Manimama Exchange experts: about fundamental analysis in cryptocurrency trading

We at Manimama Exchange, which is a financial spin-off in our multi-vector business, are developing a new product - an algorithmic trading bot developed on the basis of many years of experience in this field.

In this regard, we decided to start a cycle of materials that reflects our skills and experience, and also offers to acquire the knowledge and skills necessary for successful work in the cryptocurrency markets, providing access to the main concepts of work, strategies and our developments.

Fundamental analysis, which is a mandatory and favorite factor for many by many as a factor for the growth or decline in asset value on financial markets, is not yet fully adapted for cryptocurrency. This is a fairly young class of assets and the fundamental basis for determining their market value has not been fully developed yet. Furthermore, a significant part of the market operates under the influence of speculation, news and narratives, which reduces the opportunity for its accuracy. However, without acquainting oneself with this tool, it is impossible to understand its usefulness or the opposite in the context of one’s own trading journey.

Starting the cycle of materials about trading, we aim to demonstrate how, from a practical point of view, our traders use certain trading tools in the work on the Manimama Exchange trading product – what they pay special attention to, and what they ignore. We hope that our many years of experience and the conclusions we have reached after years of work will also be useful for readers.

Technical and fundamental analysis are based on mutually exclusive factors. While technical analysis assumes that the market-determined price is considered fair and incorporates all possible factors influencing pricing, fundamental analysis questions this assumption. Fundamental analysis is rooted in the examination of factors underlying cryptocurrency pricing and the determination of the asset’s real value, as market price and value can differ. According to the results of the analysis, an estimated forecast of future growth or decline of the cryptocurrency is made.

The main challenge of conducting fundamental analysis (FA) regarding cryptocurrencies is that they constitute a relatively young asset class and lack sufficient tools compared to traditional assets. However, even disregarding this factor and assuming that the tools for conducting such analysis are available, it’s important to consider that FA primarily serves as a tool for long-term investments and is beneficial for holders. On the other hand, for traders focused on short-term profits, FA may be a futile use of time. Moreover, for investors interested in holding tokens for several years, analyzing past year’s charts may also be a futile use of time.

The long-term growth of a token’s price depends on many factors, including the project’s goals, the experience and quality of the development team, the innovations the project brings, and its tokenomics. All of these factors are crucial for predicting the token’s value in the future.

Key metrics

Another important thing to pay attention to when conducting fundamental analysis of the chosen token is the data available about it on metric portals. Websites that provide such services can be easily found through a search engine, so without focusing on this, let’s move on to the points that typically matter for analysis, which are:

Total Supply / Circulating Supply. The total supply is the maximum number of tokens that a project can create over the course of its lifecycle. On the other hand, the circulating supply is the sum of tokens available on the market at a given moment. By comparing these figures, you can deduce how many tokens will still be released in the future and assess how this might impact pricing.

Whitepaper and Roadmap. These documents allow you to assess what to expect from the project in the future. It’s important to evaluate both past achievements and the work plan – to what extent project development aligns with expected results. This can help draw conclusions about the project’s seriousness and the development team’s experience.

Engagement on social media. By this parameter and the level of user engagement and followers, you can assess the interest of real people in the project. In the case where there are only a few likes and very few comments on social media, this factor should raise concerns for potential investors.

Project decentralization. On-chain metrics allow you to see whether there are enough independent nodes verifying blocks. Greater decentralization is often seen as a path to success for blockchain projects.

In addition to these financial metrics, it is advisable to conduct On-chain analysis, a relatively new and cryptocurrency-specific method, to evaluate user behavior regarding a token using open blockchain data.

These include: the number and sums of transactions, the quantity of active user addresses (with a focus on growth dynamics), and transaction fees and their quantity. It’s important to note that each of these aspects should be considered separately, without direct comparison to other tokens. For example, transaction fees can vary significantly between different tokens, so a direct comparison may not yield meaningful results.

… And there can also be a Black Swan

When we talk about fundamental analysis, we cannot overlook a factor that has a direct impact on the prices of various tokens: news events. Drawing an analogy with the Forex market, it’s important to note that this aspect of cryptocurrency trading has significant differences. Trading in traditional financial markets has long established a stable release of important financial news, with a clear calendar, grading, and importance. As a result, market participants have the opportunity to adjust their open positions, pause trading bots for a certain period, and close some positions based on the significance of the news.

In cryptocurrency trading, the landscape is fundamentally different. Firstly, there is significantly higher market volatility, and news has a substantial impact on market conditions. Secondly, there is a lack of expert forecasts regarding news events, and there is also an absence of a calendar for such events.

News events that influence cryptocurrency prices are currently challenging to predict and track. The highly publicized incident of the FTX exchange crash in November of last year serves as a clear example. By retrospectively examining the situation, we can break it down into time intervals, using one of the most popular trading pairs, USDT/ETH, as an example:

1) A tweet by Binance owner Zhao Changpeng about selling all FTT tokens due to recent events. This fact caused significant turmoil in the market and a liquidity drain. In the end, there was a two-day period of ETH falling against USDT by 12%.

2) Optimistic messages at that time from Sam Bankman-Fried, stating that the assets were in order and reassuring that FTX had never used client assets, somewhat alleviated the panic. Additionally, the announcement that Binance had agreed to acquire FTX completely stabilized the upward trend. During this period, ETH recovered 6% from its decline and demonstrated a tendency to rise.

