August 9, 2024
Restructuring Strategy: Navigating the Payment Token Regulations
Introduction
An events company sought TLP’s assistance to restructure its operations in response to their ability to accept payments in crypto following the Central Bank’s new Payment Token Regulations (read more about those here). The company, operating as a single entity, needed to adapt to regulations affecting its ability to process virtual asset (VA) payments.
Challenge
The company faced significant challenges, including navigating complex regulatory frameworks across various jurisdictions, protecting its assets, and mitigating risks associated with VA payments. Additionally, the company needed to restructure to ensure continued operational efficiency and compliance.
Strategies, Tactics, and Solutions
Our advisory team conducted a thorough analysis of the company’s current structure and future objectives. Based on this, we proposed two restructuring options:
Option 1: Restructuring for VA Payments
- Entities: Introduction of “Processing Entity (ProcessingCo)” to handle VA payments.
- Recommendations:
- ProcessingCo: Incorporate in tax-efficient and crypto-friendly jurisdictions, focusing on cost-effectiveness and regulatory compliance.
- Operational Flow:
- VA Payments: ProcessingCo would accept VA payments, convert them into fiat currency, and transfer the funds to the main operational entity.
- Fiat Payments: The main entity would continue to handle fiat transactions directly.
Option 2: Use of a Payment Intermediary
- Entities: No new entities required; instead, leverage a broker-dealer or other payment intermediary.
- Recommendations:
- Payment Intermediary: Engage with a reputable intermediary to process VA transactions, converting them into fiat before transferring the funds to the company’s bank account.
- Operational Flow:
- Client Contracts: Amend contracts to outline the payment mechanism through the intermediary.
- Invoices: Reflect final amounts in fiat, with the intermediary handling backend VA-to-fiat conversion.
Outcomes
The restructuring options provided a path for the company to maintain compliance with the Payment Token Regulations while expanding into new markets. The introduction of ProcessingCo offered a dedicated solution for VA payments, ensuring regulatory compliance and reducing risk. The payment intermediary approach allowed for streamlined operations without needing additional entities, though with some regulatory uncertainties. Both options ensured that the company could continue operations smoothly, adapt to the regulatory landscape, protect assets, and maintain efficiency.
***TLP Advisors is a dynamic and forward-thinking consulting, strategy and law firm specialising in providing cutting-edge solutions to our diverse clientele. With our roots deeply embedded in financial services, gaming, web3, and emerging tech, we offer unparalleled knowledge and support tailored to these rapidly evolving sectors’ unique challenges and opportunities.
TLP Advisors has consistently been the firm of choice for L1 chains, DeFi protocols, gaming companies, fintech and payment companies, foundations, funds, and investors. We have built a reputation for excellence through frequent collaborations with regulators, funds, and technology incubators. Our deep understanding of the intricate regulatory landscapes and industry dynamics allows us to provide strategic guidance and innovative solutions that empower our clients to navigate complex challenges and seize emerging opportunities.