Legal Structure & Risk Control
Changer will perform all of its business in full compliance with the related laws and acquire the necessary licenses to do so. Changer will first acquire the license required for cryptocurrency brokerage and issuance and operation of an exchange in select countries followed by consecutive acquisition of licenses necessary to expand services such as FX transactions and remittances.
Changer’s services will be operated by a legal entity with relevant cryptocurrency-related licenses, and the trade counterparty of all its customers will be the licensed Changer Inc. (while the counterparty at retail exchanges like Binance is someone similar in nature to the trader on the other side of the globe, the counterparty on Changer will only be the operating entity Changer Inc., just as people would go through the bank to exchange money for travel purposes).
Changer Inc. will conduct hedging transactions with Chain Partners America Inc. (CPA) as necessary after trans acting with customers. CPA is a prop trading firm that is Money Service Business (MSB)-registered with FinCEN of the U.S. Department of the Treasury. It participates in the cryptocurrency OTC market as an Eligible Contract Participant (ECP).
Changer Inc. and CPA are separate entities with no direct equity interest. They do, however, share their parent company, Chain Partners, a leading digital asset company in Korea established in 2017 (Chain Partners has 100% ownership of both the subsidiaries).
Changer’s business structure was developed by Chain Partners after thorough review of the relationships between traditional financial markets and regulatory authorities, many years of experience in the cryptocurrency market, legal reviews of various countries, and the like.
With legal, licensed entities providing customers only cryptocurrency services that they are permitted to provide, and the largest financial market, the U.S., in charge of establishing the connection of new services with the traditional capital market, Changer will be able to provide the safest trading environment with the best quotes to its customers.
As risks can always arise from operating a business, such risks will be addressed in this chapter.
Changer provides cryptocurrency-based financial services (i.e. exchange, remittance, etc.) to companies and individuals. As cryptocurrency prices are highly volatile, customers may incur losses using Changer’s services.
Changer will notify such risks to its customers in advance and prepare for any legal risks by fully clarifying them in the terms and conditions. Nevertheless, there is a possibility that a customer who incurred a loss can file a lawsuit against and hold Changer accountable in any form.
In respect of this, Changer will hire legal advisors for continued monitoring of the service to reduce the possibility of any legal disputes. In case of such disputes, Changer and its legal advisors, together with extensive experience in digital assets, will respond in the most effective manner.
Companies engaging in businesses related to cryptocurrency must always be fully aware of issues arising from money laundering by criminals, terrorists, drug offenders, political offenders, and the like. Changer’s parent company, Chain Partners, is one of Asia’s most compliant companies in this matter.
Since January 2019, most banks use AML/CFT solutions from Dow Jones Risk & Compliance and Refinitiv (formerly Thomson Reuters) to screen their customers. These solutions help them identify and avoid high-risk transactions by providing a list of more than 1,600 international sanctions announced by the government and international organizations including the UN, the EU, and Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury.
In addition, a solution developed by Sygna, a company invested in by Japan’s SBI Group and specializing in adherence to the “Travel Rule,” were preemptively adopted under the FATF guidelines on cryptocurrency introduced in June 2019.
As a company dealing with cryptocurrencies, Know Your Customer (KYC) and Anti-Money Laundering (AML) are Chain Partners’ top priorities. Changer intends to actively cooperate with each country’s investigative authorities and compile identity and transaction records of all of its customers.
It is, realistically speaking, difficult for Changer to obtain licenses in all countries, and hence may not be able to provide the platform in some countries. As of August 2020, however, few countries regulate crypto-only services.
As countries may increasingly regulate services of Changer’s nature, there are plans to form partnerships with cryptocurrency exchanges licensed in each country to expand presence. In this case, Changer is expected to expand in a sustainable manner as fiat currency deposits and withdrawals in different countries can become easier and more flexible.
Changer’s customers will undergo clearing once a day; and based on this, Changer Inc. and CPA will proceed with their clearing and settlement. If the customer fails to settle what is owed to Changer, the risk may be carried over to Changer Inc, making it unable to pay CPA.
To prevent such a risk, Changer plans to mandate a margin in all transactions with its customers. Customers will only be able to transact with Changer within this range, enabling Changer to essentially eliminate the risk of the customer’s inability to settle.
Cryptocurrency services providers like Changer have the risk of their company or customer-entrusted assets being hacked and stolen. To address this risk, Changer decided to use BitGo, a third-party trust company, rather than using its own wallet or trust solution.
BitGo is the world’s largest cryptocurrency custodial company and its customers include global financial companies like CME Group, SBI Holdings, Ripple, and Rakuten. It offers 100% cold storage technology with bank-grade Class-III vaults, and completed its SOC 2 Type 1 and 2 certifications by the AICPA. Bitgo has also secured a 100 million USD policy through Lloyd’s insurance, one of the largest insurers in the world, to protect its digital assets.
By storing and managing all of its customer and company assets in the BitGo trust system, Changer has reduced its risks of being hacked that may occur from managing assets on its own.
In addition to the risks stated in this whitepaper, it is important to note in advance that a number of other unforeseen risks may arise in the process of conducting business. Changer and Chain Partners have the expertise and transparent operating structure needed to adequately control potential risks.