Alternative Finance, Financial Technology (FinTech) and DeFi

AURUM is proud to be a trusted advisor to multiple Financial Technology (FinTech) and Decentralised Finance (DeFi) projects and companies. Since 2017, we have been at the forefront of the FinTech revolution that is taking place worldwide, and our lawyers are perfectly placed to understand the sector and know the challenges facing its players.  

Our clients include virtual asset exchanges, tokenisation platforms, digital wallet providers, payment platforms operators, and DeFi organisations based in different jurisdictions, including countries of the EU and Asia-Pacific region.

The term “alternative finance” refers to financial products and services that are developing outside the traditional regulated banking and capital market sectors via innovative and predominantly online channels, instruments and systems. Among them are peer-to-peer lending, peer-to-peer equity financing, equity crowdfunding (ECF), virtual asset services (virtual assets exchanges, crypto wallets, custody services, etc.), token generation events (TGEs), initial coin offerings (ICOs), initial exchange offerings (IEOs) and security token offerings (STOs). 

Major players in these markets are P2P lending platforms, equity crowdfunding platforms and their operators, virtual asset exchanges and their operators, digital (crypto) wallet providers, virtual asset custody service providers, companies conducting token sales, funds and insurance products for the purpose of compensating investors in the event of losses, often unincorporated teams developing and operating decentralised financial solutions (DEFI), investors and customers.

While specific crypto sector regulation is not the norm today, according to the World Bank and the Cambridge Centre for Alternative Finance Survey, by mid-2021 most jurisdictions will be regulating equity crowdfunding and more than a third intend to regulate P2P lending and ICOs.

Alongside AML/KYC requirements, regulators’ top priorities are protections against misleading promotions or the misuse of client money. Regulatory frameworks impose requirements in relation to the clarity and fairness of promotions, sector-specific AML/KYC requirements, and the segregation of client assets (where applicable). Some jurisdictions may treat loans (and constituent parts of loans) traded on P2P lending platforms as securities, which would in turn require an additional license to operate a secondary market.  In the European context, for example, some platforms might be licensed to operate as Multilateral Trading Facilities (MTFs) for this purpose.

At AURUM, we guide our clients and their teams through the regulatory maze to ensure their projects preserve value and remain sheltered from risk.    

Operating an alternative finance firm requires the definition of functions and activities which firms are (and are not) allowed to carry out. In regulated sectors, this will usually be conditional upon holding the relevant license. The obligations imposed on firms by regulations include requirements with respect to communications, advertising or promotions, operations, management, systems and controls, and client onboarding.

Legal services for the virtual asset exchanges and blockchain (DLT) projects

AURUM combines its extensive experience in structuring and supporting virtual asset exchanges with its profound knowledge of the industry and regulatory specifics to deliver first-class solutions to its clients. 

Selected services for virtual asset (crypto) exchanges and blockchain projects:

  • Development of the regulatory strategy for the business.
  • Development of the corporate and legal structure.
  • Tax advice and planning.
  • Setting up the business and all entities of the group, including structuring the relationships between the entities.
  • Structuring relationships between the shareholders, developing of the comprehensive shareholders’ agreement, and enhancing protective mechanisms for the shareholders.
  • Corporate governance and procedures.
  • Privacy, data protection and cybersecurity.
  • Structuring company-employee and company-contractor relationships, including the development of necessary contracts, policies and documentation.
  • AML/CTF compliance, development of internal policies, rules and procedures in accordance with the requirements of the applicable laws.
  • Development of the user documentation for the exchange, including the terms of service, privacy notice (policy), risk disclosure statements, disclaimers, etc.
  • Assistance in obtaining licenses, including MSB, DLT and financial licenses (if applicable).
  • Development of necessary documentation, procedures, business plans and projections. 

Legal Services for FinTech and DeFi projects

  • Development of the regulatory strategy for the business.
  • Development of the corporate and legal structure.
  • Tax advice and planning.
  • Setting up the business and all entities of the group, including structuring the relationships between the entities.
  • Structuring relationships between the shareholders, including the development of the comprehensive shareholders’ agreement, developing and enhancing protective mechanisms for the shareholders.
  • Corporate governance and procedures.
  • Privacy, data protection and cybersecurity.
  • Assistance in the development of the tokenomics and structuring the custom token of the project.
  • Legal support of the listing procedure and negotiations with virtual asset exchanges.
  • Structuring company-employee and company-contractor relationships, including the development of necessary contracts, policies and documentation.
  • Assessment of whether the AML/CTF laws apply to the business of the client and the scope of such application, as well as the development of necessary policies, rules and procedures.
  • Assessment of whether the client’s business falls within any specific legal or regulatory framework, and whether the business requires any specific license or permit.
  • Assistance in obtaining licenses, including the MSB, DLT and financial licenses (if applicable).
  • Development of necessary documentation, procedures, business plans and projections.
  • Development of user documentation for the project, including the terms of service, privacy notice (policy), risk disclosure statements, disclaimers, etc.

Legal Services for P2P and marketplace lending projects, crowdfunding platforms

Depending on the business model, the specific jurisdiction, and legal structure employed, the following regulatory and legal obligations may be applicable to the P2P/marketplace lending projects and crowdfunding platforms:

  • Filing for and obtaining licenses and required governmental permits.
  • Complying with AML/CTF rules specific to the type of business.
  • Delivering necessary standardised information to investors and users, including risks disclosure statements, incentive structures, etc.
  • Separating the assets of the users from the company’s assets.
  • Delivering proper and accurate communication to the users.
  • Complying with other governance requirements, including regular audits.
  • Complying with cybersecurity and reliability requirements.
  • Maintaining the minimum capital amounts.
  • Complying with advertisement and promotion restrictions and requirements.
  • Conducting checks on and verification of borrowers, ensuring all relevant eligibility criteria are met.
  • Complying with caps on investment size and term, and amount of investment per user, as stipulated by the applicable laws.
  • Complying with the obligations regarding the disclosure of specific information.
  • Other requirements set forth by the applicable laws.

How can we help?

AURUM helps companies and their teams properly structure their projects. Our team assists clients with the relevant legal frameworks, including helping them to comply with the requirements imposed by the law, apply for the relevant licenses and develop necessary documentation.