallet Cool Wallet S, which pairs with smartphones via Bluetooth to allow users to transfer cryptocurrencies. The round was led by two of Japan’s largest financial services conglomerates – SBI and Monex Group, as well as participation from Taiwan’s National Development Fund.
- “People want [CoolWallet] because they need some somewhere easy and secure to keep their cryptocurrency. It’s a credit card-sized device with a screen to show your balance and has two factor authentication, showing how much bitcoins you are actually sending, and where to send them to.”
- “Whatever business you are doing, do bitcoin because the underlying technology of blockchain behind bitcoin is potentially the next internet. It can replace many of the current systems.”
- “Our forecast is that in the next five years, we’ll grow to at least another 2 million users because we are changing to a more compliance-led approach. The world is shifting from the original ‘wild west’ crypto space to a more compliant space.”
- “Six years from now, the main landscape change of this industry will be mostly that the super-size, mega size institutions are taking the most part of market share…. A lot of the things, business or market we startups are building will eventually become a merged body.”
FATF’s Recommendation 16 — also known as the “travel rule,” is to be enforced throughout 200 jurisdictions globally to prevent terrorism financing and money laundering. The rule specifies that virtual asset service providers, such as cryptocurrency exchanges and wallets, disclose information about participants in transactions of $1,000 or more.
On February 23, G20 financial institution representatives urged countries to align themselves to the FATF’s guidance. “We urge countries to implement the recently adopted FATF standards on virtual assets and related providers,” read a statement published after the summit.
“The threat of criminal and terrorist misuse of virtual assets is serious and urgent, and the FATF expects all countries to take prompt action to implement the FATF Recommendations in the context of virtual asset activities and service providers,” according to a statement by the authority. “The FATF will monitor implementation of the new requirements by countries and service providers and conduct a 12-month review in June 2020.”
See related article: Balancing Innovation and Regulation in Blockchain: Ronald Tucker
Ou, who was part of the Private Enterprise Advisory Group for FATF in consultation with the community, said that countries are racing to ramp up compliance efforts on exchanges and wallets. “We think it’s a very good opportunity for us to take a few steps ahead and get more market share.”
In August 2019 CoolBitX partnered with Kinesis, a monetary system based on gold and silver which allows for cross-border payments through the use of blockchain technology.
Listen to the Podcast
Angie Lau: Welcome to this special edition of In Conversation With. I’m Editor-in-Chief Angie Lau, Forkast News, right here at the Asia Blockchain Summit in Taipei 2019. Sitting across from me is Michael Ou. He is chairman of his 20-year family business, a publicly listed company called SmartDisplayer Technology.
It’s a business that still serves 50 banks around the world, across 30 nations. But he is also the CEO and founder of CoolBitX because his family actually saw the promise of blockchain and pushed him into this merge of blockchain technology and the family business, which is really providing technology solutions for banks around the world. Tell us about how you got here.
Michael Ou: So my family really encouraged me exploring this space because they see a lot of overlapping technologies that could be used in this promising crypto industry. There were a lot of missing puzzles back then, hacks of security for vulnerabilities. Those were really bad for the industry because if you are projecting these as a trillion dollar sized market, you can’t allow to be hacks happening all the time; that would crash the market, people would lose faith. Coming from the traditional cyber banking security industry, we know how to do large scale security properly, so I decided to start this CoolBitX company. Our first product was CoolWallet. It’s a credit card-sized hardware wallet device. Let me show it to you. You’ll be amazed.
Lau: Why do people need it? Why do people want it?
Ou: People want it because they need some somewhere easy and secure to keep their cryptocurrency. It’s a credit card-sized device with a screen to show your balance and has two factor authentication, showing how much bitcoins you are actually sending, and where to send them to. You can verify all of it on this tiny piece of screen. And you need that as a two-factor application, and it also talks to your phone via Bluetooth communication. So in comparison to other crypto hardware wallets that need a USB cable and a laptop, Wi-Fi and everything to make just one transaction, this is a lot easier.
Lau: Ok, what if I take this from you? Can I take all the bitcoin and the cryptocurrency that is stored on this card?
Ou: Unfortunately not.
Lau: Unfortunately not for the thief, but fortunately for you, it’s not possible. How?
Ou: This card only talks to my personal smartphone, it’s previously authorized and paired. So if you take it, it just won’t talk to your smartphone.
Lau: What if I take this and your smartphone?
Ou: My smartphone will require my biometric authentication, my face, my fingerprint, my pin code. So you need to have all three pieces together to make one transaction.
Lau: You come from the traditional space, your family founded the company from the traditional space of serving banks and transactions around the world. How did this evolve to blockchain? What was the promise that they saw even before you did as an MBA student?
