Jump to content
Xi195

Implications of the FinCEN agreement

Recommended Posts

It has been implied here that Ripple has been limited in marketing and facilitating XRP and related products for end users because of the the FinCEN enforcement action against Ripple in 2015.

While it was originally believed that RippleTrade was shut down because Ripple was pivoting (I believe SnapSwap's announcement to stop XRP/BTC support involved some wording like this), it has been implied here, and I have recently assumed, that the FinCEN agreement required Ripple to shut down RippleTrade and discontinue support of products/services targeting end users. 

With a quick google search you'll find this page which summarizes the whole ordeal. Linked on that page is the actual settle agreement signed by Ripple and FinCEN (here).

To my surprise the settlement agreement in no way seems to directly limit Ripple's ability to provide products and services to end users. Take this statement on the twelfth page of the settlement agreement for example.

"Within 30 days of the date of this agreement, Ripple Labs and XRP II will move its service known as Ripple Trade... and any such functional equivalent, to a money services business that is registered with FinCEN"

In no way does this sound like Ripple had to shut down Ripple trade (end user focused products), in fact, the continuation of this product/service is implied. While Ripple no doubt was required to comply with stricter oversight because of this agreement, it seems that they are still subject to this stricter oversight due to the fact that XRP II is still selling XRP and therefore functioning as a MSB. 

For a TLDR version of Ripple's requirements, read the twelfth page of the settlement agreement which lists the "Remedial Framework" Ripple agrees to comply with.

If I am understanding the settlement correctly, it seems Ripple decided to stop supporting end users because of the additional AML compliance risk such support would require. Since this decision was optional, it seems there are two immediate and important implications:

  1. Ripple doesn't need to wait until May 2018 to provide products and services to end users.
  2. Ripple can market XRP and RCL without restrictions related to this agreement

If I am incorrect in my understanding, I would like to know why. If I am correct, I'd like to see Ripple continue more and more to publicly support XRP/RCL.

Edited by Xi195
added "XRP and related" in the first sentence

Share this post


Link to post
Share on other sites

The problem is that Ripple couldn't run a wallet or help people trade on the network without KYC and AML. This is expensive for Ripple and another hoop for users. Almost no one else in the space, who is not holding your funds directly (ie. a hosted wallet like Coinbase) is doing this. There is just no money in it if you can't lend out the deposited funds like a bank, and end users don't want to put up with it because it means extra work. 

However, I agree that Ripple does need to do something to address this problem.

Share this post


Link to post
Share on other sites

Sorry. Deleted my reply to this thread and moved it to more appropriate thread: Vinnie's (long held) ideas for XRP

Edited by enrique11
Posted on more appropriate thread

Share this post


Link to post
Share on other sites
20 minutes ago, enrique11 said:

I want xrp value to go up too, but I don't want it's primary function for banks to be overshadowed by speculation and extreme hype, as has been the case with bitcoin, for example.

I think if you're a Ripple supporter and participate on XRP Chat chances are you are good with the strategy targeting banks. Targeting banks and supporting development/end user participation however are NOT mutually exclusive. They can coexist. As @Max Entropy noted in a separate thread the trick would be communicating in such a way that it doesn't seem like another pivot. 

We know that Ripple wants more end user/grassroots support because they need the liquidity (comments from Miguel). My assumption was they needed it, but couldn't pursue it because of FinCEN, but that doesn't seem to be the case. There were some comments from Adrian's Africa Blockchain Conference talk that echo this same sentiment. He says "it’s unfortunate that, I think, over the last year or two it’s (RCL) been hidden behind Ripple’s commercial operation…Ripple as a company hasn’t been able to put the focus into it that I think we would’ve liked to, and the community didn’t take hold of it and do something with it as we kind of hoped they would" between 36:00 and 38:30 in that video. 

This type of comment from a fairly senior employee at Ripple should be infuriating to this community. OF COURSE THERE IS LITTLE TO NO GRASSROOTS/DEVELOPER SUPPORT. There's no official community support, Ripple's forum is a joke, no developer conference however small, the unique features of RCL aren't marketed, key API's are poorly maintained, there's little to no technical documentation, all despite selling $4M+ per quarter in XRP. 

