Leveraging the Kession Heritage: Part 1 — Compliance and Regulations

There’s no denying that crypto is changing the digital landscape. There’s a wealth of evidence and use cases readily available to suggest it has evolved the way we behave online, from signing contracts and making purchases, to how we deal with cybersecurity. But, we are still some way away from seeing crypto and blockchain investments gaining mainstream adoption. There is still a steady stream of investors and consumers who believe that crypto is too risky to be a serious prospect. In Britain alone, 31.09% of people believe crypto is too high of a risk to invest. The lack of rules makes them nervous. Regulation could change that.

Regulating the market would not only reduce the amount of scam ICOs, that tarnish the public perception of the crypto space, but it would add a layer of legitimacy to the sector that would attract high-profile investors and financial institutions to take a step into the token economy. It could also signal a move away from utility ICOs towards regulated and investor-protected tokenised securities.

There have been worries that regulation could stifle creativity and limit the growth of blockchain-based businesses. While heavy-handed regulation could be a barrier to innovation in the sector, a fully regulated market that requires exchanges to hold a license and subjects them to the same rules and regulations as other financial institutions, is clearly what is needed.

Regulation is the final piece in the puzzle — a necessity to provide a stable and attractive space to attract new talent and investors.

Tokenise: A Trading Name of Kession Capital Limited

Kession Capital Limited was founded in 2012 to provide regulatory hosting services to the financial services sector. Since then the Kession brand has quickly become one of the pre-eminent FCA regulatory umbrella firms, developing lasting commercial relationships with new clients while maintaining our high-level service commitment to all of our existing clients.

The token economy is a rapidly growing market, with nearly 900 Token Offerings and just over $6 billion in capital raised in 2017. However, there’s still a disconnect between traditional finance and crypto. Tokenise was formed to bridge that gap — a trusted platform that combines traditional investment with tokens to provide a stable, transparent and regulated way to invest.

CEO of Kession Capital Limited and Tokenise, Michael Kessler, explains the relationship between the two, and how Tokenise is able to leverage Kession’s FCA permissions to provide a fully compliant and regulated tokenised securities platform:

“Tokenise is a trading name of Kession Capital Limited, so it has the full permissions of the FCA authorised company. There is no workaround. The authorised entity is the one who is conducting the business, just through another name.”

There are other benefits to these FCA permissions too. Michael also explains why the UK is the perfect place to house Tokenise and how the Kession FCA regulatory umbrella works:

“The UK has a unique position within Europe. It has what is called Appointed Representatives. Effectively, what that means is that the principal firm, being the regulated firm, is able to lend its permissions to a non-regulated firm to come under its watch. You still have to go through the process of getting approval from the FCA and you still need to do all the oversight, making sure that they’re adhering to regulations. Effectively, they’re seen as an extension of yourself, but they are not directly regulated or authorised, they are indirectly regulated, through us.”

These permissions are essential to the Tokenise offering, making the sale of tokenised securities on the platform possible. Michael expands on why this is important:

“As long as we are only utilising the regulatory permissions which we hold, then we would be covered by the fact that we are already authorised and able to arrange the appropriate sale of these securities to the relevant categories of investors.”

Compliant Crowdfunding

There are obvious similarities between the ICO method of fundraising and the more established crowdfunding methods. However, whilst both approaches rely on a large group of individuals participating in a sale, that’s where the similarities end. Crypto remains unregulated. Equity/security crowdfunding is regulated. ICOs currently offer utility tokens, offering no security to the investment and no investor protection. Crowdfunding mechanisms must follow the FCA’s regulations to ensure that investor protection is at the heart of the new opportunities being presented.

The crowdfunding model could offer a vision of what a regulated crypto space could look like and this is what Tokenise is looking to establish.

Currently, equity-based crowdfunding platforms are required to obtain a license or to have regulated activities managed by authorised parties. There is also a categorisation process to divide sophisticated, High Net Worth individuals (HNWI’s), and restricted retail investors. Restricted retail investors must confirm that they will not invest more than 10 percent of their net investable assets through crowdfunding platforms.

There are also key regulations concerning the communication of the offers, the language, fairness and clarity of description used to explain the offers and the risk parameters associated with them. These regulations not only protect the crowdfunding community but allow for well-informed and considered investment.

How Crowdfunding Works

Crowdfunding is a way in which people and businesses can try to raise money from the public to support a business, project, campaign or individual. It takes place on a web-based platform, where the business or individual seeking finance explains their project in a pitch to attract loans or investment from as many people as possible. Tokenise will be a fully compliant, regulated crowdfunding platform. Michael explains:

“Effectively, it is a crowdfunding platform. There would be a secondary market with a bulletin board so that people could divest of their investment. But in terms of being able to use it, Tokenise, for all intents and purposes, is Kession.”

The crypto sector evolves quickly, and the key to survival and success is to be adaptable and move with the ebb and flow of the market. Michael believes that Tokenise can do that and shares his vision for the future:

“Because we can do crowdfunding, we should be able to, in future, do ICOs if required. We might have to apply for a variation of permissions if these aren’t granted automatically. But the theory is that, because we’ll be involved in that space anyway, all we’re doing effectively by tokenising is, we’re just adding a digital certificate to a security. The instruments that we can deal with include equities, bonds, certificates, warrants, options. All of those can be dealt with via Tokenise.”

Kession currently has permissions to passport to almost every country in Europe. This enables Tokenise to trade in these jurisdictions, subject to local legislation in relation to crowdfunding, and of course crypto. Michael says:

“It depends on the local legislation in each country. So, in theory, we can passport into all the different jurisdictions, but the practical side is that if a country doesn’t have crowdfunding regulations we can’t promote a crowdfunding product in that jurisdiction.”

A Regulated Platform for Tokenised Securities

Any individual or business looking to tokenise securities and raise capital through a crowdfunding mechanism has to go via a platform. The Tokenise mission is to provide companies, startups and investors with a trusted and flexible ecosystem to buy and sell tokenised securities. We’re creating that platform to create liquidity where it didn’t previously exist and provide businesses and entities with the opportunity to offer security tokens in a fully compliant, regulated environment.

Michael explains why the Tokenise vision is so important:

“Businesses can’t just make an offer to people without going through an electronic platform. The whole thing about crowdfunding regulations is to protect individuals and give them access to businesses and projects that previously was reserved for friends and family, or private equity firms. Therefore, if people want to raise capital, they need to go through a regulated platform and conduct the business in the right manner.”

If crypto wants to emerge from a hugely volatile and largely untrusted environment and hit the mainstream, it needs to offer a secure, regulated and trusted environment for new and established investors and innovators.

Tokenise aims to be a part of that safe and trusted future.

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Tokenise is a Kession Capital Limited brand.