In our third Meet the Team interview, we delve into the legal context of the crypto business. CoinLoan’s Head of Legal and Certified Data Protection Officer Aleksandra Shelepova explains the role of lawyers in the industry, key challenges faced by pioneering companies, and trends in crypto regulations.
— You have a long background as a legal advisor. What brought you to CoinLoan?
I have worked as a lawyer in Estonia since 2005, and my previous experience was quite diverse. After wearing two hats as a manager and lawyer in production, I migrated to legal consulting. There, I dealt with everything from licensing across industries to building financial firms from scratch in and outside the EU. I was in charge of all contracts and corporate structuring.
In mid-2018, I realized that the demand for consulting was waning, and I got hired by CoinLoan in a couple of months. Since then, I have handled all license updates, along with the development of our company’s terms, internal policies, and ongoing legal documentation.
— What drew you to crypto?
Crypto is a controversial, challenging, and novel sphere, so I want to be at the forefront. There is a phrase I say to all job candidates in our legal and compliance departments: legislation is being modeled on what we do, not the other way around. What we create and apply here is so innovative and interesting that it gets incorporated into the state legislation. For instance, our legal team has recently contributed to amendments to the Estonian AML Act.
Beyond AML [Anti Money Laundering], I am particularly interested in GDPR [General Data Protection Regulation], IT, and IP [Intellectual Property] law. Aside from being a certified data protection officer, I teach a KYC/AML course online.
— What is the flip side of working for an innovative company?
For a prominent crypto business, operating by the book is a challenge. We are inundated with questionnaires and inquiries. One statement made by a client or regulator may cause a stir. We have to maintain a subtle balance between compliance and doing what’s best for our audience. Challenges are another compelling factor that keeps me at CoinLoan.
— How would you describe CoinLoan’s corporate culture?
This is another reason I feel comfortable at CoinLoan. No other company has ever treated me with the same level of respect. In my 20+ years as a lawyer, I have often seen legal staff become punching bags — they were alerted to problems after the damage was done. At CoinLoan, lawyers are asked for guidance in advance, and it has always been this way.
— Could you define the role of a lawyer in this ever-changing market?
As I said before, lawyers are at the forefront of regulatory changes. Working for one of the leading crypto companies makes this role even more fascinating and challenging. Some of the things we deal with have not been created yet. Others are only being created or will appear in the future. We have to devise ways to structure, document, and regulate them.
— What advice would you give to someone who wants to become an in-house counsel at a crypto firm? What are the key skills and areas of legal knowledge?
First, you must be broad-minded to deal with a massive and continuous influx of information. The focus of the average lawyer is limited to local legislation. The world is incredibly diverse, but those who understand the universal principles of law can fit in anywhere. Secondly, you need to know crypto in depth, trust it, and firmly believe that it is the future of fintech.
I’ve been lucky to have worked with world-famous lawyers from different countries. This experience helped me widen my perspective and succeed in Estonia, although Estonian is not my native language. This may sound arrogant, but if I had to relocate, I think it would take me up to six months to master the essentials of local legislation.
No one can master all national legal systems, but it is always possible to decipher general principles and key points to base your work on. Growing, developing, keeping an open mind, and processing large amounts of data are crucial aspects for any lawyer, particularly in crypto.
— As the crypto industry is relatively young, there is a lack of precedents to look to for guidance. How do you deal with this problem?
I would argue the opposite — lawyers have a wealth of resources at their fingertips, a stream of constantly updated information. For example, with regard to AML, the FATF (Financial Action Task Force) provides clear guidelines covering legal jurisdictions, the treatment of cryptoassets, source-of-funds checks, and so on.
However, this abundance is rather chaotic. Lawyers must make a conscious effort to establish the truth. This is the biggest problem, but relying on the general legal logic helps. We analyze every statement and scrutinize both primary and secondary legislation to see which changes apply to our business and which are obligatory.
