Obtaining cryptocurrency licences in prominent jurisdictions23 January 2023
In the following note we review the main requirements for obtaining cryptocurrency licences in some of the jurisdictions of greatest economic interest. These are the USА and some EU Member States, including Bulgaria, which offers a low 10-percent corporate tax rate and a fast evolving business climate and deserves a place among the preferred hubs for investors.
Types of cryptocurrency licences
There are generally two types of licences:
- “Classical” cryptocurrency exchanges, which allow the exchange of crypto currencies from one to another, and
- Fiat cryptocurrency exchanges, which allow the exchange of fiat currencies into cryptocurrencies, and vice versa.
Prominent Jurisdictions for cryptocurrency licences
A special licence is required to run a cryptocurrency exchange that exchanges cryptocurrency for fiat money. In some countries, this is given either at the national or the state level – in the USA it can only be obtained by applying for an individual Money Transmitter Licence from the states in which the company is trading.
In order for a company to act as a mediator in transactions on exchange of one cryptocurrency into another (crypto-to-coin), it must obtain an MSB Licence and examine regulations in each state.
Some of the requirements necessary for a Money Service Business to obtain an MSB licence to run a cryptocurrency exchange in the USA are as follows:
- Pass the registration procedure with the United States Department of the Treasury (the registration must be renewed every two years);
- Comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) policy;
- Report on transactions exceeding US$ 10,000;
- Maintain information regarding money transfers;
- Comply with rules on transferring funds; and
- Maintain records on the currency exchange.
The U.S has federal, state, and local regulations for cryptocurrency activities. The licensing requirements for cryptocurrency exchanges may vary from state-to-state, so it is important to check which licences are required in each location before operating. For example, the state of New York requires a special licence called BitLicense to run a cryptocurrency exchange.
As cryptocurrencies continue to gain momentum, more states are discussing regulations for this new technology. While some have decided against regulating, most are likely to; there is no doubt that the position of regulators changes frequently.
Cryptocurrency regulations are not currently harmonised at an EU level, although there is a pending proposal to regulate (see below). This means that each Member State is free to decide on its approach for now. However, there are some signs of harmonisation on a pan-European level after all.
In Directive (EU) 2015/849, EU law defines virtual currencies as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically”. However, virtual currencies are not electronic money within the meaning of the E-Money Directive.
Similarly, in the European Commission’s proposal for a regulation on Markets in Crypto-assets (‘MiCA’), ‘crypto-asset’ is defined as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology”.
Seeing as MiCA is still a mere legislative proposal rather than applicable law, we will need to briefly consider the licensing regimes in the more prominent EU jurisdictions.
Estonia has long been considered as a pioneer in the digital sphere and is thus among the more popular crypto destinations. Estonia has a licence for crypto-for-fiat exchanges, as well as for cryptocurrency storing. To obtain a licence, you must incorporate a company in Estonia, open up a bank account in the EU, and deposit EUR 12,000 in capital. There must be a physical office in Estonia, a local director, and an AML officer.
Luxembourg became the first country in Europe to begin licensing cryptocurrency exchanges. Cryptocurrency exchanges must obtain special permits from the Ministry of Finance. To obtain a licence, you must incorporate a local company and then submit a business plan, which is carefully analysed. As in Estonia, there must be a physical office in Luxembourg and a resident director.
Malta is rapidly gaining popularity in the crypto community. Again, a legal structure must be incorporated in Malta with a local office and resident director. Also, an extensive business plan and/or a white paper must be presented to the Malta Financial Services Authority, the local regulator.
The governing body in France is the Autorité des Marchés Financiers (AMF). To obtain a licence, you must establish a company in the EU/EEA, although from a practical point of view it is recommended to opt for a French entity. You will also need to be interviewed by the AMF with regard to your business model and capabilities as well as your technical solutions. There are no residency requirements.
As elsewhere in the EU, cryptocurrencies are legal in Bulgaria. Recently it was acknowledged in the case-law that the provision of crypto services such as buying and selling of cryptocurrency is a legitimate scope of business for a company. In Bulgaria, there are no licensing requirements per se, but the persons – individuals or companies – who are engaged in such activities must be registered in a specific registry governed by the tax authorities in connection with AML requirements.
Registration is not a precondition for the provision of these services. The only condition for registration is to provide true information and documentation as relates to the scope of business. A Bulgarian entity would need to have a resident director or contact person for the purpose of opening a bank account and for liaising with the authorities, again, in the context of AML.