3) The evening news that began to circulate on the internet, stating that Binance had decided not to proceed with the acquisition, triggered an avalanche effect that couldn’t be contained. ETH, in a free fall, lost over 30% of its value, the internal token FTT plummeted by 90%, and Sam Bankman-Fried found himself under investigation.

Such a Black Swan event, which looked fantastical just a week before this incident, turned out to be a stark reality in an extraordinarily short period. The $10 billion debt owed by the exchange to creditors became an unexpected and astonishing phenomenon in the process.

Indeed, this is just one example of unexpected news that can impact the overall situation in cryptocurrency markets. We are currently in a phase where a single tweet from a responsible or authoritative figure, or an unexpected lawsuit from the SEC, can trigger a domino effect and chaos that renders traditional analysis tools ineffective.

As a conclusion

Despite the statement in the previous paragraph, it’s essential not to ignore any tool for analyzing asset price movements. If news emerges that XRP has successfully “fend off” from a lawsuit by a U.S. regulator, at the very least, you should take note of this market for further in-depth analysis regarding potential growth. Meanwhile, when news that could significantly erode trust in the markets surfaces, it may be worth considering opening short positions.

Regarding classic analytical tools, they all have their place to some extent, especially when it comes to long-term investments rather than short-term trading. In the context of our trading product at Manimama Exchange, we pay attention to fundamental analysis in choosing a token for work – we study its “base” and stability in detail. The main point of the analysis at this stage is to weed out unreliable tokens, which are predicted to drop sharply in the near future. However, after this stage, the mathematical algorithms on which our product is built come into full operation.

It’s important to thoroughly research your asset, and while doing so, understand and accept the unchanging rule of the trading game: the timing of growth or decline can depend on many factors, and it’s impossible to predict it with absolute certainty. However, by adopting a long-term perspective, utilizing analytical tools, and making adjustments during turbulent periods, your chances of achieving overall success increase.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Breaking New Ground: South Africa Pioneers Crypto Regulation by Mandating Exchange Licenses

Your Guide to Complying with the FSCA's New Licensing Requirements

South Africa, with its diverse economy, abundant natural resources, and strategic location at the crossroads of continents, presents a compelling landscape for business ventures. This nation, known for its rich history and stunning landscapes, has evolved into a dynamic hub offering a range of opportunities across industries.

From the bustling financial centers to the flourishing technology sector, South Africa’s allure lies in its multifaceted advantages that beckon both local and international entrepreneurs. The Government of South Africa is diligently aligning its legal framework with contemporary technological advancements and actively pursuing competitiveness on a global scale, just like its counterparts across different continents. The article will analyze the recent regulatory developments and how these changes affect the businesses in the crypto industry. 

Crypto Assets  = Financial Products

On 19th of October of 2022, South African Financial Sector Conduct Authority (hereinafter:- “FSCA”) officially classified the Crypto assets as Financial Products under its Financial Advisory and Intermediary Services Act, 37 of 2002 (“FAIS Act”). In its official declaration, FSCA warned about the risks associated with the use of Crypto assets and emphasizes the importance of dealing only with authorized Financial Service Providers. The statement goes on saying that the Businesses offering financial services related to crypto assets must apply for a license with the FSCA starting from June 1, 2023. Importantly, the statement mentions that consumers are not required to wait until a specific date (in this case, November 30, 2023) to lodge complaints against businesses. This suggests that clients and consumers have the right to voice their concerns and report issues related to crypto asset services before the specified date, underscoring the importance of consumer protection and transparency.

South Africa’s financial regulatory authority has declared that all cryptocurrency exchanges operating within the country must obtain licenses by the end of 2023. The commissioner of the FSCA in its interview with Bloomberg stated that approximately 20 license applications have already been received since the recent commencement of this process, and additional applications are anticipated before the November 30th deadline. The commissioner additionally mentioned that in case crypto exchanges persist in functioning without licenses after the set deadline, the regulatory body aims to take “enforcement measures,” which could involve penalties or even the shutdown of non-compliant businesses, according to the provided information.

The introduction of a regulatory framework for cryptocurrency products is a prudent step considering the potential risks to financial consumers in the country. The necessity for time to gauge the effectiveness of these measures was also emphasized, with an assurance of ongoing cooperation with the industry to refine and implement any required adjustments. This development establishes South Africa as the first nation on the continent to mandate licensing for digital asset exchanges, aligning with the global trend of increasing oversight and control over the cryptocurrency sector. 

According to a representative from FSCA, individuals offering financial services related to crypto assets, with certain exceptions like crypto miners and NFT service providers, are obligated to obtain official authorization. Failure to adhere to this requirement constitutes a breach of the law, potentially leading to regulatory actions by relevant authorities. FSCA has been actively involved in shaping crypto and fintech regulations, collaborating with a “inter-governmental fintech working group” comprising major financial regulators and policymakers such as the National Treasury and the South African Reserve Bank.

The trend of tightening regulations is not limited to South Africa alone. On July 3rd, the Monetary Authority of Singapore announced a similar requirement for crypto service providers in the country to secure customer assets in a statutory trust for secure storage by the end of the year. This underscores the global movement towards more rigorous cryptocurrency regulation.

