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Q&A with Cabital’s Head of Compliance & Money Laundering Reporting Officer Justin Choo

Cabital’s Head of Compliance & Money Laundering Reporting Officer Justin Choo discusses the safety of the crypto space and the future of crypto in the European Union.

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Baron Laudermilk: Is the cryptocurrency industry becoming safer in general over time?

Justin Choo: Yes it is. Globally, we see the trend amongst many countries requiring cryptocurrency exchanges to be licensed or registered with the relevant authorities. 

Additionally, the blockchain technology on which cryptocurrency transactions are conducted facilitates a great degree of transparency. The visible audit trail far exceeds that in traditional finance. 

This explains also why hackers are compelled to return stolen cryptocurrency assets, as it would be difficult for them to launder the money and cash out, since all transactions are recorded on the blockchain, the public ledgers that underpin most major digital currencies.

Baron Laudermilk: How is regulation helping to enhance security in the cryptocurrency sector?

Justin Choo: Being regulated involves the need for cryptocurrency exchanges to comply with applicable statutory and regulatory requirements, such as those concerning anti-money laundering, data privacy, and information security. 

These established requirements, which are generally similar in nature to those applicable to traditional financial institutions such as banks, ensures the application of consistent standards to securing customers’ personal data and funds, as well as mitigating the risk of cryptocurrencies from being used to launder criminal proceeds or evade sanctions

Baron Laudermilk: How does compliance impact my privacy?

Justin Choo: Your personal information must be  collected on a need-to basis, in line with applicable anti-money laundering regulatory requirements. However, all  your personal information is strictly confidential, accessible by our employees strictly on a need-to basis, and secured by our security systems against hackers. 

Baron Laudermilk: Let’s talk a little bit about regulation in the European Union (EU). What is the state of regulation in the EU?

Justin Choo: The cryptocurrency industry in the EU is not uniformly  regulated at the moment, with some countries asking for such businesses to be licensed (for example Germany, Estonia) whereas others are asking such businesses to be registered with appropriate authorities (for example France, Lithuania). 

Even in countries that impose a registration regime, some countries require registration with the financial markets regulator (such as France ) or central bank, while other jurisdictions require registration with the financial intelligence unit (such as Lithuania). 

What is consistent amongst EU jurisdictions is the initiative to eventually place all cryptocurrency businesses operating within the EU under some form of regulation. 

Baron Laudermilk: How does the EU help protect its citizens' digital assets?

Justin Choo: There are various ways on how EU regulations help protect its citizens’ digital assets. 

The initiative amongst EU countries to regulate the cryptocurrency industry highlights the EU’s  acceptance of digital assets as a regular financial service. Setting clearer guidelines on key regulations such as data privacy and information security, and requiring adherence for example, would ensure better standards of securing the personal information and digital assets of EU citizens against hackers. For the average consumer, these underline the credibility and importance of digital assets as a financial product, which should provide them with greater confidence. 

Baron Laudermilk: Does the EU apply stricter rules on brokers and exchanges than other regions?

Justin Choo: The EU currently is less strict compared to some other non-EU regions. For example, China has implemented an outright ban on non-central bank issued cryptocurrencies altogether. 

Baron Laudermilk: What does MICA mean for crypto regulation in the EU?

Justin Choo: Markets in Crypto-Assets (MICA) regulation is still under discussion at the moment.  

From one side it is being targeted to foster innovations, have finer regulations of the market, and provide a single licensing regime, while protecting users and investors. But from the downside of this framework, it might implement potential barriers to enter the market and penalize the substantial players or markets like Decentralized finance (DeFi). 

Baron Laudermilk: Let’s talk a little bit about Cabital. How secure is it?

Justin Choo: Cabital believes that the security of our customers’ digital assets are our number one priority. Cabital Fintech (LT) UAB is a company registered as a virtual currency exchange operator and a virtual currency exchange wallet operator (Registration Number 305748659) with the Financial Crime Investigation Service under the Ministry of the Interior of Republic of Lithuania. 

Baron Laudermilk: How does Cabital adhere to regulations?

Justin Choo: Cabital adheres to applicable anti-money laundering regulations required by the Republic of Lithuania. We are closely monitoring the statutory and regulatory environment in Lithuania to establish when EU regulatory changes would be reflected in local Lithuanian laws and regulations. 

Cabital benchmarks itself against leading financial institutions such as global banks, and its internal policies and standards on KYC/CDD are modelled against such established institutions. Where implementation is concerned, Cabital has engaged leading Compliance solutions providers such as SumSub, Refinitiv and Chainalysis to facilitate a robust anti-money laundering programme that is in line with global financial institutions.

Baron Laudermilk: How does Cabital view the future of KYC in Europe’s growing cryptocurrency industry and how are we leading in that spot?

Justin Choo: Cabital views compliance as the future of the cryptocurrency industry. With three of the G7 countries being EU members, it is unavoidable that the world will look to Europe to be at the forefront of regulating the cryptocurrency industry. 

That being said, Cabital seeks to be a part of this future by constantly engaging transparently with its external stakeholders such as banks, customers, and local authorities in order for us to better understand their risk concerns and work on addressing such concerns. 

Internally, we benchmark ourselves against leading global financial institutions by having policies and guidelines on KYC that are in line with what these institutions have. Where implementation is concerned, we rigorously test our compliance solutions vendors to ensure that we only engage vendors that have proven track records and are at the forefront of regtech. 

Baron Laudermilk: What does Cabital do in ensuring that we have the best security systems in the industry?

Justin Choo: We have multiple tiers of defence which involve the use of firewalls, encryption and multi-factor authentication. Should we come under a cyber attack, we will immediately take measures to limit the impact of these attacks by shutting down some of the entries and making the system available as possible.

We also set up different zones to protect our information. Where required, we will disable some features to protect the assets.

Baron Laudermilk: Finally, what about insurance? Do most digital wealth management platforms have some kind of insurance on their customers’ assets or not? What about Cabital?

Justin Choo: We use Fireblocks as our custodian, which provides insurance on digital assets held by Cabital. 

We carefully select reliable investment projects. For CeFi and DeFi investments, we conduct a comprehensive due diligence review on the project prior to investing in them. For Defi projects, we only consider those that require their borrowers to place collateral that exceeds the amount borrowed.