KYC Services For ICO And STO

Blockchain technology has taken the world by storm in the past demi-decade and the investing world has not remained untouched. ICO, as a way of raising capital, in 2018 tripled its numbers from the last year and created a new record hitting 20 Billion Dollars in just the first nine months.

Cyprus is one of the leading jurisdictions when it comes to launching an ICO or its younger cousin – the STO. This is mainly due to the non-intervening attitude of the administrative bodies and exceptional ease-of-doing-business in the country. The facts that the University of Nicosia became the first university in the world to accept the fee in cryptocurrency and it offers some of the first courses in the technology are clear examples of Cyprus being at the forefront of the blockchain revolution.

ICO vs STO

ICO known as Initial Coin Offering is where a company offers tokens, based on the blockchain technology, to raise capital for funding its activities. There are no intermediaries or watchdog agencies and this makes investing more accessible and decentralized. The tokens in case of ICOs may or may not fall under the definition of securities in different countries depending on the nature of their use. Due to the decentralization, ICOs are also vulnerable to rampant non-performance and scams.

STO, Security Token Offering, is based on the basic concept of ICOs but with some modifications to address the problems and disadvantages of ICOs. In an STO the objective remains the same – to raise capital. However, clear steps are taken to promote reliability and trust in the minds of the public. Unlike an ICO, the tokens issued under an STO are always securities making them subject to regulations of government agencies and regulatory bodies. There is also an intermediary body like an Alternate Financial Platform or brokers to ensure potential investors about protection from scams and fraud. STOs are not instantly liquid like ICOs and consume more time and money due to their preference for investor protection and reliability.

ICO & STO Know Your Customer (KYC)

KYC has become the standard procedure around the modern world to combat money laundering and misuse of capital to finance terroristic and criminal activities. It is something that has long been a key tool in the banking and financial industries. KYC as its name suggests basically works on the concept of validating the identity of a customer and their intentions behind any transaction initiated by, or to them.

Given the decentralized and unregulated nature of ICOs and STOs, this becomes a crucial necessity to prevent misuse of the technology for nefarious aims. There has not been any significant new legislation or regulation specifically on ICOs & STOs around the world. They are being treated mostly under the old securities regulations. On the other hand, best practices like KYC and AML (Anti Money Laundering) procedures are enforced on ICOs & STOs by all developed economies of the world. Any violation by failing to implement KYC and AML procedures results in heavy fines and penalties in almost all legitimate jurisdictions. In Cyprus too, it is highly advisable to make sure these requirements are fulfilled at the time of raising capital to avoid any future issues.

ICO/STO – Pros & Cons

The public opinion from the community of blockchain enthusiasts has been majorly critical of the KYC norms as they severely hamper the anonymous aspect of blockchain transactions which is one of the biggest attractions for some users.

The reputation of the ICOs has started to be tarnished by the intermittent scams. Investor morale is suspected to take a serious beating if this continues on for long. There have been many cases where fraudsters have been able to scam buyers and get away with it. Leaving the buyers no way to track their money. KYC provisions add a layer of trust to the whole concept of ICO/STO. It promotes a sense of safety among the investors most of whom are not technically knowledgeable about the workings of underlying technology.

Steps in KYC for ICO & STO

KYC is oriented towards making sure the money involved is not being used illegally or for illegal purposes. Thus, the main procedures involve validating the identity of the investors by demanding governmental documents as proof of identity and other details like residence and nationality. It also involves making sure that only the person whose identity has been verified is transacting through the platform. This means secure digital accounts, user-ids and passwords need to be put in place.

The user data once collected must be encrypted to save it from leaking into the wrong hands. There are new developments taking place every day towards better ways of KYC procedures. Firms are adopting methods to store the data on the chain itself to prevent any tampering and leakage.

The future might hold more efficient solutions for KYC and AML concerns by attaching the user identification to the chain itself. However, for now, to keep things running smooth meeting KYC requirement is the best bet.

We Can Help with KYC & ALM

Not having a KYC can result in many hurdles along the way. It doesn’t just invite huge penalties but also makes third parties like banks and other financial organizations, apprehensive of transacting with your company due to the fear of being penalized themselves. Launching and running an ICO/STO successfully cannot be possible without the cooperation of banks and other financial institutions. Thus, it is highly advisable to make sure the basic requirements of both KYC and ALM are met.

Simon Zenios Co has been a leader in the industry on blockchain matters. We have strived to not only understand the technology and its implementations to the ultimate degree, but we also adapt our services according to the latest developments in the market.

We possess the resources and industry contacts to assist you with every aspect of satisfying KYC or ALM regulations. We will make sure all necessary conditions are met while also balancing the investors need for privacy. Our services are custom-cut and adaptable according to your specific business model.

Some of the other ICO/STO services offered by us are

STO / ICO Legal Services

  • Selection, Negotiation, Appointment of Intermediary for STO
  • Assessment of Anti-Money Laundering regulations being met.
  • Legal Support during the Whitelist Period, Pre-STO (ICO) & STO/ICO period.
  • SAFT Agreement.
  • Token Purchase Agreement.
  • Preparation and drafting of the ICO Private Placement Offering Document.
  • Preparation and drafting of the pre-Crowd Token Offer (Pre STO/ICO) and Crowd Token Offer Agreement (STO/ICO).
  • Legal Report for the Token (Security or Utility?) after the Reviewal of the Whitepaper (Opinion Letter from our Law Firm – Requirement for the Bank & the Exchanges).
  • Legal Disclaimer for the Whitepaper.
  • Privacy Policy.
  • Terms of Use.
  • Security Policy.
  • Legal Review of the Whitepaper.
  • Legal Review of the Website.
  • Legal Review of all Social Media Platforms.
  • Legal assessment for the STO/ICO’s compliance with the current regulatory framework.
  • Legal assessment of the application of the Token and STO/ICO within the current regulatory framework for investment services.
  • Extensive legal review of the Token and STO/ICO’s compliance with other applicable legislation (Data Protection Regulations, Consumer Protection Regulations etc.).
  • KYC Legal Advice and solutions for your ICO.
    ICO Corporate & Accounting Services
  • Token Company Incorporation and maintenance.
  •  Marketing Company Incorporation and maintenance.
  •  E-money Company Formation & Licensing.
  •  Tax and VAT Services.
  • Corporate Legal Services.
  • Administrative and Fiduciary Services.
  • Accounting services through our Associate Accounting Firm.
    Other Non-Legal ICO Services
  • Smart contract preparation and drafting.
  • Creation of multi-signature wallet.
  •  Issuing of Tokens (ERC20 compatible).