Last week we revealed here at Globes, that after a long expectation of the market, and repeated postponements both due to congestion and due to the desire to complete the regulation, the commissioner of the capital market Moshe Barkat granted the first license to a local crypto company: Hybrid Bridge Holdings (HBH). In the local crypto market they were surprised: the company is not known and is not in the “brange” of the local crypto market.
Companies without a license, we note, cannot operate in Israel, and other companies that operate here, and have applied for a license, are now in a situation called a permit to continue business. The license makes it possible to operate more easily in front of the traditional financial system, compared to a business permit.
“I’m not the classic type of crypto. I’m not a radical young person, I’m completely mainstream, and my team is relatively old for startups, in their 40s and 50s,” says Giora Ran, the entrepreneur behind HBH and a co-founder who also serves as CEO.
“I don’t believe in fighting banks. I don’t believe in fighting at all – you can always find synergies and work together. I also don’t come from the financial side of crypto, but from the technological side of the blockchain. My team and I mainly specialize in ‘hitting the keyboard’ (writing code software, A. A.) and that’s what we do,” says Ran in a first and exclusive interview with Globes.
“The financial body is the only one that is in front of the customer”
Although cryptocurrencies and blockchain technology undermine traditional banking, and threaten the banking system, HBH, which received the first permanent license in Israel, has developed a system that aims to help banks and traditional financial entities operate in the crypto world.
HBH’s system is designed to be implemented in these entities, and through it a variety of activities can be carried out in crypto, in a “closed garden” model, that is – the money leaves a supervised body and enters a supervised body, so there is no fear of money laundering and terrorist financing.
How It Works? On the one hand, the system is only connected to entities that have received a license from the American regulator, such as Kraken and Coinbase, and on the other hand, there is the local financial body that has connected to the system. When a client of that body wants to trade in crypto, the money comes out of his account, which has undergone AML and KYC procedures (verification, identification and recognition of the client, according to the requirements of the legislation on the prohibition of money laundering), and goes to a body that also meets all these requirements and so do its clients, so that the crypto which is received from him also meets the regulatory requirements. A closed garden system makes crypto trading very easy.
HBH’s system enables both trading, custody of assets, and technological infrastructure for more advanced activity, such as crypto leverage. “We are an infrastructure company, we produce the system, and the financial body that implements it will decide what it allows customers to do with it. We built it so that there is no difference between fiat (a regular currency issued by a state, A.A.) and crypto. Everything you can do with your fiat you can also do with the crypto,” Ren points out.
Who sets the rates for the customer in making a transaction?
“In terms of the purchase price of the crypto, the system will offer the best offer among the entities we work with. On the other side, in front of the customer, the fees will be determined by the financial entity itself, and this will already be subject to its considerations and the competition between the various entities. The financial entity itself is the only one that is in front of the customer “.
What is your business model? Where will the profit come from?
“We share with the bank some of the fees it charges, and if we provide the custody services, we charge the custody an acceptable rate in the market.”
So you will have several financial clients and all the money of all the clients will be in your custody?
“Any financial institution can choose to place the custody with us or with them. If they choose with them, then only trading services or other services will be provided. If a financial institution chooses to have custody with us, the money of its clients will be separate from the money of clients of other financial institutions. There is no mixing between assets of clients from several financial entities”.
Ran started his career at Amdocs, and then held senior positions in various large software companies. “At about the age of 50, I decided it was time to do things for myself as well.
“I came to entrepreneurship at a relatively late age, and I went into a different field altogether – I wanted to develop a product in the field of genetically modified drugs. We started going around hospitals, studying and collecting data, but then the corona virus came, and all the medical teams were very busy, and the venture simply evaporated. This is the phase I started To think about crypto. The field intrigued me,” says Ran.
“It was clear to me, as someone who comes from technology, that this technology would be the next thing, so we started mapping the field and its problems, and it was clear that the main problem is in the areas of money laundering, which complicates the whole process. Have you ever tried to buy crypto? My friends gave up after three days. So we decided to develop a product that would make the ease of using and trading crypto the same as that of fiat.”
“The regulator is the customer, the system was designed for him”
Ran is a friend of Sagia Sheroit, currently COO (Chief Operating Officer) of the company, and together they recruited a team with blockchain expertise: Oren Sokolovsky and Benny Shani. Today the company has 15 employees and its offices are located in Caesarea. According to the registrar of companies, the Gitam company, Moshik Teumim and Ido Har-Tov also hold a stake in the company.
How do you explain the fact that of all the companies that have been in licensing procedures for years, you are the ones who got the license first?
“Our client was the regulator, the entire system was designed for him. It is true that officially the system is intended for banks and financial companies, but no bank will buy a system that the regulator is not satisfied with, and no bank will take the risk of operating in something that the regulator did not approve. So we knew that in order to sell to banks, our client had to to be the regulator. At a very early stage, we took in-depth advice regarding all the regulatory requirements, and planned something in advance that would meet them.”
How did the connection with Moshik Tumiom, who serves as the company’s chairman, come about?
