How to legally create cryptocurrency exchange? Country Overview
In many states, the legal status of cryptocurrency is not established, so it is quite difficult to conduct commercial activities related to cryptocurrency assets in such jurisdictions. For example, Seychelles and Guatemala are such jurisdictions. Back in 2017, these countries stated that the legislation does not specifically regulate the status of virtual currencies, respectively, there is no regulation of business activities in the field of crypto-activities. Of course, it is possible to open a cryptocurrency exchange[1] in "complex" jurisdictions, but subsequently opening a bank account for such organization and the receipt of related business opening services will be difficult from a legal point of view. Therefore, we have prepared for you an overview of the countries where you can obtain the appropriate license and absolutely legally launch a cryptocurrency exchange.
Australia
Australia is currently one of the most attractive jurisdictions for opening a business related to virtual currency.
There are several legal regulators in Australia that oversee the crypto business. First is the Australian Securities and Investments Commission (ASIC)[2] - this is the Australian Securities and Investments Commission on whose platform you can register your company by filling out an online form and get an ACN - individual number.
The main and primary regulator of cryptocurrency exchanges is AUSTRAC - the Australian Transaction Reporting and Analysis Center. Under Australia's anti-money laundering legislation, cryptocurrency exchange providers must be registered with AUSTRAC. Application for registration is submitted in the form approved by AUSTRAC [3]. In order to obtain a certificate of registration of the legal entity, it is necessary to be included in the register of companies. It is possible to register the company name and get an individual number using the online service ASIC Connect[4] or with the Australian Government Business Registration Service[5]. The company must have at least one director and secretary who are residents of Australia. It is also mandatory to prepare relevant documents, which must be posted on the platform:
- Terms of Use
- AML/CTF Policy
- KYC Policy
- Confidentiality policy/personal data processing policy
- Cookie policy
Australia is very positive about cryptocurrency, so opening a bank account and acquiring for an Australian company with AUSTRAC registration will be a possible task.
Estonia
Cryptocurrency exchanges registered in Estonia are regulated by the national Financial Monitoring Unit (FIU), the government agency responsible for issuing cryptolicenses. In order to provide cryptocurrency exchange services single cryptocurrency license is required. This document licenses two groups of companies: cryptocurrency wallet companies and cryptocurrency exchanges.
To obtain an Estonian cryptocurrency exchange license, the following documents must be submitted to the Estonian Financial Intelligence Unit (FIU):
- Criminal records of persons involved in the company (such as shareholders, directors);
- Anti-Money Laundering and Counter-Terrorist Financing Policy (AML Policy);
- Proof of account opening with an EU bank or payment system;
- Actual Office Lease Agreement;
- Details of the AML officer and board members who are residents of Estonia;
- Copies of IDs of all above mentioned persons (passports);
- Completed application form.
USA
The license for cryptocurrency exchange in the U.S. entitles its holders to conduct operations with the exchange of virtual currency. Apart from cryptocurrency exchanges, all other applicants intending to provide payment services are interested in obtaining such a license.
Potential applicants for licenses intending to perform cryptocurrency exchange will be recognized as Money Service Businesses (MSBs). Cryptocurrencies in the U.S. are considered decentralized and operate in the same way as fiat currencies. Cryptocurrency exchanges and other entities conducting cryptocurrency transactions are required to:
- Be registered as a financial service provider company;
- Obtain a special license;
- Notify regulators of suspicious financial transactions;
- Note that in the U.S. there is a two-step licensing process - at the federal level and then at the state level (of each state where a cryptocurrency exchange is planned to operate).
Taxation of cryptocurrencies, which is equivalent to property tax, is also regulated at the national level. Profits from transactions related to it are treated as capital gains and are taxed in accordance with the provisions of the Internal Revenue Service.
Singapore
In Singapore, a cryptocurrency exchange is a company or person that provides either token exchange services or platforms where these crypto-assets can be traded in Singapore.
In order to obtain a license from The Monetary Authority of Singapore (MAS) to operate in Singapore as a digital payment token service provider, you must do the following:
Step 1: Register as a digital payment token provider
Step 2: Apply for a DPT license
Individuals who successfully register as a digital payment token provider must apply for a cryptocurrency exchange license performing activity in Singapore.
Gibraltar
Cryptocurrency and blockchain projects in Gibraltar are regulated by the GFSC (Gibraltar Financial Services Commission). On October 12, 2017, the Financial Services Act entered into force[6]. It is the main crypto-law in Gibraltar. It both supports new blockchain projects and reduces the risks of investor fraud. To comply with the law, a cryptocurrency exchange must obtain a DLT license. To do this, you need to apply to the GFSC, which will cost approximately ?2,000. The GFSC will then assess your business project and make a list of requirements that you must meet. The application will then need to be edited based on the comments received from the GFSC. Once you receive your certificate of registration and license, you become a full-fledged cryptocurrency exchange capable of legally exchanging virtual currency.
Thus, the requirements in each of the favorable jurisdictions for this business are similar, but in any case, every time foreign regulators provide different questionnaire-forms for filling in, which may require to disclose different kinds of information. Therefore, to make a competent application, to check the completeness of the package of documents and to make the required documentation (AML/CTF; KYC; Confidentiality policy, etc.) for your online platform you should contact the professional lawyers of A4 Law Firm.
- Australian Securities and Investments Commission Act 2001 (ASIC Act).
- URL: https://www.austrac.gov.au/business/new-austrac-start-here/enrol-or-register-austrac.
- URL: https://asic.gov.au/for-business/registering-a-business-name/steps-to-register-your-business-name/#howtoregister.
- URL: https://register.business.gov.au/registration/type?type=Company.
- URL: https://www.gibraltarlaws.gov.gi/legislations/financial-services-act-2019-4690.
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