Optimizing Bitcoin Suisse’s Approach to Banking License

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Optimizing Bitcoin Suisse's Approach to Banking License

Optimizing Bitcoin Suisse’s Approach to Banking License

Optimizing Bitcoin Suisse’s Approach to Banking License: Bitcoin Suisse, one of the pioneering cryptocurrency exchanges, initiated a bank license application process in July 2019 to upgrade its status. Unfortunately, this process was marred by significant AML (Anti-Money Laundering) issues within their business. Ultimately Bitcoin Swiss withdraws its bank license application in January 2024.

In retrospect, a more strategic approach could have been adopted to circumvent these challenges. This post explores an alternative strategy that could have potentially facilitated a smoother transition to a banking license. Do not hesitate to contact us at connect@swissfintechpro.com for more information on this matter

Disclaimer:

This post reflects our opinion on Bitcoin Suisse’s bank license application mistakes. It is not an invitation to trade in cryptocurrency with them or any other exchange.

Strategic Separation of Entities

To avoid the legacy issues associated with their exchange, Bitcoin Suisse should have considered setting up a separate entity dedicated to applying for the Swiss Fintech Light Bank license. This approach offers several advantages. The foremost is that the Fintech Light Bank License serves as a natural progression towards obtaining a full bank license. Applicants will gain practical experience in operating a bank before applying for the full bank license. Other advantages include:

Legacy Issues and Compliance:

Clean Slate: A new entity would not inherit the exchange’s past AML issues, reducing regulatory scrutiny.

Focused Compliance: The new company could be structured from the outset to meet stringent banking regulations, ensuring better alignment with regulatory expectations.

Regulatory Perception and Trust:

Improved Image: Regulators may view a new entity more favorably, and appreciated the step by step approach of starting with the Light Bank License interpreting it as a commitment to robust compliance.

Building Trust: A separate banking entity can foster trust among regulators and clients by demonstrating a dedicated effort to adhere to higher operational standards.

Operational Efficiency and Risk Management:

Specialization: Separate entities allow for specialized management teams focusing on the unique operational needs of an exchange and a bank.

Risk Isolation: By isolating the risks associated with exchange operations, the new banking entity can maintain operational integrity and business continuity.

Click Here to view our post on how to apply successfully for a Swiss Fintech License

Table Summary

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Aspect	Current Approach	Proposed Approach
Entity Structure	Single entity handling both exchange and banking	Separate entities for exchange and banking
Legacy Issues	Inherits past AML issues	New entity starts with a clean slate
Compliance Focus	Combined compliance efforts	Focused compliance tailored to banking regulations
Regulatory Perception	Increased scrutiny due to past issues	Viewed favorably as a commitment to compliance
Trust Building	Potentially lower trust due to legacy issues	Higher trust due to dedicated compliance efforts
Operational Specialization	Mixed focus	Specialized management teams for each entity
Risk Management	Shared risk across all operations	Isolated risks, enhancing operational integrity
Client Confidence	Potentially lower due to combined legacy issues	Higher confidence with a dedicated banking entity
Business Continuity	Risk of disruption affecting all operations	Separate entities ensure business continuity
Security	Shared cybersecurity resources	Dedicated cybersecurity teams for each entity
Learning Curve	No intermediary learning period	Fintech license period provides learning curve for managing a bank

Enhancing Client Experience and Security

Given the inherent hacking risks associated with cryptocurrency exchanges, the following measures could further mitigate these risks and provide additional client benefits:

Controlled Acquisition and Deposit Policy:

Exclusive Deposit Policy: The fintech arm should only allow deposits of cryptocurrencies acquired through Bitcoin Suisse. This ensures all incoming assets have passed through rigorous AML/KYC checks.

Blockchain Monitoring: Employ blockchain analysis tools and regular audits to verify the source of deposits, maintaining transparency and compliance.

Client Incentives and Integrated Services:

Special Exchange Rates: Offer fintech clients preferential exchange rates for transactions conducted through Bitcoin Suisse, incentivizing compliance with the deposit policy.

Seamless Experience: Ensure a smooth integration between Bitcoin Suisse and the fintech platform, allowing easy transfers and unified account management for clients.

Loyalty Programs: Implement loyalty programs that reward fintech clients with benefits or discounts for consistently using Bitcoin Suisse for their crypto transactions.

Educational Initiatives: Provide educational resources and support to help clients understand the benefits of using both the fintech services and the exchange, increasing engagement and trust.

Dedicated Resources for Security:

Cybersecurity Teams: Each entity should have dedicated cybersecurity teams to address specific threats, enhancing overall protection against hacking attempts.

Customer Support: Provide robust customer support to assist clients with acquiring cryptocurrencies and understanding the benefits of the fintech’s policies.

Internal Exchange Assurance:

Dual Compliance Checks: Clients of the fintech can exchange cryptocurrencies internally with the reassurance that both the coins they are buying and the sellers have undergone compliance checks by both the exchange and the fintech. This dual layer of compliance enhances security and trust in transactions.

Table Summary

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Aspect	Current Approach	Proposed Approach
Acquisition and Deposit Policy	Accepts deposits from various sources	Only allows deposits of cryptocurrencies acquired through Bitcoin Suisse
Compliance	Potential inconsistencies in AML/KYC checks	Rigorous AML/KYC checks through controlled acquisition policy
Blockchain Monitoring	Basic monitoring	Advanced blockchain analysis tools and regular audits
Client Incentives	Standard rates for all clients	Special exchange rates for fintech clients
Integrated Services	Separate platforms for exchange and fintech	Seamless integration, allowing easy transfers and unified account management
Loyalty Programs	No specific loyalty programs	Loyalty programs rewarding fintech clients with benefits or discounts
Educational Initiatives	Limited educational resources	Comprehensive educational resources and support for clients
Cybersecurity Resources	Shared cybersecurity resources	Dedicated cybersecurity teams for each entity
Customer Support	General customer support	Robust customer support for acquiring cryptocurrencies and understanding fintech policies
Internal Exchange Assurance	Standard exchange transactions	Dual compliance checks for internal exchanges, ensuring both coins and buyers have passed compliance checks

Consideration of Duplicated Operating Expenses

Operating two entities would incur duplicated expenses. However, this cost is justified. Specialized compliance, better regulatory perception, and isolated risk management outweigh the extra expenses. This approach would likely improve the chances of obtaining the bank license and maintaining a trusted framework.

Conclusion

The proposed strategy of separating the exchange and banking operations into distinct entities, starting by a light bank license, coupled with a controlled acquisition and deposit policy, could have significantly improved Bitcoin Suisse’s chances of successfully obtaining at the end of the process a bank license.

This approach addresses legacy AML issues, enhances regulatory compliance, and provides a secure, integrated experience for clients. By focusing on specialized compliance efforts and risk management, Bitcoin Suisse could have built a more trusted ecosystem. Additionally, client incentives such as special exchange rates, loyalty programs, and educational initiatives would further strengthen client relationships and trust. It would ensure a sustainable and compliant growth trajectory.

The internal exchange assurance, with dual compliance checks, would add an extra layer of security, making the fintech platform more attractive and reliable for clients.

Do not hesitate to contact us at connect@swissfintechpro.com for more information on this matter

Disclaimer:

This post reflects our opinion on Bitcoin Suisse’s bank license application mistakes. Is not an invitation to trade in cryptocurrency with them or any other exchange.