The ability to process an overwhelming data flow is a major accomplishment for a lawyer. Unfortunately, few people in this profession can ignore external factors like politics, emotions, and media noise. I don’t use mass media channels, I prefer to focus on legal trends and absorb what is truly relevant.
— Approaches to crypto regulation still vary geographically. In some parts of the world, it is still non-existent. What do you think are the biggest challenges for lawmakers?
In the EU, the biggest challenge is that legal initiatives for crypto come from the top down — that is, they originate in the European Council and must then be implemented in local legislation. The legislators who develop them are not crypto experts.
Now, we are witnessing the birth of crypto regulation. Lawmakers are finally asking market participants to make their significant input, and they are taking it into consideration. This is a major milestone and a paradigm shift that will enable win-win outcomes.
Regulators want to know what measures we would like to see implemented and how. This change is spectacular — 85% of our responses to the latest questionnaire were taken into account.
Ignoring the needs of crypto businesses resulted in laws that could not be enforced. Sooner or later, this approach would have caused capital to leave the market in search of a less restrictive environment.
— Speaking of the regulation, do you see any general tendencies this year? Can we expect 2022 to be a year of crypto policies in the EU, given the Markets in Crypto-Assets (MiCA) proposal and other notable developments?
It is difficult to make any predictions, especially given the current sanction pressure. I can’t speak for market participants, but I see one general trend of the past few years — attempts to force crypto companies into the mold of banks. I wouldn’t call this approach entirely reasonable. Things that work for the fiat sector are not always applicable to crypto.
Take source-of-funds checks. Banks require original bank statements, scanned agreements, and so on. Given the latest tech advances, these documents may not be as trustworthy as blockchain transactions – any and all hard copies can look indistinguishable from the originals. They cannot have the same level of transparency and trustability as confirmations of transactions made on a blockchain.
Therefore, treating crypto firms on par with banks is a big mistake. Yet this seems to be the keynote of all statements, guidelines, and regulations in the EU. The approaches in some other jurisdictions are more thoughtful.
Another general tendency is the drive for transparency — the desire to impose the fullest transparency in the eyes of third parties involved, such as banks and regulators. This is another misconception and the wrong approach to asset keeping regulation. I presume this area shall be regulated in pursuit of the highest level of trustability and asset safety. Only the AML aspects can be expected to be similar to the banking sector.
— Is it possible that crypto will eventually be treated on par with fiat?
I don't believe it is possible to equate fiat currencies with crypto. Both are means of payment, but cryptocurrencies are unique in many respects. Compared to fiat, all digital assets, including stablecoins, are more reliable. They are also better received by market participants, as fiat systems, in general, are overly complex and less transparent in comparison by all means.
— What are the biggest legal challenges for a crypto lending platform? How did CoinLoan overcome them?
CoinLoan is regulated in Estonia, and we fully comply with local laws. The biggest challenge is the absence of regulations that would govern crypto lending and crypto deposits.
For us, this translates into constant maneuvering between legal restrictions and market needs — essentially, we have to develop regulations for our own business model. CoinLoan has overcome this challenge in Estonia, but we are also looking at other jurisdictions to find a better legal landscape for our clients.
Many of the crypto market players create a misleading facade — they present their licenses as all-encompassing, which is not true. For example, a consumer loan license from a US state does not give holders the right to do business elsewhere. We, on the other hand, provide full transparency.
— From your perspective, has crypto become mainstream yet?
Not yet, but it is gradually getting into the mainstream. Crypto is becoming the main direction of fintech development. The biggest obstacle is legal — I have already mentioned the ongoing efforts to equate crypto with the banking sphere. We can see them in the EU and the US.
In my opinion, though, crypto will never totally merge with the banking industry. Crypto transactions are more transparent for all counterparties involved, whatever the deal. That is why I am convinced that digital assets are the future.
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The information provided by CoinLoan (“we,” “us,” or “our”) in this text is for general informational purposes only. All investment and financial opinions expressed by CoinLoan in this text are from the personal research and open information sources and are intended as educational material. All outlined information is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in this text.