Getting a FAIS License for Businesses

Getting a Financial Advisory and Intermediary Services (FAIS) license in South Africa involves several steps to ensure compliance with the regulatory framework. Here’s a step by step guide on how to obtain a FAIS license:

Step 1: Understand the Requirements

Before you begin the application process, ensure you fully grasp the requirements for obtaining a FAIS license. This includes possessing the necessary qualifications, meeting the fit and proper criteria, and having a thorough understanding of the financial products and services you intend to provide advice or intermediary services for.

Step 2: Qualifications

Verify that you hold the appropriate qualifications recognized by the FSCA for the specific financial services your business plans to offer. Keep in mind that different categories of financial services have distinct qualification requirements.

Step 3: Regulatory Exam

Pass the regulatory exam(s) that correspond to the specific category of financial services your business intends to provide. These exams are administered by approved exam bodies. Register for the exams relevant to your business and adequately prepare for them.

Step 4: Register as an FSP

To initiate the FAIS license application, your business must first be registered as a Financial Services Provider (FSP). Use the FSCA’s online application portal to register and submit all the necessary documentation.

Step 5: Fit and Proper Assessment

As part of the registration process, your business will undergo a fit and proper assessment to ensure integrity, competence, and financial soundness. This assessment involves furnishing detailed personal and financial information as required.

Step 6: Compliance and Documentation

Compile all essential documentation, including your business’s qualifications, regulatory exam results, evidence of compliance with fit and proper criteria, and any other pertinent documents. It’s crucial that all documentation is accurate and up to date.

Step 7: Apply for a FAIS License

Submit your business’s FAIS license application via the FSCA’s online portal. Be sure to pay the necessary application fee, which may vary based on the category of financial services your business intends to provide.

Step 8: Await Processing

Following the submission of your application, the FSCA will review your materials and conduct the requisite checks. This part of the process may take some time, so it’s important to be patient and thorough.

Step 9: Compliance Monitoring

Once your business obtains the FAIS license, it will be subject to ongoing compliance monitoring by the FSCA. It’s imperative to consistently meet all regulatory requirements to maintain your license.

To Conclude

It can be understood that South Africa is committed to embracing technological change as a testament to their forward-thinking approach, aiming to harness the power of innovation while maintaining a regulatory environment that encourages responsible development. This proactive stance facilitates a better navigation of the challenges and opportunities that emerge from the digital revolution. No two businesses are the same. If you are interested in doing business in South Africa, our team is ready to analyze your unique business model and help you through the process of entering the market and our individualized approach will help you to better understand compliance requirements to effectively operate your business. 

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Welcome to Hong Kong: The Government Extends Open Arms to Crypto Exchanges Amidst Global Regulatory Shifts

In the past, Hong Kong enjoyed a reputation as a hub for cryptocurrencies, hosting numerous initial coin offerings and exchanges.

However, the scenario changed when regulatory authorities started expressing concerns about retail investment bans, causing many industry players to seek safe havens in different regions. Presently, regulators are making efforts to entice these businesses back.

The introduction of Hong Kong’s licensing system for cryptocurrency firms serving individual traders, especially while the United States maintains a more cautious regulatory stance, could be seen as a potential opportunity for the city, according to insiders from the industry. The prospect of establishing operations in Hong Kong has garnered increasing attention from digital asset businesses, including exchanges. This interest has grown since local regulatory authorities unveiled their licensing initiative earlier this year.

Factors Driving Change: Overview of New Regulatory Framework

In October of the year 2022, Hong Kong issued a policy statement outlining the trajectory of cryptocurrencies, often referred to as “virtual assets,” through which the government expressed its readiness to adjust its legal and regulatory framework as a component of its endeavor to establish the facilitating environment, taking into consideration the dynamic nature and inventive approach of virtual assets. The policy states that in recent years, both the Government and regulatory bodies have collaboratively established an all-encompassing structure for overseeing Virtuaхфх Asset (VA) activities, adhering to the principle of aligning regulation with activities and associated risks. A comprehensive regulatory system has been initiated for granting licenses to VA Exchanges, utilizing an “opt-in” methodology; furthermore, within the realm of asset management, directives have been disseminated concerning the administration of VA funds and discretionary accounts. Additionally, the policy mentions that the financial institutions and banks have received instructive guidance pertaining to the dissemination, trading, and advisory aspects of products related to Virtual Assets.

Hong Kong’s securities regulator has implemented stricter rules for digital asset companies starting from June 1, 2023 as part of its cryptocurrency licensing framework. 

The newly established licensing structure comprises two tiers:

The focus is on safeguarding retail investors, as only licensed providers may engage in the provision of virtual asset services. The only Virtual Asset service currently regulated under the AMLO is the VATP transaction, whereby 

(i) mandatory sales and purchases of Virtual Assets are or are to be made, negotiated or entered into; and 

(ii) the customer’s money is received or the customer’s virtual assets are taken over by the VATP. Thus, the new licensing regime covers centralized VATPs and mechanisms that trade or support trading of virtual assets, excluding peer-to-peer platforms that simply provide a forum for offers and offers and do not trade or support trading of virtual assets on the platforms. 

The move to allow retail trading in cryptocurrencies follows a challenging year for the sector, marked by the collapse of FTX exchange. The new rules require licensing for all trading platforms and exchanges, with penalties for non-compliance. Operators must ensure compliance with local laws and regulations, and the measures include setting exposure limits for retail investors and restricting trading to established tokens. The regulations also cover marketing by unlicensed platforms, including through social media influencers.