My guess is that Ripple's response would be something like this: "We are still a relatively small company and can only focus on so many things". I don't think this answer is sufficient. If you consider the proportion of XRP sales to overall company sales, is a similar portion invested into XRP marketing that is invested in to enterprise software marketing? Hiring Miguel was a start, but they need to keep the ball rolling and let the guy do his work. I have a feeling he's battling many of our same frustrations from the inside with plenty of resistance. 

The truth is just as Ripple stands to benefit more than anyone when the price of XRP goes up, they also stand to love the most if it doesn't. Poor performance in these areas hurts Ripple and directly impacts shareholder value. 

 

Share this post


Link to post
Share on other sites
23 minutes ago, Xi195 said:

I think if you're a Ripple supporter and participate on XRP Chat chances are you are good with the strategy targeting banks. Targeting banks and supporting development/end user participation however are NOT mutually exclusive. They can coexist. As @Max Entropy noted in a separate thread the trick would be communicating in such a way that it doesn't seem like another pivot. 

We know that Ripple wants more end user/grassroots support because they need the liquidity (comments from Miguel). My assumption was they needed it, but couldn't pursue it because of FinCEN, but that doesn't seem to be the case. There were some comments from Adrian's Africa Blockchain Conference talk that echo this same sentiment. He says "it’s unfortunate that, I think, over the last year or two it’s (RCL) been hidden behind Ripple’s commercial operation…Ripple as a company hasn’t been able to put the focus into it that I think we would’ve liked to, and the community didn’t take hold of it and do something with it as we kind of hoped they would" between 36:00 and 38:30 in that video. 

This type of comment from a fairly senior employee at Ripple should be infuriating to this community. OF COURSE THERE IS LITTLE TO NO GRASSROOTS/DEVELOPER SUPPORT. There's no official community support, Ripple's forum is a joke, no developer conference however small, the unique features of RCL aren't marketed, key API's are poorly maintained, there's little to no technical documentation, all despite selling $4M+ per quarter in XRP. 

My guess is that Ripple's response would be something like this: "We are still a relatively small company and can only focus on so many things". I don't think this answer is sufficient. If you consider the proportion of XRP sales to overall company sales, is a similar portion invested into XRP marketing that is invested in to enterprise software marketing? Hiring Miguel was a start, but they need to keep the ball rolling and let the guy do his work. I have a feeling he's battling many of our same frustrations from the inside with plenty of resistance. 

The truth is just as Ripple stands to benefit more than anyone when the price of XRP goes up, they also stand to love the most if it doesn't. Poor performance in these areas hurts Ripple and directly impacts shareholder value. 

 

My biggest concern would be some catastrophic issue like what occurred with the Stellar ledger fork because of validator issue (if memory serves), some exploit, etc.

My second biggest concern has to be the balancing act between target industry adoption and cryptocurrency community adoption. To me it all comes down to an issue of timing. Two years ago timing was premature to market ripple as heavily as bitcoin in my opinion. Maybe it's still too soon presently. I don't know, but on the other hand, you have the issue of public support too late and some other tech takes hold first.

I'm really glad Ripple hired Miguel. Japanese bank adoption and Miguel are the two primary reasons I feel so secure about ripple's direction now in the context of ripple's future value for us speculators/supporters. I don't have a background in trading, but did study a little bit. Market Makers play such an important role, but the market needs stability because from my limited knowledge and memory, MMs (Market makers) literally make markets, facilitating trades where none would exist otherwise. My limited knowledge of them gives me the impression that they are the "telephone operators" of financial markets, establishing connections of value and allowing them to execute, facilitating liquidity, but with all the huge speculation of cryptocurrencies comes volatility, then you have a market where if the price is moving up or down for too long or too quickly, the market maker is losing the "signal", like trying to dial into a radio station but the signal is intermittent, and a good connection can't be established between the listener and station, or in this instance a buyer and seller.