Ou: In 2013, when I was an MBA student, our family business received a client request saying they wanted to do a Bitcoin related product. We didn’t end up operating with that customer, but they did throw me this topic; “Kid, go figure out what bitcoin is.” And it took me some time to discuss with my classmates, experts from different countries. They all came back with the same conclusion. This is huge. Whatever business you are doing, do bitcoin because the underlying technology of blockchain behind bitcoin is potentially the next internet. It can replace many of the current systems. But back then or even now, bitcoin itself or cryptocurrency is still the biggest economy of the whole blockchain space. And if you want to make money, you want to survive, you do crypto coins first.
Lau: How many people are buying these CoolBitX smart wallets?
Ou: 100,000, that’s a pretty good number.
Lau: All right, so the adoption rate is 100,000 so far. What’s your growth projection for this year, next year, especially since Bitcoin rallied back up to $10,000?
Ou: Our forecast is that in the next five years, we’ll grow to at least another 2 million users because we are changing to a more compliance-led approach. The world is shifting from the original “wild west” crypto space to a more compliant space. Why? It’s because FATF, the United Nations sub-working group has already announced that all countries should implement FATF rules to regulate AML in crypto in 12 months, that’s not a long time. So all countries are like, “We’ve got to react now, we’ve got to put more compliance efforts on exchanges and wallets.” We think it’s a very good opportunity for us to take a few steps ahead and get more market share.
Lau: How are you thinking about compliance with FATF in this crypto wallet?
Ou: Currently none of the private wallets have a KYC layer or compliance layer. All the addresses are anonymous. Say if I’m an exchange or I’m a regulator and I want to know if you own a private wallet and what your address is, how do I for sure ensure that address belongs to you? That’s the question. So we are building a layer on top of our current hardware wallet to ensure that this piece of address belongs to me.
Lau: You are part of the Private Enterprise Advisory Group for FATF in consultation with the community before they came out with this guidance. Do you think this is the right direction for regulators to ask for compliance, to ask for KYC and AML?
Ou: I was part of that FATF private sector consultative forum and the overall agenda of that forum is that they were determined to come up with this set of regulation. The motivation behind that is they see so many funds going into the dark market, black market, even terrorism. That’s just totally against the sole reason why FATF exists. They are there to fight against those bad actors. If you ask me if it is okay for them to come out with this regulation, well it’s their job. They had to do it. So I don’t think it’s my position to say whether it’s right or wrong for them to do that, but I can see why they are doing it.
Lau: So now you think there is a real value in the market for KYC, for compliance, and you’re putting that technology layer onto your hard wallet. Is that what your competitors in this space are doing as well?
Ou: Some competitors are sensing this need also, and a lot of them are certainly moving in a more compliant approach.
Lau: But what differentiates you in this space in terms of KYC? Why should I trust CoolBitX versus another smart wallet or hard wallet?
Ou: That is where our experience and expertise came in.
Lau: From the traditional side, the family business side.
Ou: Yes, our traditional family business is all Visa, MasterCard certified technology. It’s security proven and its integrity proven. Authenticity proven, procedure proven. All that strong technology to HR has to be audited. You have to do things in the right way to ensure nothing goes wrong in between. We have been leveraging the same standards and protocol to add that extra compliance layer to our wallet. So leveraging the two decades proven proven model for our technology.
Lau: It’s interesting that the technology is not the only thing that really is being valued right now, it is understanding the process and the compliance part. How many people are on your team, how much of the talent pool that you have at CoolBitX actually think about the process as it pertains to the technology?
Ou: Now we are a team of 40 and we have about three people thinking about the process. Beside that, we also have outsourced, external auditors that audit the way we do things.
Lau: We often ask our guests to look into the future, to think about how their product or how blockchain technology is really going to evolve how we function as a society or even peer to peer a year from now. What is it going to look like six years from now?
Ou: Well, I think six years from now, the main landscape change of this industry will be mostly that the super-size, mega size institutions are taking the most part of market share. I think a lot of the things, business or market we startups are building will eventually become a merged body.
Lau: Yeah, and Facebook Libra came out, they also have as part of the group Visa and MasterCard and a lot of the institutions that you’re already working with on the traditional side. It’s interesting that tradition is now evolving to blockchain. Who else is interested in blockchain technology that you’re collaborating with today that we will see?
Ou: We are in a stealth mode working on this compliance product with quite a few top tier exchanges in different countries. But we are not at liberty to disclose it right now, but stay tuned. We’ll be able to release more information in the middle of August.
Lau: All right, well, Michael will tell us all about it on Forkast.News, and do stay tuned for that. But before I let you go, I’ve got to ask you, how does Facebook Libra change the dynamic of the conversations that even you’re having with enterprise?
Ou: It’s definitely a plus, because in the past there were a lot of doubts from traditional industry saying, “Will this crypto ever go south?” But then more and more big guys are coming in, especially Facebook Libra coming in with a 2.7 billion user base. That’s something they cannot now say, “I’m going to ignore it, it’s not going to go anywhere.” So it changed in a dynamic way, it has become more positive now because for sure, everybody knows with Libra coming in, the market size will grow many times more than now.
Lau: Amazing. Michael, thank you so much for joining us on Forkast.News.
Ou: Thank you, Angie.