Besides, local fund managers overseeing funds with 10% or more of their gross asset value in digital assets are required to seek an upgrade to their “Type 9” license. Initial interest has been relatively low, but there is now an increasing trend, with several managers making the upgrade in the last six months. The SFC is now more open to granting the ‘virtual asset license upgrade’ to fund managers, provided they have the necessary expertise, experience, and engage appropriate service providers such as trading platforms, custodians, fund administrators, and auditors.  

There exist certain stages within the application procedures that remain undisclosed to the public. It is believed that the licensing application process with the SFC has become smoother and quicker compared to the past. The licensing framework is designed to enable “crypto choices for individual traders,” along with facilitating “entry and exit points.” The latter aspect, in particular, holds significant importance.

Nevertheless, the city has potentially positioned itself to benefit from businesses searching for respite from regulatory crackdowns in other regions. This could involve either relocating entirely from the US or, at the very least, setting up a presence beyond its borders.

Moreover, financial regulatory bodies in Hong Kong established a scheme allowing fund managers who exclusively trade crypto investment products to register. This initiative opens avenues for alternative investment managers focusing on digital assets, particularly those associated with institutional limited partners.

Hong Kong has also taken steps to enhance its standing in the crypto sector through other avenues. The government established a Web3 “task force” earlier this year with the purpose of investigating and offering suggestions for the “sustainable and conscientious growth of Web3 in Hong Kong.” Regulators believe that the notion is that Web3 could potentially tackle and surmount obstacles in domains such as finance, trade, business processes, and even daily routines.

A significant development has occurred in Hong Kong’s legal landscape, as in April 2023, Hong Kong’s High Court has officially classified cryptocurrency as a form of property, and ruled that it is capable of being held on trust. This groundbreaking decision represents the first instance of such a determination concerning digital assets within the city-state. The significant judgment in the case of Re Gatecoin Limited (In Liquidation) brings Hong Kong in line with the stance of several comparable common law jurisdictions. This decision offers clear legal assurance regarding the validity of cryptocurrency transfers or loans, as well as the legal rights of parties should instances of fraud, theft, or breach of trust involving these assets arise. Undoubtedly, this ruling is a positive advancement for enterprises engaged in this swiftly evolving domain.

The initial response from the cryptocurrency industry to the new regulations

HashKey Exchange and OSL Digital Securities Ltd. have recently secured the first cryptocurrency exchange licenses in Hong Kong’s updated framework, allowing them to service retail clients. HashKey Exchange, affiliated with HashKey Group, revealed the license expansion to cover retail users alongside professional investors. Following suit, OSL Digital Securities, a subsidiary of BC Technology Group, also confirmed acquiring a license for serving retail customers. These two entities previously held licenses under Hong Kong’s former opt-in regime for crypto asset service providers, potentially facilitating their swift approval under the new system. 

While it’s still in the initial stages, prominent worldwide crypto exchanges like Huobi, OKX, and BitMEX have expressed their intention to establish a presence in this area. The allure surrounding Hong Kong’s cryptocurrency prospects may have been ignited by its accommodating business climate, attractive tax rates, skilled workforce, and strategic proximity to mainland China. It’s worth mentioning that the SFC is presently enabling managers to explore a broader range of digital assets for investment and create more intricate Web3-oriented products. Earlier this year, the city-state’s largest digital bank announced plans to service locally regulated cryptocurrency exchanges with fiat deposits and withdrawals.

The regulatory progress in Hong Kong seems favorable, especially as the US continues to grapple with regulatory measures for its domestic crypto sector. The Hong Kong administration is staying true to its commitment of expanding the virtual asset sector, aiming to position the region as a competitive hub for virtual assets in Asia. Hong Kong’s objective is not to impede financial innovation but to establish fairness among all stakeholders, thereby unleashing the industry’s potential, by using Web3 for the positive impact. To sum up, stricter jurisdictions’ loss is Hong Kong’s gain when it comes to crypto. 

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Andorra’s Digital Assets Law: Paving the Way for Technological Innovation

Andorra, a small principality nestled in the heart of the Pyrenees Mountains, has emerged as an attractive destination for businesses looking to establish a foothold in the world of cryptocurrencies.

The Principality of Andorra is a country that actively and consistently implements changes in the legal regulation of digital assets. Despite cryptocurrency not being recognized as legal tender, the sphere has obtained an impressive legal framework and continues to evolve.

With its favorable regulatory environment, political stability, and strategic location, Andorra offers numerous opportunities for businesses seeking to operate in the crypto industry. This article aims to provide businessmen interested in venturing into Andorra with a comprehensive overview of the cryptoregulatory landscape, ensuring a smooth and compliant entry into this growing market.

Legal Framework

Andorra recognizes the potential of cryptocurrencies and has taken steps to establish a clear and transparent legal framework to regulate their use and operation. Changes in digital regulations in Andorra began in 2020 with the implementation of a government action plan called Horitzó 23. Andorra’s Digital Assets Law, 24/2022, became one of the laws adopted within the framework of Horitzó 23 and is aimed to introduce changes and clarifications to the legal regulation of digital assets in Andorra.

Classification of digital assets

Andorra’s Digital Assets Law, for the first time in the country’s regulation, describes the types of digital assets and the government’s stance on their status:

  1. Digital Sovereign Money. This category comprises programmable sovereign digital currencies (DDSP) issued by a competent government authority or central bank. Utilizing blockchain technology, these digital representations of money hold monetary value electronically and function as a means of payment, facilitating peer-to-peer (P2P) or decentralized exchanges. Their value is determined by market supply and demand, as well as confidence in the central issuing authority. Digital Sovereign Money can be further classified into depositary digital sovereign money (DDSD) and digital sovereign electronic payment (DDSEP).

