20 things to look for

Legitimate local Blockchain companies

1. A registered New Zealand company.

Blockchain Funds Limited is a registered NZ company [NZBN9429046992895].

2. Genuinely New Zealand owned and operated.

We’re based in Auckland and our people are long time trusted members of the community.

3. A registered financial service provider.

Blockchain Funds Limited is a NZ registered financial service provider [FSP632189] for “keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons”.

4. Member of a NZ Financial Service Providers Register approved dispute resolution scheme.

Blockchain Funds Limited is a member of the approved Financial Dispute Resolution Service [FM5330].

5. It’s clear who the operators are and they use real details.

The details of all our people are available on our website and the companies register as are our contact details.

6. Operators with credible business records in NZ.

Our people have operated multiple NZ companies and none have been put into liquidation, receivership or administration. No money has ever been owed to any creditors and our people have clean criminal records.

7. Operators with credible technical experience.

We’ve been involved in blockchain technology since 2013 as well as cyber security, software development etc for the New Zealand government.

8. A sustainable business model.

Our business operates profitability through our management fees and self funding. We do not operate on investor funds.

9. Transparent and externally audited.

Our blockchain wallets are publicly available for inspection on our website and all accounts are periodically audited by an external party.

10. Comply with Anti-Money Laundering (AML) requirements.

We fully comply with all “know your customer” (KYC) regulations, our AML / CFT programme is supervised by the Financial Markets Authority (FMA) and we report any suspicious transactions directly to the NZ Police Financial Intelligence Unit.

11. Legitimate banking facilities.

We operate legitimate New Zealand bank accounts.

12. Objectively outline the risks involved.

We highlight the risks of blockchain investment and don’t advise that it constitutes more than a small part of the high risk portion of a long term diversified investment portfolio. We also refer our clients to independent Authorised Financial Advisers (AFA’s).

13. Offer a diversified portfolio based blockchain investment.

We provide diversified exposure to the blockchain industry and take an impartial view of the particular tokens or services.

14. Provide a clear, timely and transparent way to get your money out.

We offer a transparent valuation methodology and available redemptions for our funds.

15. Client funds held securely and separately from operations.

All investor funds are held in Unit Trusts securely and independently from operating funds by Blockchain Funds Trustee Limited [NZBN9429046992970 & FSP632209]. In the event of a disaster our trustees have the ability to recover any available client funds from the Manager. Management fees are fixed.

16. The tax implications of your involvement are made clear.

Applicable taxes are paid by our Unit Trusts and the appropriate resident withholding tax (RWT) is automatically withheld by us and paid to the IRD upon redemption. Therefore in the majority of cases clients will be entitled to a small tax refund if they chose to submit an end of year tax return. We also withhold non-resident withholding tax (NRWT) and comply with FATCA & CRS / AEOI foreign tax reporting.

17. Adequate risk management.

We trade across a number of exchanges, platforms and assets to minimise the risk of losing a significant portion of assets in a single event.

18. No history of hacks or lost funds.

We work hard to ensure the security of investor's funds.

19. Active members of the industry.

We active members of a number of professional industry bodies which you can find on our website.

20. Undertake independent advice and work with regulators.

We undertake independent legal & tax advice from MinterEllisonRuddWatts as well as consulting with a number of other accounting & tax professionals. We also work directly with regulators such as Inland Revenue to ensure full compliance.

Those to be cautious of

1. Overseas entities or unregistered businesses.

You may have limited recourse if things go wrong when dealing with overseas entities.

2. Overseas ownership structures or non-permanent residents.

A number of international groups have setup blockchain related companies in NZ in recent years due to the perceived ease of regulation & trust here. The Ministry of Business, Innovation & Employment is starting to crack down on this.

3. Non-registered entities not abiding by New Zealand regulations.

Most legitimate blockchain related companies providing services in New Zealand are required to register as financial service providers and those issuing tokens to New Zealanders or dealing with retail customers (general public) may be additionally required to register with the Financial Markets Authority.

4. Those without a clear independent dispute resolution process.

An independent dispute resolution scheme ensures that you have independent support if things go wrong.

5. Anonymous operators or those going by aliases.

A number of operators try to hide their true identities by using false details, middle names etc and do not provide phone numbers etc.

6. Fly-by-night operators, previously liquidated companies, criminal records or warnings from regulators.

Blockchain has attracted a number of scammers to the industry including some from overseas seeking to avoid prosecution or tax consequences.

7. Salespeople will little-to-no technical capability and those who only became involved at the recent peak of the market but now consider themselves experts.

There are plenty of charlatans around trying to make a quick buck but few looking to build sustainable businesses and products which will benefit their customers long term.

8. Funded by Initial Coin Offerings (ICO’s), customer investment, crowd-funding or loss-making.

These business models may be unsustainable and operate like a ponzi scheme (requiring constant investment to keep afloat). Those who have raised money through ICOs may also face legal & tax consequences if they were not properly registered at the time.

9. Black-box systems.

There is a risk the provider is operating on client funds, trading whilst insolvent or failing to meet their tax obligations.

10. Allow anonymity and facilitate money laundering.

Customers are likely to have their funds frozen or their own bank accounts closed for dealing with such entities.

11. Trading through third-party bank accounts, peer-to-peer money transfer or constantly changing accounts.

Again it’s possible for your bank account to be closed by dealing with them.

12. Promote short term gains, hype or claim guaranteed returns.

The blockchain industry is highly volatile and anyone claiming to predict or guarantee any returns should be treated with caution.

13. Only promote their products or cryptocurrencies on their platforms.

These operators may be incentivised to sell you particular products, participate in multi-level-marketing (MLM) or pyramid schemes or simply run sophisticated scams.

14. Don’t allow withdrawals, redemptions or must keep funds “locked in” for a long period of time.

BitConnect was a popular token for a time which operated in this manner until revealed to be a pyramid scheme and subsequently collapsing losing most of the client’s funds.

15. Intermingle client funds with operating funds and unclear fee structure.

Client funds (deposits for purchases or funds in custody) could be used to pay company debts or payout other client losses. Unexpected fees could erode the value of your investments.

16. Tax implications are not made clear and / or are “the responsibility of the customer”.

Trading blockchain assets or cryptocurrencies can open up complex and significant tax liabilities including GST on every trade.

17. Leveraged trading strategies or poor risk management which may result in complete loss of funds.

Operators that trade on one platform or with leverage risk losing the entirety of funds in a hack or poorly executed trade.

18. History of hacks, complaints or slow withdrawals.

Are all signs it may be a matter of time before funds a lost for good.

19. Unknown in the industry and paid PR.

Scammers avoid scrutiny by avoiding interacting with professionals in the industry.

20. Act in an unprofessional manner and try to avoid regulation.

Unfortunately these players tarnish the reputation of the industry and are likely to get shut down or go bust taking customers money with them.