Momentary Custody, Long-Term Compliance: A Playbook for Crypto-Payment Founders

If you’re building a crypto payments platform, you might have told yourself, “My platform only touches customer funds for a few seconds. That doesn’t really count as custody, right?”

This is a dangerous assumption. To financial regulators worldwide, even momentary control over customer funds makes you a financial intermediary. That brief touch—even for a few seconds—triggers a long-term compliance burden. For founders, understanding the substance of regulation, not just the technical implementation of your code, is critical for survival.

This playbook offers a clear guide to help you make smart, strategic decisions in a complex regulatory landscape.

1. Why “Just a Few Seconds” Still Triggers Money-Transmission Rules

The core of the issue is how regulators define control. The U.S. Financial Crimes Enforcement Network (FinCEN) is unequivocal: anyone who “accepts and transmits convertible virtual currency” is classified as a money transmitter, regardless of how long the funds are held.

This standard was reaffirmed in FinCEN’s 2019 CVC guidance and again in the 2023 DeFi risk assessment.

Once your platform meets this definition, you face a host of demanding requirements, including:

• Federal MSB registration: Registering as a Money Services Business with the U.S. Department of the Treasury.
• A written AML program: Establishing and maintaining a comprehensive Anti-Money Laundering program.
• CTR/SAR filing: Filing Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs).
• Travel-Rule data exchange: Exchanging originator and beneficiary information for certain transfers.
• Ongoing OFAC screening: Continuously screening users against sanctions lists.

2. Smart Contracts ≠ Immunity

Many founders believe that automating processes with smart contracts provides a safe harbor from custodial obligations. However, regulators apply a functional test: they judge based on who has effective control, not how the code is written.

The Financial Action Task Force (FATF) made this clear in its 2023 targeted update, stating that “marketing terms or self-identification as DeFi is not determinative” of regulatory status.

If you (or a multisig you control) can perform any of the following actions, you are the custodian:

• Upgrade a contract via an admin key.
• Pause or freeze funds.
• Sweep funds through a batch-settlement contract.

Only contracts with no admin key and direct user-signed settlement may avoid the Virtual Asset Service Provider (VASP) label—and even then, you still need to integrate sanctions screening at the UI layer.

3. The Licensing Map at a Glance

The path to compliance varies dramatically across jurisdictions. Here is a simplified overview of the global licensing landscape.

Region	Current Gatekeeper	Practical Hurdle
U.S.	FinCEN + State MTMA licences	Dual layer, costly surety bonds, and audits. 31 states have adopted the Money Transmission Modernization Act (MTMA) so far.
EU (today)	National VASP registers	Minimal capital requirements, but passporting rights are limited until MiCA is fully implemented.
EU (2026)	MiCA CASP licence	€125k–€150k capital requirement, but offers a single-passport regime for all 27 EU markets.
UK	FCA crypto-asset register	Requires a full AML program and a Travel Rule-compliant interface.
SG / HK	PSA (MAS) / VASP Ordinance	Mandates custody segregation and a 90% cold-wallet rule for customer assets.

4. Case Study: BoomFi’s Poland VASP Route

BoomFi’s strategy provides an excellent model for startups targeting the EU. The company registered with the Polish Ministry of Finance in November 2023, securing a VASP registration.

Why it works:

• Fast and low-cost: The approval process took less than 60 days and had no hard capital floor.
• Builds credibility: The registration signals compliance and is a key requirement for EU merchants who need to work with a VASP-of-record.
• Smooth path to MiCA: This VASP registration can be upgraded to a full MiCA CASP license in-place, preserving the existing customer base.

This lightweight approach allowed BoomFi to gain early market access and validate its product while preparing for the more rigorous MiCA framework and a future U.S. rollout.

5. De-risking Patterns for Builders

Compliance shouldn’t be an afterthought. It must be woven into your product design from day one. Here are several patterns that can minimize your licensing exposure.

Wallet Architecture

• User-signed, contract-forwarding flows: Use patterns like ERC-4337 Paymasters or Permit2 to ensure all fund movements are explicitly signed and initiated by the user.
• Time-lock self-destruct of admin keys: After the contract is audited and deployed, use a time-lock to permanently renounce admin privileges, proving you no longer have control.
• Shard custody with licensed partners: For batch settlements, partner with a licensed custodian to handle the aggregation and disbursement of funds.

Operational Stack

• Pre-transaction screening: Use an API gateway that injects OFAC and chain-analysis scores to vet addresses before a transaction is ever processed.
• Travel Rule messenger: For cross-VASP transfers of $1,000 or more, integrate a solution like TRP or Notabene to handle required data exchange.
• KYB first, then KYC: Vet the merchant (Know Your Business) before you onboard their users (Know Your Customer).

Expansion Sequencing

1. Europe via VASP: Start in Europe with a national VASP registration (e.g., Poland) or a UK FCA registration to prove product-market fit.
2. U.S. via partners: While state licenses are pending, enter the U.S. market by partnering with a licensed sponsor bank or custodial institution.
3. MiCA CASP: Upgrade to a MiCA CASP license to lock in the EU passport for 27 markets.
4. Asia-Pac: Pursue a license in Singapore (MAS) or Hong Kong (VASP Ordinance) if volume and strategic goals justify the additional capital outlay.

Key Takeaways

For every founder in the crypto-payments space, remember these core principles:

1. Control trumps code: Regulators look at who can move money, not how the code is structured.
2. Licensing is strategy: A lightweight EU VASP can open doors while you prepare for more capital-intensive jurisdictions.
3. Design for compliance early: Admin-free contracts and sanction-aware APIs buy you runway and investor confidence.

Build like you will one day be inspected—because if you move customer funds, you will.