“I met Moshik when I worked alongside him in another venture, and when we founded HBH I was already old enough to recognize my own shortcomings, and I knew that I would also need someone to take care of marketing, advertising and sales, so I turned to Moshik who joined. Along the way and in the recruitments we did, other great people joined us, such as Yossi Akerman and Ofir Dubovi”.
How do you see the future development of the crypto world?
“I strongly believe both in technology, and in currencies designed to solve problems such as an inefficient financial system, and very high fees, which unfortunately also exist in crypto today.”
True, this is a technology that was supposed to be an alternative to banks; After all, if you can transfer money from wallet to wallet, you don’t need them. So why do we even need a project like yours?
“The banks and the financial system will not disappear, and crypto will not disappear either – both systems will learn to live together with each other. Crypto will be subject to the supervision of the regulator, and there will be things that will not continue, such as anonymity. No one wants to finance terrorism and launder money, and the anonymous activity has led crypto to a very deep and dark
“When the mainstream adopts crypto, there is no place for these things, people need trust in the system they put their money in, and the regulators will get deeper and deeper into the field.
“On the other hand, the banking system will also have to change, become more efficient, reduce fees. There are reports on the development of the field according to which any bank that does not adopt the blockchain in the next five years will be at a great disadvantage, and will pay for it in customers.”
Do you still believe in crypto even after the recent declines?
“It’s part of the cycles of this world, every few years there is a ‘crypto winter’. Crypto has gone down? Buy and wait for the continuation. I believe in it.”
The banks like to go with large bodies from abroad, not with a small local player. How will you break this?
“Banks have their own challenges, it’s not easy for them either in front of the regulator, and a large international body gives peace in this sense. But I believe that a local body that received a stamp from the regulator can break through.”
Will you offer more complex properties? like foundations?
“Our infrastructure enables trading in various types of assets, for example NFT. We are a technology company that provides infrastructure. We will not create our own financial products.”
Where will you be in a year?
“I would be happy to grow in Israel, the Israeli market is my natural home. In addition, by the end of 2023 we are targeting at least one more significant customer in Europe and one in the US.”
Ran Giora
personal: 55 years old, married and father of 3, lives in Moshava Yakneam.
professional: Before founding Hybrid Bridge Holdings, he served as VP of Operations at FTS, as VP of Customers and Services at MIND and as Development and Customer Manager at Amdocs.
Something else: Lover of cycling, running and sculpting
Is the license a first swallow or a final chord?
The surprise of HBH’s license led to a storm in the local crypto market, where many companies are in a very long procedure with the regulator to obtain a license. The market fears that the license received from Barakat is not the first swallow before a flood of licenses, but one single license before retirement. The fear is that the next supervisor will take time to learn the field, and it will take a long time until the next license is granted, and in the meantime HBH – as the company with the only license in the market – will have an advantage.
The licensing process at the Capital Authority was extended and encountered complex challenges, which are faced by other regulators in the world, as part of building regulation on a new field that is unfamiliar to them.
The Capital Market Authority concentrates on safeguarding the interests of consumers, and places emphasis on rules to protect customers. It does not supervise the entities that received a license in terms of stability.
Emphasis on four main risks
In the licensing process, the Authority places emphasis on four key risks: money laundering and terrorist financing, technological risks, operational risks and safeguarding customer assets.
In regards to the prohibition of money laundering, last year a decree was published prohibiting money laundering and terrorist financing in activities such as fintech and crypto, which will enter into force this November. Following the publication of the order and the existence of a clear and binding regulation in the field, it is possible to examine whether the license applicant meets the requirements of the order.
As far as technological risks are concerned, last May a cyber risk management circular and a risk management circular were published. These refer to the activities of financial players, including crypto players.
Due to the nature of the activity, there are substantial technological risks, such as theft of assets and cyber. The circular creates a standard on the subject of technological risks, in accordance with internationally accepted standards for these activities.
As far as operational risks are concerned, as part of the license application, risk management was examined in the operational area. In this rule, many issues are examined, including the procedures of the body receiving the license in the field of monitoring and control of embezzlement and fraud, and the business continuity procedures of the body that provides the service.
Finally, the risk management of keeping the clients’ assets and their money was examined – in accordance with accepted principles in the fields of custody. The authority formulated rules according to which the entities should conduct themselves in this area, and the guiding principle is that the clients’ assets are kept in trust and clearly separated from the company’s nostro funds.
The Capital Market Authority also requires that the custody of the clients’ assets will not be carried out by the managing body, and that the trust company will be supervised and licensed. The authority also performs due diligence in a number of key areas, including a due diligence of the company’s controlling owners (Fit and Proper) and its senior officers.
The Authority states that they have a number of open license applications, which may mature into a license in the near term, but only after the completion of all requirements, and in particular compliance with the requirements for the protection of customers’ assets and their money, as well as compliance with all requirements for the prohibition of money laundering.
Some of the applicants do not meet the Authority’s requirements, and are likely to be rejected because of this. The Authority points out that in the fintech and crypto worlds there are many and complex risks.
Basic rules in the field, such as money laundering orders, were formulated together with the Ministry of Justice only recently, and many companies in the field are not used to the rules of the regulation, and have not fully adjusted their activities to safeguard the clients’ assets and their money according to the standards required by the regulation.