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In a few months, Crowdestate will be five years old and our investor community includes almost 24,000 international investors. We have managed to keep our sign-up processes short and simple, and we have based our current investor identification process on the information provided by investor himself as well as on the data collected during funds transfer transactions.
Since Monday, we are asking our investors to pass through an additional quick identity verification process, that takes just a few minutes and requires the use of any internet connected device equipped with a camera (laptop, tablet, smartphone etc). User portrait and documentation snapshots are taken during the process and those snapshots are used to verify the investor’s identity according to current legislative requirements.
The need for additional verification might raise questions like “Why do we need it?” and “Why do we need to implement it today?” – if we managed to cope with it before, why can’t we continue as before?
There are two major reasons for introducing our new investor identity verification process.
Need to be compliant with current and upcoming regulation.
While crowdfunding has been around for a while, it is still somewhat gray and unregulated area in most EU countries and the future rules are still work in progress. Several crowdfunding platforms (including Crowdestate) are operating segregated “client accounts” to keep track of their investor’s funds and to facilitate money transfers from and to investors, and such “client account” might be qualified and payment services and fall under the jurisdiction of current European Payment Services Directive (PSD2), which means the crowdfunding platform’s payment services should be licensed by the Financial Supervision Authority. While the Payment Services Directive is a universal and unified law applicable across the European Union, different countries are interpreting its contents differently. For instance, Estonia has is considering the operations of “client account” to fall under the exemptions of the PSD2 directive and therefore not being subject to payment institution license. At the same time, the southern EU countries require a full payment institution license in case the crowdfunding platform is operating the “client account”.
Meanwhile, the first draft of pan-European crowdfunding regulation is circulating in the corridors of the European Parliament. According to the published draft regulation, all crowdfunding platforms are subject to financial regulation and licensing principles. The draft foresees the platforms operating a segregated client account to have an additional payment institution license.
Crowdestate is actively looking for opportunities to expand to new European countries and we have concluded, the even if our current business model and current regulation do not require to have a payment institution license, the licensing is inevitable in the near future. Therefore we have started the preparations to apply for a full payment institution license and as a part of that, we need to upgrade our anti-money-laundering and terrorism financing measures to be compliant with all current regulative acts. As a result of that, our processes and procedures will be very similar to the one that you are used to seeing in any European bank or financial institution today.
Need to ensure our compliance with other market players.
In most of our investments, Crowdestate’s investors are funding just a part of the total capital stack (usually equity or mezzanine capital) and a commercial bank takes the role of a senior lender. While in Estonia our current processes and procedures have been satisfying to our banking partners, the more south we move, the more questions we get on identity verification and anti-money laundering prevention themes. The potential senior lenders expect to receive an external confirmation that Crowdestate’s processes and procedures are fully compliant with anti-money laundering and terrorism funding prevention laws and the best verification is seen to be a license issued by Financial Supervision Authority.
Summary
While there is no hurry (yet) to implement the additional investor verification processes and procedures, it is in both our investors as well as Crowdestate’s best interests to implement them as soon as possible. Identity verification is a small and quick step taking just a few minutes of our investor’s time. All information collected during the verification process is fully confidential, used only for the specific verification purposes and is not being shared with any third party.
The verification of our investors’ identity ensures that our business activities are compliant with all current and future regulations, therefore ensuring transparency, security and long-term business continuity of Crowdestate’s business activities.
Thank you for being with us!
