When Gemini, the NY-based cryptocurrency exchange and custodian, received an e-money license from the Central Bank of Ireland last month, it became the first firm to do so since late 2020.
he cryptocurrency firm founded by the Winklevoss twins had been toiling in Dublin for over a year – setting up an office, hiring staff and obtaining regulatory approvals to break into the European market.
Ireland has become a popular location for many European and American fintech and cryptocurrency companies looking to expand their presence in Europe.
Since the Brexit referendum, many companies have tried to strengthen their regulatory position in the EU.
Stripe, Coinbase and Jack Dorsey’s Block have all secured e-money or e-money licenses in Ireland as the fintech sector has exploded and banking undergoes a dramatic change with the exit of Ulster Bank and KBC.
Liam Murphy, a former policy and communications adviser to the UK Cabinet and the European Commission, is EMEA Managing Director at communications company Wachsman, which works with several fintech and cryptocurrency companies active in the regulatory arena.
“I believe that Ireland will be largely used as a base for European expansion. It’s purely business logic. I think they accept that the market in Ireland will be of a certain size, but above all it’s a good place to start,” he says.
“Ireland is considered a friendly jurisdiction for foreign investment.”
However, not everyone was enthusiastic about the process of obtaining regulatory approval in Ireland.
Vivid Money, a German fintech company that competes with Revolut and is backed by Softbank, had applied for an e-money license from the Central Bank of Ireland but withdrew its Electronic Money Institution (EMI) application.
“We recently decided to pursue other options. This was a purely operational decision. Certainly one of the reasons we decided to proceed with other workstreams was the significant amount of time it took to get approved. It wasn’t the only one, though,” said a spokesman for Vivid Money.
As a result, she is currently reorganizing some of her staff positions.
This has raised questions about how long it can take to get approvals in an industry known for its speed.
Vivid’s decision follows Revolut being granted an e-money license here but choosing not to use it.
It also follows Revolut withdrawing its application for a Mifid license in Ireland, which it would have used for wealth and trading services operated from its Dublin hub.
A Revolut spokesman said the company received a full banking license from the European Central Bank last December, making an e-money license obsolete.
“With Ulster Bank and KBC withdrawing from the Irish market, Irish customers need alternative banking providers rather than an e-money account,” the spokesman said.
“Now that Revolut Bank is in a position to bring more competition and choice to the Irish banking market, we no longer plan to serve customers in Ireland with the e-money license that the Central Bank of Ireland approved late last year Has.”
Revolut has since opened loan and deposit accounts in Ireland.
A central bank spokesman said that “the financial system and the banking sector have changed fundamentally in recent years” and that they welcome innovation and new entrants, but these things take time.
“We operate a transparent and robust permitting process to ensure companies are able to operate in a regulated environment,” the spokesman said.
“This process can take some time depending on the nature, scope and complexity of the application; the company’s familiarity with regulatory requirements; and their ability to meet those aimed solely at protecting consumers and investors.”
Behind the scenes, several other fintech companies are working their way through the central bank’s approval process for various types of licenses. Wirex, a cryptocurrency payment app, expects to be approved for an e-money license by the end of Q3.
According to Liam Murphy, Ireland is grappling with similar challenges seen across Europe.
“Within the EU, there are not necessarily outstanding jurisdictions for fintech.”
He added that there are also cases where fintech startups don’t quite appreciate how long these processes can take.
“They need to know exactly who regulates them, what the minimum standards are and what to expect.”
Fintech has exploded in recent years, attracting big bucks from investors and driving a flood of new entrants. This means more companies are looking for licenses and more regulatory work, including at the Central Bank of Ireland, is required.
Last year, Ireland introduced updated anti-money laundering laws through an EU directive that created the Virtual Asset Service Provider (Vasp) license to oversee the burgeoning crypto and digital asset space.
Murphy said the Vasp designation is so new that no one is quite sure how it will evolve.
Akt.io is a French-founded cryptocurrency trading app that is going through the Vasp licensing process in Ireland and has established a base of operations here.
This was announced by CEO Gael Itier Sunday independent that he expects to have the license by the end of the year.
“We’re in back-and-forth discussions with CBI all the time to complete the application so we can give them everything they need,” he says.
“[We are] describing exactly how the money moves from one place to another, how we protect the money, what our compliance procedures are, what we have in place to combat money laundering – so it’s a lot of work.”
“Many companies are asking at the same time,” he emphasizes – and therefore have to be prepared for a longer process than originally planned.
All of this is happening against a backdrop of major changes in Irish banking. With the exit of Ulster Bank and KBC, customers will have to switch to another bank, which is causing them some headaches, but it also gives customers the opportunity to explore their options.
Roy Zakka, chief executive of fintech startup Layer, said startups and banks alike have a chance — but for many banks, they are catching up with the delivery of digital-first services.
“There’s a lot of room for improvement when it comes to offering innovative products and services, so it’s all open,” says Zakka.
“If you’re looking to open a bank account, it shouldn’t be weeks of frustration waiting for snail envelopes in the mail.”
Making this possible requires a vibrant and competitive landscape for players large and small alike. Everyday payments have changed significantly due to digital services – but the fintech industry still has a lot to do when it comes to loans and mortgages.
“The best deals usually came from the banks, so I haven’t seen any really exciting new mortgage deals,” Zakka said.
Wachsman’s Murphy says onerous regulations could prevent smaller fintech companies from stepping up and meeting these requirements.
“I think it’s easier to deal with a huge, multi-billion dollar company because you have the legal department,” he says. “But that doesn’t make for a thriving tech ecosystem.
“It will be interesting to see how the less resourced projects do this because they need to be facilitated.”
https://www.independent.ie/business/personal-finance/licensing-proves-the-biggest-challenge-for-irelands-fintech-flock-41577395.html Licensing is proving to be the biggest challenge facing Ireland’s fintech herd