Edited by enrique11

Share this post


Link to post
Share on other sites
Guest

Clearly, there are some informed perspectives being put forth here re: what should Ripple do?

Clearly, crafting via documenting and thinking the alternatives through will take considerable energy and that is just for the plan - yet to be executed. For myself, I was first blown away by Ripple Trade... and then poof it was gone just after Comouting for Good was shut down. [I note, that there is now an alt-coin operating on a Virtual Machine model, like Ripple and Computing for Good did.] I was most impressed with the Ripple Network speed and that I could send funds to Japan, instantly. I don't use Ripple anymore because there are effectively no developers doing anything that affect my interests.

I use Bitcoin for stuff, I have regressed.

So, I am not so interested in the price rise, but rather the ecosystem within which applications are being developed... and as far as I can see the baby was strangled after FinCen got involved. This is a real shame. An American watch dog (FinCen) shuts down and kills the American Ripple competitor to Bitcoin.

Go figure!

Strategic planning looks to be important at this stage.

The outcome of the planning activity needs to be multi-faceted. A narrow focus could suffer a narrow product feature functionality attack.

I have stated previously that Ripple has only a two (2) year horizon.

Time is tight.

Share this post


Link to post
Share on other sites
1 hour ago, Apollo said:

The problem is that Ripple couldn't run a wallet or help people trade on the network without KYC and AML.

This may be where I don't have a clear understanding. Because of the FinCEN ruling Ripple is required to 1. Register and maintain XRP II as a MSB, 2. maintain an AML compliance officer to ensure day to day compliance, 3. create and implement an AML training program, 4. be subject to external audits in 2 year increments 5. provide FinCEN with any requested counter-party, flow of funds, or degree of separation info related to the use of the Ripple protocol 6. institute AML programmatic transaction monitoring across the entire Ripple protocol...

Each of those points above are quotes from the agreement. The last one in particular is a doozy. Since Ripple has to institute "AML programmatic transaction monitoring across the entire Ripple protocol", how is it an additional burden to maintain end user support? Based on the above requirements it seems like Ripple still carries the burden of an effective AML policy, yet doesn't enjoy the benefits of supporting early adopters.

P.S. The bold may be construed as aggression, but I'm sampling trying to highlight important points for the TLDR version. :)

Edited by Xi195
em

Share this post


Link to post
Share on other sites

@Apollo Still curious to hear your feedback on the post above. 

Re-reading the original Ripple Trade closure announcement on the Ripple forum in light of a better understanding the Fincen ruling is frustrating. No replies to any of the comments. Very frustrating all around. https://forum.ripple.com/viewtopic.php?f=1&t=15819

Even two months after FINcen agreement Ripple wasn't pivoting and wasn't shutting down RippleTrade...five months before they announced Ripple trade was shutting down. 

Here's an article Fortune wrote when Ripple Trade halted new account sign-ups: https://forum.ripple.com/viewtopic.php?f=1&t=15819

A statement from Ripple in the article specifically states "As we enhance our customer verification standards in compliance with FinCEN requirements, we are temporarily pausing new Ripple Trade signups to focus on a seamless transition for current users" and "No—we're not restructuring or pivoting". Seems like quite the disconnect.

Edited by Xi195

Share this post


Link to post
Share on other sites

For the sake of completeness, there is also this document.

I don't know how to interpret all this stuff. Upon closer reading, you could indeed conclude that (the MSB licensed subsidiary of) Ripple is only restricted in assisting anonymous users.

I just wonder how long it will take before FinCEN is knocking at the door of the ZeroCoin Electric Coin Company. Or sends a letter to all known Dash masternode owners.

Share this post


Link to post
Share on other sites
13 hours ago, Xi195 said:

The truth is just as Ripple stands to benefit more than anyone when the price of XRP goes up, they also stand to lose the most if it doesn't.

Respectfully disagree. Unlike regular XRP holders, Ripple has other revenue streams:
1)~$10M USD one time fee for implementing Ripple Solution to a bank and an undisclosed amount for maintaining it
2)Seed rounds. 
3)OTC XRP sales. We do not know at what price they sell it. 
I would think if selling XRP is your main revenue stream, you would be more concerned about its performance. 