2. Tokens Issued by Verified Legal Entities. These tokens are issued by identified or identifiable verified legal entities and are not classified as DDSP or fiat currencies. The two main types are cryptocurrencies and private tokens.

Andorra’s Digital Assets Law further classifies cryptocurrencies into two subcategories:

2.1) Traditional Cryptocurrencies. These are cryptocurrencies presently or potentially used as a means of payment for goods, services, or value transfers. They are associated exclusively with private developers and do not carry any guarantee from governmental bodies or central banks. Examples include stablecoins, which have additional subcategories based on their specific characteristics.

2.2) Private Tokens. This classification pertains to digital representations of assets issued by non-governmental organizations or central banks, individually controlled by their developers. Private tokens encompass:

  • Security tokens;
  • Utility tokens;
  • Tokens issued by unidentified or unidentifiable private individuals;
  • Hybrid tokens or dual tokens.

Regulation of Digital Asset Activities

Business license. In Andorra, any company intending to engage in cryptocurrency sales must undergo a thorough registration and licensing process with the Andorran Financial Authority (AFA). This process entails providing comprehensive information and documentation about the company and its relevant individuals (shareholders, directors), demonstrating sufficient capital, and ensuring compliance with stringent Anti-Money Laundering (AML) and Know Your Client (KYC) requirements. Depending on the nature of the business, additional licenses may be required, such as a virtual financial assets service provider license for operating a cryptocurrency exchange or wallet service.

AML and KYC Requirements. To ensure compliance with international standards and prevent money laundering and terrorist financing, Andorra has implemented stringent AML and KYC regulations for cryptocurrency businesses. These regulations require thorough customer due diligence, record-keeping, and reporting obligations. Companies must adopt robust AML and KYC policies and procedures to meet these requirements.Investor Protection. Andorra prioritizes investor protection by promoting transparency and accountability in the crypto industry. Companies engaging in ICOs or token offerings must adhere to strict disclosure requirements, ensuring that investors receive accurate and comprehensive information. Moreover, the AFA has the authority to supervise, monitor, and take enforcement actions against entities that fail to comply with regulatory obligations.

Regulatory exceptions. But even despite this, some cases of public offerings of digital assets are fully exempt from regulation. They applied to the companies which:

  • are exclusively targeted at professional clients;
  • are directed to fewer than 100 natural or legal persons in each country (excluding professional clients);
  • have a denomination of at least 50,000 euros per unit;
  • make an offer to investors purchasing digital assets for a total amount of at least 50,000 euros per investor in each separate offering.
  • have a total amount of income less than 100,000 euros, with the limit calculated over a period of one year.

Mining

Mining in the Principality of Andorra is an activity that involves the initiation, recording, creation, or validation of blocks or combinations in accordance with established mechanisms. The mining of crypto assets in Andorra requires prior approval from the government, along with mandatory reporting by the operator of the electricity supply system. However, exceptions are applied to installations with less than 10 computers. Individuals or legal entities interested in engaging in mining activities must register with the Administrative Registry of Crypto Asset Mining Entities, as mandated by the third additional provision of Andorra’s Digital Assets Law. This registry serves as a monitoring body, assessing the economic impact of crypto asset mining entities on the electronic system’s operation and the achievement of renewable energy goals. It provides limited online access, is compulsory and free of charge.

It’s worth noting that the registration process was not initially defined when the aforementioned law was enacted. The detailed procedure was later outlined in Decret 335/2022 (registration on the website is required), which approved the government requirements for crypto asset mining entities. However, the electronic procedure specified in the Regulation is currently unavailable. As a result, the conventional registration process through the Service of Procedures remains in effect.

Cross-Border Considerations

As a member of the European Economic Area (EEA), Andorra benefits from the free movement of capital, goods, services, and people within the EEA. This facilitates cross-border operations for businesses operating in the crypto industry, allowing for seamless transactions and expansion opportunities across the region.

Conclusion

Overall, Andorra’s regulatory approach demonstrates its commitment to fostering technological innovation while ensuring compliance with legal and financial requirements in the digital asset space. Andorra’s favorable regulatory environment, coupled with its political stability and geographic advantages, makes it an enticing destination for businessmen seeking to establish businesses in the cryptocurrency sector. By adhering to the established legal framework, complying with AML and KYC obligations, and seeking professional advice on tax matters, businesses can navigate the cryptoregulatory landscape successfully. As dedicated lawyers well-versed in the intricacies of Andorran law, we are committed to assisting our clients in overcoming any legal obstacles they may encounter, ensuring a seamless and compliant business operation in this jurisdiction. With our expertise and tailored solutions, we are here to help businesses thrive in Andorra’s flourishing crypto landscape.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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MiCA: on the creation of a single European market for virtual assets

There are no general rules governing the crypto market at the European level for today.

The current rules are based on different legal acts, interpretations and guidelines in the legislation of different EU member states. There are separate anti-money laundering rules for services related with unregulated crypto-assets, including the operation of cryptocurrency trading platforms and the exchange or storage of crypto-assets.

