Case Studies 6 min

Deliver an ICO That Withstands Regulatory Scrutiny

A Canadian Initial Coin Offering Instantly Verifies Global Investors

The world of blockchain and cryptocurrency technology is a new frontier. Like any financial frontier, it is rich with opportunity, peppered with risk, and somewhat fluid with how it is regulated.

As regulations continue to mature, blockchain operators are looking to grow their business while keeping abreast of new regulations to ensure compliance. The Initial Coin Offering (ICO) is one patch of territory where the mystery, opportunity and regulatory demands of the business combine. Similar in concept to the more commonly known Initial Public Offering (IPO) where a company issues shares for the public and investors to purchase, an ICO serves as a fundraising mechanism, potentially leading to future trade on a token or crypto exchange. ICOs are quickly becoming a popular topic of discussion for regulators, investors and cryptoenthusiasts around the world, and performing Customer Due Diligence is a necessary step in helping the ICO comply with existing regulations. This fintech company recognized the sophisticated complexity of compliance and chose Trulioo to help them with their ICO.

Due to its relatively recent foray into society, ICOs pose a unique set of challenges for investors and regulators alike. Many people view ICOs as unregulated securities or entities that allow founders to raise a large amount of capital; others argue that ICOs are an innovative take on the traditional venture capital fundraising model. Often, there are restrictions around who can participate in an ICO. For example, many ICOs don’t allow residents from the United States to invest due to the Securities & Exchange Commission’s (SEC) efforts to regulate cryptocurrencies as securities. Some ICOs only allow sophisticated investors — people deemed knowledgeable enough to deal with high-risk investments — to participate in the funding.

Regulating an Emerging Fundraising Platform

ICOs are difficult to structure. Many continue to exist in somewhat of a gray area due to confusion around regulation and policy. Setting up an ICO requires a heightened level of due diligence to ensure it is completely compliant. The repercussions for non-compliance include fines to jail time, not to mention being associated with the “pump and dump” scams that have made headlines and sullied many reputations. No matter where you launch an ICO, entrepreneurs need to be aware of a raft of securities laws. Because ICOs can raise funds from nearly anywhere in the world, these laws are not only of concern in the ICO’s home country, but also overseas — particularly in the United States. The U.S. market represents one of the largest capital pools with many investors keen to partake. One vital factor is that investors must be verified and checked against sanctions and watchlists to ensure that criminals, terrorists and other bad actors are prevented from participating in ICOs.

How Trulioo Helps ICOs Remain Compliant With Identity Verification

Trulioo is providing identity verification services to a growing number of ICOs, helping to ensure they are fully compliant with the various securities rules and regulatory requirements. Doing this helps to reduce the risks associated with the non-compliance of Anti- Money Laundering (AML) and Know Your Customer (KYC) laws.

One such example is one of the first ICOs to launch in Canada. Offering a unique investment opportunity, the company’s coin works alongside the traditional economy, but keeps public benefit top of mind. Working closely with this ICO to ensure it met necessary province-specific securities laws, Trulioo was able to help it become one of the first to be completely compliant with all Canadian regulations.

Getting there wasn’t easy. This ICO had to meet a wide range of regulations outlined by its local regulator. It was effectively operating in unchartered territory, which added an additional layer of complexity to the nature of its identity verification requirements. It could not afford to get it wrong — it was truly a make or break situation.

To ensure its coin met all the necessary regulations, it needed to work with an identity verification provider with the ability to provide secure access to reliable, independent, trusted data sources.

As an agile fintech company, it was imperative that the ICO partnered with a trusted identity verification provider that had extensive experience helping businesses meet international compliance requirements across borders quickly, reliably and efficiently. After carefully evaluating various solutions, the company chose Trulioo for its speed, coverage, cost, scalability and easy integration.

Seamless Onboarding, High Levels of Trust and a Successful ICO

With Trulioo, this ICO was able to quickly integrate and access data from over 60 countries, verifying more than 2500 investors in real-time so it could purchase tokens at the time of launch. To add an additional layer of security and speed to its identity authentication process, the ICO also leveraged the Trulioo Identity Document Verification service to overcome the hurdles other ICOs and exchanges experienced with manual verifications. ICOs and exchanges that manually verified investors oftentimes resulted in pausing token sales and temporarily ceasing operations, which took weeks and even months in some cases.

Using Trulioo technology, it was able to meet the necessary compliance standards with ease while also providing a seamless customer onboarding experience — two extremely important factors for any business. Because it was striving to be fully compliant, it was critical the ICO chose a provider that it was 100 percent confident with and that had substantial experience and expertise working with clients in regulated industries. The company issued nearly two million coins, allowing purchasers to buy products and services from accredited companies, complete peer-topeer payments, and earn interest by supporting impact entrepreneurs through microlending, crowdlending and P2P lending relationships.

This ICO, along with many other businesses and services, was facing the challenge of becoming regulatory compliant and turned to Trulioo for its digital identity verification and identity document authentication needs. As a result, it ensured a higher degree of protection for not only its participants, but its investors too, establishing a high degree of trust in its product and company.

About ICOs

Tied to the fascinating worlds of blockchain and cryptocurrency technology, an ICO is a fundraising mechanism in which new projects sell payment, utility or security tokens, which later become tradable on an exchange.

The Swiss Financial Market Supervisory Authority (FINMA) describes payment tokens as being synonymous with cryptocurrencies, while utility tokens are used to provide access to an application or service and security or asset tokens are similar to equities, bonds or derivatives.