One evening in late 2017, Henry James, a foreign-exchange trader, attended a dinner in London at the "high commission" – the embassy, in the language of the British Commonwealth – of Mauritius. The high commissioner surprised him with a pitch: why not apply for an investment-banking license in Mauritius?
James was a trader (Rolle Capital), not a banker. He had been sniffing around the island nation for licenses to manage and custody digital assets. But investment banking was a different proposition, one that would require at a minimum hiring experienced executives and compliance people. Why bother?
"The question was: is crypto or digital investment banking going to be a thing?" he recalled. "It took 15 minutes of conversation to realize it'll be a big thing, and that we could be a first mover," bridging traditional finance and the emerging world of digital finance.
From there was hatched a plan to launch a licensed investment-banking business with distributed ledger as its core operating system, to set up his company to become the leading investment bank for the coming world of securities tokens – blockchain-based tokens that fall under traditional securities regulation.
James set up Fincross in Mauritius with a partner and two aims: launch crypto funds and create a traditionally regulated investment bank for the digital world. Even before the bank idea emerged, he had wanted to trade crypto in a licensed environment.
"Mauritius isn't a London or a New York," he said, "but when it comes to crypto regulation, they're proactive." As the market matures, he says the company will seek licenses in other STO-tolerant jurisdictions, such as Singapore or Hong Kong.
The investment-banking license is has been granted effective January 2019. It will allow Fincross to manage assets, deal in or advise on securities, and underwrite deals. It can't take deposits in fiat currency or lend. The license requires $1.5 million in capital.
"The question was: is digital banking going to be a thing?"
But Fincross is now applying for other licenses in Mauritius that would let it custody crypto, run a crypto exchange, and operate in the securities regulator's sandbox.
James says Fincross will be like a global investment or private bank except that it will operate on blockchain, settling complex products in minutes instead of days or weeks. It will use its own digital stack, including artificial-intelligence tools, to handle compliance and KYC/AML functions, as well as to support investment managers, credit risk officers and operations.
The company is working with three local banks (Mauritius Commercial Bank, State Bank of Mauritius and AfrAsia Bank) as counterparties and distribution partners. The target clientele are institutions, corporations and private investors who want regulated solutions to operate in digital assets.
James says Fincross will enjoy a head start against brand-name investment banks thanks to its tech stack, and to the likelihood that big global banks won't touch crypto directly until they have a satisfactory regulatory environment in the U.S.
His immediate competitors are the likes of Galaxy Digital, ex-Goldman Sachs trader Mike Novogratz's Toronto-listed digital investment bank; and SEBA Crypto, led by ex-UBS executives Guido Buehler and Andreas Amschwand, which seeks to do the same from Switzerland. James argues his platform is the most digitally advanced; on the other hand, he and his co-founder are less experienced in financial markets than these rivals.
"Mauritius isn't a London or New York."
James has recruited Eddy Abramo as CEO of the investment bank. He is previously regional CEO for the Middle East and Africa at Societe Generale's private bank. He has experience in alternative investments, which fits Fincross's intention to distribute crypto funds to private-equity firms and hedge funds. He will run the business from Abu Dhabi, another crypto-friendly jurisdiction. James is serving as deputy CEO and chief strategy officer.
The other focus at the business is what interested James in the first place: creating, managing and distributing crypto investment products.
Fincross has developed its own A.I.-driven tools for predicting directions of prices, "chaos" (a broader concept than volatility) and velocity. "It's about reading the amount of disorder within a given exchange, in order to identify where a market movement will originate from," he said. "It's not an algo: it's A.I. analyzing exchanges, markets, the blocks being produced on the blockchain itself." Fincross is beginning to develop real-time public sentiment tools as well.
The firm intends to launch a long/short crypto strategy encompassing Bitcoin, the major alt coins such as Ether, and utility tokens. As these are unregulated, Fincross will not include securities tokens in the mix – that is a business for underwriting and advice from the investment banking side.
Esfandiar Lagevardi, a co-founder, has been appointed head of research and is overseeing the firm's digital infrastructure, under chief technology officer Ari Smith. He is formerly an accountant at P.R. firm Edelman. He is moving from Abu Dhabi to Paris next year, which will serve as the base for building out the tech team. Most programmers are in Macedonia, but James says France has a relatively progressive view of blockchain (although not yet to the extent of handing out licenses), an industry rich in quant and systemic trading expertise, and is an attractive destination for tech talent.
In addition to managing crypto strategies, the team aims to create a large multi-coin Proof-of-Stake pools. Unlike Bitcoin's protocol, which is based on proof of work, others such as EOS are based on proof of stake, meaning those putting up tokens as capital get to influence votes on the network. In some protocols, such as Stellar, stakeholders get rewarded with a yield; the bigger the stake, the greater the yield. And with Ethereum – the second-largest token by market cap – trying to move to a version of proof of stake, there's a prospect for a big play as ether holders look to stake coins.