Therefore, there is no single legal definition of the nature of crypto-assets in the EU. This situation makes their owners vulnerable to risks, limits the development of the market, limits the possibilities of innovative digital services, alternative payment instruments, becomes a platform for market manipulation and a basis for financial crimes. But in the near future, the crypto-asset market will exist according to uniform rules and principles. In this context, we can talk about the beginning of the creation of the united regulated market of virtual assets in the EU.

What is MiCA?

Markets in Crypto-Assets Regulation (hereinafter – “MiCA”) is one of the most significant and profound documents in the field of regulation of virtual assets, which is planned for introduction. It is designed as part of a broader regulatory effort that includes initiatives such as the Digital Operational Resilience Act (DORA), the DLT Pilot and the Transfer of Funds Regulation (TFR).

MiCA was first proposed in September 2020 as part of a large-scale digital finance regulatory package aimed at making the EU’s financial sector more competitive and giving consumers greater access to innovative products. On November 24, 2021, the EU Council approved the negotiating commitments for MiCA. The next step was negotiations between parliamentarians, which began on March 31, 2022 and ended with a preliminary agreement on June 30, 2022. And most recently, on April 20, 2023, the European Parliament adopted MiCA and the Regulation about information accompanying Transfers of Funds and certain crypto-assets (TFR) by final vote. MiCA and TFR are expected to enter into force in July 2023. The provisions relating to the regulation of stablecoins under the MiCA will apply from July 2024. And the rest of the MiCA provisions, together with the TFR, will apply from January 2025.

MiCA will apply directly throughout the EU without the need for national implementing laws. This approach corresponds to the protection of consumer rights and ensuring effective and harmonized access to innovative crypto-asset markets in the united market. So MiCA will be an act of direct action.

There are the following goals for the MiCA adoption:

  1. Provide legal certainty by creating a robust legal framework for crypto-assets that are not covered by current financial services legislation.
  2. To protect consumers, investors and market integrity by taking into account the risks associated with crypto-assets.
  3. Maintain transparency, i.e. establish reporting requirements to authorities in order to ensure compliance by crypto-asset service providers (hereinafter – “CASP”).
  4. Ensure financial stability, including safeguards to address potential risks to financial stability.
  5. To support innovation and fair competition in order to promote the development of crypto-assets by creating a safe and proportionate system.

Definition of crypto-asset and classification of tokens

According to MiCA, “crypto-asset” means a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology.

MiCA provides three types of tokens:

  1. Utility token is a type of crypto-assets designed to provide access to goods and services offered by their issuers.
  2. Asset-referenced token (ART) is a crypto-asset that must provide a stable value based on the value of several fiat currencies that are legal tender, commodities, crypto-assets or a combination of such assets.
  3. E-money token (EMT) is a crypto-asset whose main purpose is to be used as a medium of exchange and which aims to maintain a stable value, referring to the value of fiat currency, which is legal tender.

MiCA will not settle financial instruments, deposits, NFTs, electronic money (except those that are e-money tokens) or security tokens.

It should be noted that for ART and EMT MiCA introduces the concept of “significance”. Thus, significant ART and EMT are tokens that exceed certain limits of application and must meet higher prudential, managerial and liquidity requirements. ART and EMT will be considered significant if they meet three of the following criteria (to be further specified):

  • > 10 million owners;
  • > EUR 5 billion of market capitalization;
  • the number and value of transactions per day exceeds 2.5 million and 500 million euros, respectively;
  • the issuer is defined as a “gatekeeper” in accordance with The Digital Markets Act;
  • the issuer is considered internationally significant, including the use of the token for payments and remittances;
  • the degree of interconnection of the token with the financial system;
  • issuers offer additional ART, EMT or crypto-asset services.

Issuers of crypto-assets

“Issuers of crypto-assets” means a legal person who offers to the public any type of crypto-asset or seeks the admission of such crypto-assets to a trading platform for crypto-assets.

Requirements for issuers of crypto-assets (with the exception of utility tokens and small crypto-assets):

  1. to be a legal entity;
  2. develop a detailed white paper (must contain a description of the issuer and a presentation of the main participants involved in the development of the project; a description of the issuer’s project itself, the type of crypto-asset that will be offered to the public or for which admission to trading is requested; a description of the characteristics of the public offering, in particular the number of crypto-assets that will be issued or for which admission to trading is requested, the issue price of crypto-assets and the terms of subscription; a description of the rights and obligations related to crypto-assets, as well as the procedure and conditions for their implementation; information about the underlying technology and standards applied by the issuer of crypto-assets that allow hold, store and transfer these crypto-assets; risks related to the issuer of crypto-assets, crypto-assets, the offering of crypto-assets to the public and the implementation of the project). Issuers of crypto-assets will have to notify the national competent authority about the white paper at least 20 days before its publication, but MiCA does not require its direct approval;
  3. act honestly, fairly and professionally;
  4. communicate with owners of crypto-assets in a fair, understandable and non-deceptive manner;
  5. prevent, identify, manage and disclose any conflicts of interest that may arise;
  6. adhere to all of its systems and security access protocols in accordance with EU standards.

Requirements for ART issuers:

  1. must be legal entities established within the EU;
  2. must develop a white paper for ART (in addition to the above requirements, must contain a description of the issuer’s management structure, including a description of the role, duties and accountability of third-party organizations; a description of the asset reserve and the order of their storage, including the segregation of assets; information on the nature and possibility of enforcement of rights , including any right of outright redemption or any claim that ART holders and certain legal or natural persons may have against the reserve assets or against the issuer, including how such rights may be treated in insolvency proceedings) and submit it to the national competent authority for prior approval.

