Foundation Companies are a unique vehicle in the Cayman Islands, providing a corporate structure setup that is useful for a range of organisations, including those in Web3. In fact, as we’ve seen at Cartan, Foundation Companies play a vital role in fostering the growth of the entire Web3 ecosystem. Their stewardship helps to ensure that a Web3 community’s assets are used for the objective of growing the size and utility of its underlying blockchain network, and their management of day-to-day operations supports the fulfillment of this mission.
Cartan Group pioneered the business model of servicing Web3 Foundation Companies, and we’ve worked with some of the world’s largest cloud-based communities through our Web3 Foundation clients.
One increasingly prevalent challenge that we’ve seen facing Web3 Foundation Companies on a daily operations basis is finding a suitable banking partner – particularly following the failures of Silicon Valley, Silvergate, and Signature Banks. These institutions were the largest providers of banking services to the industry, and their absence has left many Web3 organisations struggling to find a place to hold their assets.
Here, Cartan Group’s head of Web3 Finance, Anna Morel, shares her advice and perspective from the front lines.
Q: What problems are you seeing when it comes to Web3 Foundation Companies and banking?
Anna: In light of the recent failures, there has been a notable uptick in regulatory measures, prompting banks to adopt a more cautious approach towards virtual asset-related structures. Foundation Companies operating in this space encounter additional hurdles, notably in complying with beneficial ownership requirements due to their membership structure.
Banks are also reluctant to work with Web3 Foundations because their financial structures can be quite complex. A Foundation Company may use multiple cryptocurrency wallets, custodians, and exchanges, and hold its assets across a variety of different virtual assets. This complexity, and the fact that it differs from traditional finance, makes it harder for many banks to assess risk and ensure their own compliance with anti-money laundering regulations. Foundation Companies with constrained resources, in particular, may struggle to find a bank willing to take on these compliance costs.
This all imposes significant limitations on how a Foundation Company can fulfill its objectives. For example, without a bank account, making payments to parties that do not accept stablecoins or Web3 tokens requires inefficient workarounds and higher transaction costs. This shrinks the pool of partners and vendors with which the Foundation can transact, and ultimately reduces its ability to support the development of the underlying network.
Q: What can Foundations do to overcome the challenges with opening a bank account?
First and foremost, it helps to identify upfront whether a banking partner is friendly to Web3 businesses. Avoiding banks that are unlikely to work with a Web3 business helps to avoid wasting time and effort.
It is also important to consider a bank’s fit with the Foundation’s specific circumstances, such as its structure and the tax-residency of its senior management. The “right” bank will depend on the unique needs of each Foundation Company. Some banks don’t process payments for non-U.S. clients, some limit access to read-only for U.S. passport holders, some are only accessible to clients with U.S. entities in their structure, and some have limitations on interest-generating deposits. Given all these considerations, it may be advisable for a Foundation to open multiple bank accounts to satisfy different needs.
Finally, after identifying a suitable potential banking partner, or multiple partners, it is important for Foundation Companies to prepare clear, concise, and accurate information, anticipate questions from the bank’s compliance team, and always think a step ahead. For example, a Foundation Company should be ready to detail its purpose, governance, decision-makers, and sources of funding.
Q: Do you expect any new players to fill in the void left by SVB, Silvergate, and Signature?
There are multiple players aiming to fill this void, including neobanks and traditional banks expanding their services to the virtual asset space. They frequently restrict their clientele, however, and Foundations that are incorporated in tax-neutral jurisdictions, such as the Cayman Islands, often fall outside their service zone.
In the Cayman Islands specifically, Tenet Bank recently announced its soft launch and is currently onboarding clients through an invitation-only system. At Cartan we are very excited about Tenet. As a specialist bank for scalable-technology organisations, entrepreneurs, and investment funds, it is a perfect fit for some of our clients. We are happy to be a member of Tenet’s Verification Invitation Programme, which gives Cartan the ability to invite clients to apply for a Tenet account.
Q: Do you have any additional suggestions for how Foundations can put your advice to use?
It is helpful to stay on top of developments, since things change continuously in this space. Banks do not always publish all the latest and relevant information online, and at Cartan we stay ahead of the curve by continuously doing in-depth research, building and maintaining strategic relationships, and iterating on what has worked well for our clients in the past.
Cartan Group has been servicing Foundation Companies since 2019, and many of the people on our team have been involved in this space far longer. The knowledge and networks that we’ve built over the years are a key source of the value that we offer.
Anyone that is interested in learning how working with Cartan can save them time, limit and mitigate risks, streamline their operations, and find key strategic relationships – such as a strong banking partner – should get in touch! We will be happy to have a friendly chat about their specific needs and how to achieve their goals.
