First, align licences, business and revenue one by one
Revenue sources, contracting entities, licensing bases and actual fund flows can be listed by product and country, and whether the descriptions in regulatory applications remain accurate can be checked. The fact that investors can see operating revenue does not mean that such revenue comes from business covered by a licence. A distinction should also be drawn between customer principal, amounts payable to merchants, platform fees and own assets; customer balances cannot be treated as free cash or distributable profits merely because they have passed through a company account.
A change of control is not determined solely by the direct shareholding percentage
The UK FCA requires prior notification and approval for certain acquisitions or increases of holdings, and crypto businesses registered with it are also subject to corresponding control review arrangements. Financing at the group level, voting rights, joint control or contractual rights may need to be analysed together; it is not sufficient to look only at whether the shareholder register of the licensed company has changed. Thresholds and procedures differ in other jurisdictions. Transaction documents may make the necessary approvals conditions to closing and avoid transferring control in advance through governance arrangements before approval.
Hypothetical scenario: valuation agreed, but the channel cannot transfer with the transaction
Assume that the investor wishes to move the business to a new group entity after financing, but the bank and upstream agreements permit use only by the original company, and a change of control also triggers notice or termination provisions. Even if the transaction itself is lawful, business continuity may still be affected. It should first be ascertained who must consent and which products and markets the consent covers, and only then should the migration be arranged; the licensed subsidiary, bank accounts and technical systems must not be treated as a package of assets that can be transferred at will.
Turn due diligence findings into deliverable remediation evidence
In addition to equity and intellectual property, document packages can be established for customer fund reconciliation, historical complaints, anti-money laundering issues, tax reporting, data and key outsourcing. A distinction should be drawn between issues that must be resolved before closing, matters that can be completed after closing and risks that are unacceptable; for each item, the responsible person, evidence and conditions should be stated. Disclosing customer information to investors also requires controlling the necessary scope and access permissions; complete identity documents and transaction databases should not be uploaded indiscriminately for due diligence.
A remediation list should preferably distinguish between missing facts and actual violations. The inability to find a contract does not mean that the contract does not exist; however, signing a new contract cannot eliminate problems in the earlier period. Regarding historical gaps, the current evidence, the supplementary investigation process and the remaining uncertainty should be truthfully explained, and records should not be backdated or recreated in order to satisfy investor questionnaires. Transaction terms may provide for disclosure, warranties or indemnities, but such commercial allocation does not automatically change the rights that regulators or customers have against the company.
Recommended actions
- Prepare a product-region-entity-licence-revenue mapping table and a customer asset reconciliation table.
- Review whether the financing structure, voting rights and contractual rights trigger regulatory approval or notification.
- Review the change-of-control, transfer and termination provisions for banks and payment channels, and establish a remediation evidence package.
This content is for general information only and does not constitute legal advice. Please consult a qualified lawyer about specific matters.
References
- Change in control — UK FCA
- Cryptoassets: AML / CTF regime — UK FCA
- Safeguarding requirements for payment institutions and electronic (e-money) institutions — UK FCA