Requirements for EMT issuers:

  1. to be a credit institution or “electronic money institution”;
  2. develop a white paper for the EMT (must contain a description of the issuer; a description of the issuer’s project and a presentation of the main participants involved in the development of the project; an indication of whether the white paper concerns the EMT proposal for public placement and/or the admission of such EMTs to trading on the trading platform for crypto-assets; a description of the rights and responsibilities related to EMT; information about the underlying technology and standards followed by the EMT issuer that allow holding, storing and transferring such EMT; risks related to the issuer of electronic money, EMT and the implementation of the project, including technology) and notify the national competent authority.

CASP requirements

“Crypto-asset service provider” or “CASP” means any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis.

MiCA provides the following range of crypto-asset services:

  • storage and administration of crypto-assets on behalf of third parties;
  • functioning of the trading platform for crypto-assets;
  • exchange of crypto-assets for fiat currency, which is legal tender;
  • exchange of crypto-assets for other crypto-assets;
  • execution of orders regarding crypto-assets on behalf of third parties;
  • placement of crypto-assets;
  • receiving and transferring orders for crypto-assets on behalf of third parties
  • providing advice on crypto-assets.

Requirements for CASP:

  1. to be a legal entity;
  2. have a registered office in one of the EU member states;
  3. be authorized as a CASP;
  4. act honestly, fairly and professionally in the best interests of their clients;
  5. the minimum authorized capital should vary from 50,000 to 150,000 euros depending on the services to be provided;
  6. meet the minimum requirements for the storage of clients’ crypto-assets, outsourcing, prudential requirements;
  7. meet organizational requirements (for example, members of the CASP governing body must have the necessary reputation and competence in terms of qualifications, experience and skills to perform their duties).

KYC verification

The MICA regulation will end the anonymity of cryptocurrency transactions and make the KYC verification process mandatory. This commitment is also the result of pressure from the Financial Action Task Force (FATF) to apply the so-called “crypto travel rule”.

To implement this rule, the EU formulated TFR in addition to MICA. Regulation will come into force in January 2025 (18 months after its entry into force). Under this act, CASPs will be able to prevent and detect sanctioned addresses and ensure full identification and traceability of crypto-asset transfers.

Firstly, it is important to note that EU CASP-companies will be required to comply with the transfer of funds rules in every transaction, whether or not it is a large or small transaction, i.e. there are no exceptions. Thus, the de minimis threshold is not applicable, and there are no simplified requirements for transactions within the EU. It is also relevant to mention that the amount of information about the sender and the recipient to be provided by the CASP does not differ depending on the amount of the transaction – the same amount as defined in Articles 14(1) and (2) is required for each transaction. Paragraph 27 of the Regulation explains this approach, citing the “inherent borderless nature and global reach of transfers of crypto-assets and of the provision of crypto-asset services” and that it “conforms to the FATF’s requirement to treat all crypto-asset transfers as cross-border”, making any difference in the scope of obligations for transactions within and outside the EU invalid.

Secondly, CASPs must meet travel compliance obligations prior to the transaction. According to the TFR, CASP-senders are obliged to transmit information to the CASP-receiver before sending the corresponding crypto-transaction. In turn, the CASP recipient must ensure that the necessary information has been obtained before making the transfer of funds available to the end customer.

Operations with unhosted wallets

Transactions between individuals with unhosted wallets (self-hosted wallet) in the amount of more than EURO 1000 require verification of the owner of the wallet. According to FATF recommendations, self-hosted wallet transactions are subject to TFR. Thus, when carrying out operations with a self-hosted wallet, European CASPs must collect the necessary information about the sender and the recipient, as well as fulfill the following additional obligations regarding the verification of wallets when making transfers in the amount of more than EURO 1000 euros:

  • when sending a transfer in the amount of more than EURO 1000 to a unhosted wallet, the sender is obliged to check whether this wallet belongs to the sending client or is controlled by him;
  • when receiving a transfer of more than EURO 1000 from a unhosted wallet, the recipient must ensure that the receiving client is the owner or controller of the sending wallet.

This means that the wallet owner verification requirements apply to transactions between parties to/from an unhosted wallet that exceed EURO 1000.

The unhosted wallet identification tool defines the jurisdictional requirements for each transaction. It collects customer counterparty data from the withdrawal page, creating an archive for sanctions compliance, record keeping and suspicious activity reporting.

The next question is: “How can unhosted wallets be brought into compliance with the FATF rules on the movement of funds?”. Generally, the funds transfer rule requires virtual asset transfer service providers (VASPs) to collect and share certain information about their customers and the transactions they process. This information includes the name and address of the sender and recipient of the transaction, as well as the sender’s account number and the recipient’s account number. This rule applies to all VASPs, including those that work with an unhosted wallet.

So, in order to bring an unhosted wallet into compliance with the FATF Transfer Rules, one approach is to use a third-party service provider that specializes in compliance. These providers may act as intermediaries between users of unhosted wallets and VASPs, collecting and transmitting the necessary information on behalf of wallet users. This allows users of unhosted wallets to continue using them while following the rules.

Another approach is that users of unhosted wallets must collect and transmit the required information in person. At the same time, they can use a standardized information format and ensure the secure transfer of information to the VASP involved in the transaction. This approach can be more complex and time-consuming, but it allows users of unhosted wallets to maintain full control over their wallets and transactions.