13 hours ago, enrique11 said:

My biggest concern would be some catastrophic issue like what occurred with the Stellar ledger fork because of validator issue (if memory serves), some exploit, etc.

Already happened. When XRP was ~10 cents.
But, judging from the way the team handled recent NoRipple exploit, - any issues would represent a minor setback. 

Share this post


Link to post
Share on other sites
1 hour ago, Graine said:

Respectfully disagree

I think we're on the same page. My point was simply that as the largest holder of XRP, Ripple is disproportionately effected by long term price trends compared to the average holder. 

In other words they have the most to lose or gain based on XRP's performance. 

Edited by Xi195

Share this post


Link to post
Share on other sites
11 hours ago, Xi195 said:

@Apollo Still curious to hear your feedback on the post above. 

Re-reading the original Ripple Trade closure announcement on the Ripple forum in light of a better understanding the Fincen ruling is frustrating. No replies to any of the comments. Very frustrating all around. https://forum.ripple.com/viewtopic.php?f=1&t=15819

Even two months after FINcen agreement Ripple wasn't pivoting and wasn't shutting down RippleTrade...five months before they announced Ripple trade was shutting down. 

Here's an article Fortune wrote when Ripple Trade halted new account sign-ups: https://forum.ripple.com/viewtopic.php?f=1&t=15819

A statement from Ripple in the article specifically states "As we enhance our customer verification standards in compliance with FinCEN requirements, we are temporarily pausing new Ripple Trade signups to focus on a seamless transition for current users" and "No—we're not restructuring or pivoting". Seems like quite the disconnect.

2

Sorry, I'm a bit pressed for time at the moment. I haven't gone back and read the FinCen settlement since it was announced.  From memory my understanding at the time was that Ripple was required to; 1. move Ripple trade to a licensed MSB subsidiary, and 2. help law enforcement monitor the network for suspicious activity (provide tools, knowledge upon request etc.), and 3. follow KYC and AML guidelines for both Ripple Trade users and anyone they sell XRP to (As I understood it at the time this was almost certainly legally required anyway, because almost all digital wallet setups need to do this under US Law ), and 4. Stop providing support to anonymous users (i.e. those who have not been KYCed) and 5. pay a fine.

It is true that none of this directly affects their ability to market XRP. The settlement does affect the perception of RCL as an open network and the cost model/effectiveness of providing a wallet. It also stops Ripple from providing a downloadable wallet to anonymous users and possibly to anyone. Ripple is also limited from marketing XRP by other laws. There are restrictions on giving investment advice etc. 

AML KYC and other regulations seem to be widely ignored in the Crypto space. Ripple is one of only a few companies I can think of, off the top of my head, that truly attempts to comply. Some of this is because they are relatively easy for a regulator to target and they are also a big enough name that enforcement action against them will receive lots of publicity. So Ripple needs to step very carefully. This does limit Ripples set of choices for sparking XRP adoption among end users.

Ripple may now have enough income and recognition on their business side, to shift enough resources back to RCL and XRP to get the ball rolling and still remain compliant. One of the biggest problems with what happened is that it made the end user strategy much more expensive. Hopefully, Ripple now has the resources to overcome the added costs. 

Share this post


Link to post
Share on other sites
4 hours ago, Apollo said:

One of the biggest problems with what happened is that it made the end user strategy much more expensive

In the 7 months between the FinCEN ruling and shutting down Ripple Trade, Ripple made it KYC/AML compliant, they still need to keep a compliance officer, and most importantly they still need to "institute AML programmatic transaction monitoring across the entire Ripple protocol". I see how the FinCEN agreement cost Ripple a lot of money but I don't see how shutting down Ripple Trade saved them anything besides ongoing development costs. The KYC costs were sunk.

I think it simply boils down to poor foresight. The question is if they need end users will they depart from precedent and revamp their message/strategy inna careful and considerate way. 

Edited by Xi195

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...