FunFair’s Director of Corporate and Regulatory affairs, James Harrison answered questions from the community over on Reddit.
To save you the bother of scrolling through the whole AMA, we’ve collated the main topics covered for you below (if you do want to catch up on the whole thing, you can do here).
Thanks to everyone who asked questions and got involved with the latest team chat.
kangaroosterus: I like the idea that FF tech is not fully open source so that vital tech doesn’t just become free for competitors. However, that probably mean that there is always some reliance on FF (the company) for future upgrades, fixes, and new features. Hence does that mean that regulators may see FF tokens as a security since there is reliance on FF, a centralized organization, for expectation of further potential profit since no other company or individual can upgrade the system since it’s not fully open source?
James: Good question and a tricky one to kick off with! First things first, yes, I can confirm that we are spending a significant amount of time (and money) to ensure we don’t trigger securities regulation around the world. It’s a moving target and is challenging. As a business we’d actually welcome clearer guidelines.
Turning to the specific of your question I think you are referring to William Hinman’s recent speech in which he suggested that the more a project was decentralised the less likely it is to trigger US securities law. Like any public pronouncement from the SEC there is a danger in interpreting it in isolation and I think we need to take a holistic view. In other words decentralisation of a project is only one of the criteria a regulator might use when determining if a token was/is offered in a way that could deem it a security. I’m also of the opinion that “decentralisation” is not a binary concept and FF could retain some control of features of the platform (for legitimate security or legal reasons) whilst making other part of the software/system open source.
We’re still parsing what Director Hinman had to say and needless to say we’re going to discuss it with our securities counsel before making any policy decisions.
califreshed: With regards to the decision by Funfair to run a Casino themselves, what is being done to stop any potential conflict of interest? This has been debated on the discord recently, as originally the team said that the Fun founders casino will have no advantage over any B2B casino would have. It was subsequently found this has to be false, because the founders have access to their own knowledge of when they are contemplating disposing of their monthly release of tokens, whilst B2B casinos obviously do not have this knowledge. This could be used by the fun founders casino in their favour, by disposing of the casinos profits, to realise them in fiat, at opposing time to the Fun founders tokens being disposed of, meaning that because of supply and demand it is more likely to be a higher price, than if they were to sell at the same time as the fun founders releases.
Is there enough conflict of interest here to merit the monthly release to be postponed to after the Fun Casino closes, to avoid this disadvantage that the B2B casinos have in comparison to the Fun founders casino?
James: Firstly, the part of the business that runs the B2C Casino will be operated behind a chinese wall with different management and a different board to the rest of Funfair. It will be treated as if it is a completely independent third party.
Secondly, we are designing a corporate governance policy that will specifically deal with disposal or purchase of tokens so as to avoid any obviously unfair practices by founders or the company. I’m not sure exactly what this will mean in practice but dare say we will come up with some common sense rules. Of course the beauty of the blockchain is that it is all in the public domain.
hullsbells: When funfair casinos go live what is the legal status of playing in the casinos if you live in the USA ?
James: There is a federal law (UIGEA) which prohibits online casino unless state law allows for it. In practice this means that in most of the US an online casino powered by FunFair would, in all likelihood be considered illegal. Some individual states, for example New Jersey, have legislated to allow for online casinos that are operated within the state and it they could, theoretically use the FunFair platform.
S1W-brn: How will you handle AML and KYC? Do you have a legal framework that supports law enforcement requests?
James: We are in the latter stages of building a KYC service that handle this for operators. A customer will visit this service in order to be verified (typically this means age + identity) and will then be authorised to gamble at any FunFair powered casino (subject to local licensing requirements and any additional restrictions imposed by operators). This will also carry out ongoing monitoring of customers’ transactions and allow operators to conducted enhanced due diligence for example determining source of funds used to gamble.
It’s also being designed to allow customers to set network wide financial limits etc if they so wish – including the ability to “self exclude” if their gambling behaviours become problematic.
In summary this service will satisfy anti money laundering directives, proceeds of crimes legislations and responsible gambling obligations for operators (and of course for FunFair)
ZergShotgunAndYou: What are your thoughts about the recent ruling made by the SCOTUS on PASPA? I expect states will look closely at regulating this at the state level and maybe enacting less stringent legislation to get some of that sweet sweet revenue?How could this potentially impact FunFair?
James: I think the PASPA ruling is seismic for the industry as a whole BUT there is a long way to go and the state level variances you mention could still make it challenging for operators. Clearly the big/populous states are those that are interesting from a revenue point of view and I’m not sure where California, New York et al are with sports betting bills.
Generally I think it’ll be positive for FunFair but we’ll see!