USDT payouts to sellers on marketplace

[avalanche]

I'm working on launching a marketplace where I will process payments via Stripe and support payouts to sellers in stablecoins such as USDT or USDC aside from the traditional methods. Legal entity is a vanilla UK LTD without crypto license or anything like that.

How would you approach the accounting of such transactions? Do I need a license for such operations? Any pitfalls to watch out for?

 

[Sols]

Yes, you need a license if you operate this through a UK company and/or are based in UK/EU/EEA.

See: Where to register for fintech business? Gibraltar, Cyprus or other?

 

[avalanche]

Yes, you need a license if you operate this through a UK company and/or are based in UK/EU/EEA.

See: Where to register for fintech business? Gibraltar, Cyprus or other?

Do you mean license for crypto payouts or specifically running a marketplace?

UPD: ok let me check your post first

Yes, you need a license if you operate this through a UK company and/or are based in UK/EU/EEA.

See: Where to register for fintech business? Gibraltar, Cyprus or other?

Oh wow I'm seeing here that license is needed just for running the marketplace. However I haven't seen any of my EU/UK competitors owning a license such as Cults3D or rc3dmarket. Maybe there is some particular aspect that requires marketplace to have an EMI license?

Based on my understanding I'm only an agent and not a financial institution unless I allow the sellers to transfer their "credits" to another person within my platform

I've just read more information on that topic, found this article: How PSD2 impacts platforms and marketplaces

It says that yes license is needed however "Some exemptions might be available, such as the use of the commercial agent exemption. The commercial agent applies to platforms or marketplaces that are only acting on behalf of the payer or the payee. So unless you’ve structured your business around the commercial agent exemption, you’ll fall under the scope of the PSD2 license.".

Anyone has any clue on this exemption?

 

[Sols]

Non-compliance is rampant and some older marketplaces are given leniency to transition. Not all marketplaces are set up in a way that's in scope for PSD2 regulations. For example, if you don't hold the money yourself and just help arrange a P2P transaction, that's not a financial service. Would recommend reading the two links I left in the other thread where Stripe and Adyen explain why their solutions help with PSD2 compliance.

Under PSD2, if hold money on behalf of someone: that's a financial service. That's what Stripe and Adyen do. The money received from buyers isn't credited to you. It's held by them and at your instruction credited to a seller. All you get paid to yourself is the profit margin.

You can probably get away with your plan for a while, especially if it's a narrow market segment and not a general purpose one like Ebay. But if the FCA comes asking, you will have to shut down, change your model, or get a license.

 

[avalanche]

Non-compliance is rampant and some older marketplaces are given leniency to transition. Not all marketplaces are set up in a way that's in scope for PSD2 regulations. For example, if you don't hold the money yourself and just help arrange a P2P transaction, that's not a financial service. Would recommend reading the two links I left in the other thread where Stripe and Adyen explain why their solutions help with PSD2 compliance.

Under PSD2, if hold money on behalf of someone: that's a financial service. That's what Stripe and Adyen do. The money received from buyers isn't credited to you. It's held by them and at your instruction credited to a seller. All you get paid to yourself is the profit margin.

You can probably get away with your plan for a while, especially if it's a narrow market segment and not a general purpose one like Ebay. But if the FCA comes asking, you will have to shut down, change your model, or get a license.

Oh so does that mean that I can just operate my business and only react when FCA comes asking? Without personal liability as the director. Because hiring the lawyer is going to be insanely costly just to test my hypothesis, I'm not even sure if my narrow market niche will generate any significant revenue yet

 

[Sols]

I've just read more information on that topic, found this article: How PSD2 impacts platforms and marketplaces

It says that yes license is needed however "Some exemptions might be available, such as the use of the commercial agent exemption. The commercial agent applies to platforms or marketplaces that are only acting on behalf of the payer or the payee. So unless you’ve structured your business around the commercial agent exemption, you’ll fall under the scope of the PSD2 license.".

Anyone has any clue on this exemption?

The commercial agent exemption varies a bit depending on where you go, but generally means you as the marketplace are acting on behalf of the buyer or the seller. I'm not sure it would work in your case.

Oh so does that mean that I can just operate my business and only react when FCA comes asking? Without personal liability as the director. Because hiring is lawyer is going to be insanely costly just to test my hypothesis, I'm not even sure if my narrow market niche will generate any significant revenue yet

Same as any violation of the law. You can do it until you're caught. Then you face the consequences.

If you think compliance is expensive, you should see what non-compliance costs (if/when caught).

 

[avalanche]

The commercial agent exemption varies a bit depending on where you go, but generally means you as the marketplace are acting on behalf of the buyer or the seller. I'm not sure it would work in your case.

As I understand it, I'm only acting on behalf of the seller here because I only accept the payments for an instant transaction. Buyer receives a digital product right away after purchase without any delivery time etc. I will only manage refunds when needed. Hard to imagine what could be the case of an exemption if not this.

UPD: I'm reading Stripe documentation and things starting to become clear.. Looks like exemption is only granted when I'm not handling any funds

Same as any violation of the law. You can do it until you're caught. Then you face the consequences.

Based on your comment I had an impression that there would be no significant consequences except for the necessity to decide whether to close down the business, move it to another jurisdiction or acquire a license. Or you meant some significant consequence like huge fine or a jail time?

If you think compliance is expensive, you should see what non-compliance costs (if/when caught).

Compliance is expensive only when I'm testing the idea, just as an example it would be a huge disappointment to pay 4k GBP in lawyer fees just to get 500 GBP net income per month from the product idea


I guess I have to consider moving my business to Singapore or use StripeConnect or Adyen

 

[Sols]

As I understand it, I'm only acting on behalf of the seller here because I only accept the payments for an instant transaction. Buyer receives a digital product right away after purchase without any delivery time etc. I will only manage refunds when needed.

It could be worth exploring. If you're UK based, have a lawyer just confirm that you qualify for the exemption.

Based on your comment I had an impression that there would be no significant consequences except for the necessity to decide whether to close down the business, move it to another jurisdiction or acquire a license. Or you meant some significant consequence like huge fine or a jail time?

Consequences depend on the severity of the breach. If you're raking in a few thousand GBP per month, the FCA is just going to slap you on the wrists (i.e. some fines and a warning). If you've scaled your business into millions, you're looking at fines. Jail time is rare if your only fault was lapse in controls. Serious repercussions are really only a risk if your services have been used for money laundering and you failed to detect that.

 

[avalanche]

It could be worth exploring. If you're UK based, have a lawyer just confirm that you qualify for the exemption.


Consequences depend on the severity of the breach. If you're raking in a few thousand GBP per month, the FCA is just going to slap you on the wrists (i.e. some fines and a warning). If you've scaled your business into millions, you're looking at fines. Jail time is rare if your only fault was lapse in controls. Serious repercussions are really only a risk if your services have been used for money laundering and you failed to detect that.

Thanks a lot Sols, I'll be looking further into this. Perhaps I may also consider other jurisdictions such as UAE, Singapore or USA