It should be noted that compliance with the FATF Transfer of Funds Regulations is an evolving process, and both VASPs and unhosted wallet users need to stay aware of the rules to maintain compliance as they are revised.

Finally, CASPs will be required to conduct due diligence on all clients, which consists of the following:

  • Customer identification (name, address, date of birth, place of birth, etc.).
  • Ensure that the client is not a sanctioned person.
  • Store personal data and data related to the prevention of money laundering and terrorist financing.
  • Transfer data with the transaction.
  • Depending on whether the CASP is conducting the transaction on behalf of the sender or recipient, it will need to collect and transfer personal and AML/CFT information, or receive data from the sender and verify the data received.

Value for the Ukrainian market

In February 2022, the Verkhovna Rada of Ukraine adopted Law No. 2074-IX “On Virtual Assets”, which is to enter into force from the date of adoption of Draft Law No. 7150 “On Amendments to the Tax Code of Ukraine on Taxation Features of Transactions with Virtual Assets” dated March 13, 2022.

However, taking into account the fact that Ukraine has received the status of a candidate for EU membership, the norms of Ukrainian legislation regarding the cryptocurrency area will have to be adapted in accordance with European standards.

After the recent approval of the MiCA regulation by the European Parliament, the Ukrainian authorities have expressed their intention to integrate this legislation into their own jurisdiction. Some experts believe that Ukraine’s adoption of the MiCA could raise its chances of becoming an EU member and attract a lot of foreign investment and new talent to the fast-growing crypto sector.

Currently, in addition to changes in the Tax Code, there should also be changes and adoption of the Law of Ukraine “On Virtual Assets”. The new text of this act, taking into account the adopted provisions of MiCA, should be published by the National Commission for Securities and the Stock Market of Ukraine (NCSCFR). Its text will be presented for public discussion with relevant government bodies and the crypto community.

Ukrainian businesses in the field of cryptocurrencies should prepare for changes in the previously mentioned law and meet the requirements of the MiCA regulation in order to conduct their activities in Ukraine. As for the business, which is represented by the presence of offices and carries out activities on the territory of the EU member states, then it will also be obliged to comply with the requirements of MiCA. There is no way back. A unified European regulation is coming to the business meeting.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Bahrain – virtual asset regulation

Cryptocurrency has had fans since its inception, and experts in this area are very appreciative of its potential.

For example, Bahrain has shown its interest in the development of the FinTech sector. The topic of discussion is cryptocurrency is one of the most discussed among economic events.

Bahrain`s economy doesn`t depend on oil unlike other countries of the Persian Gulf. So regulation of the cryptocurrency sector was a good solution to boost the economy. Thus, today Bahrain stands in the way of the development of the cryptocurrency market.

Regulation

The Central Bank of Bahrain (Central Bank of Bahrain; hereinafter – “CBB”) is the responsible entity for regulating the capital markets in the country, including cryptocurrency. In February 2019, the CBB issued a Module on Crypto Assets (“CBB Rules”) under Volume 6 (“Capital Markets”) of the CBB Rules, which permits their use in the Kingdom. The CBB Rules cover licensing requirements, conditions for issuing and holding a CBB license, minimum capital requirements, customer or client protection measures, technology standards and in particular cybersecurity risk management requirements, reporting obligations, approval requirements, performance obligations, prevention of abuse and market manipulation.

In other words, we can say that the CBB is quite strict in this area. Mainly this was done precisely to comply with anti-money laundering requirements and to guarantee transparency of transactions.

In the CBB Rules, the following concept was enshrined: crypto assets. They are defined as virtual or digital assets (“tokens”) running on a Blockchain platform and protected by cryptography. These crypto-assets are offered by crypto asset platform operators, who act as principals or agents who facilitate the storage of crypto assets on behalf of their customers. There are four types of tokens: payment tokens (synonymous with cryptocurrency), utility tokens, asset tokens and hybrid tokens.

Anti-money laundering requirements

The CBB Regulation provides a framework of rules and guidance against money laundering and terrorist financing, and applies to all capital market service providers.

Capital market licensees (including crypto-asset licensees) should:

  • take enhanced measures if heightened ML/TF/PF risks are identified to effectively manage and reduce such risks;
  • maintain, regularly review and update a documented risk assessment;
  • allocate sufficient financial, human and technical resources to effectively implement and take preventive measures to reduce ML/TF/PF risks.

The nature and extent of any assessment of money laundering and terrorist financing risks must be appropriate to the nature and size of the business.

A capital market licensee must review the effectiveness of its AML/CFT procedures, systems and controls at least once per calendar year. The review should cover the capital market licensee, its branches and subsidiaries both within and outside the Kingdom of Bahrain.

Capital market licensees must designate a Money Laundering Reporting Officer (“MLRO”) who will monitor compliance with AML regulations, process information on suspicious employee transactions, forward suspicious transaction reports to the Financial Intelligence Unit, prepare reports on the effectiveness of the licensee’s AML controls, deal with ensuring that the licensee maintains records on CDD (customer due diligence and risk management), transactions, STR (saleability ratio).

Also under the CBB Law, AML Law No. 4 2001 or Penal Code of the Kingdom of Bahrain, failure by a capital market licensee to comply with the Rules will result in a fine of up to BD 20,000, without the need for a court order and at the discretion of the CBB.

Licensing

According to the CBB Rules, no person may sell or conduct commercial activities within or outside the Kingdom of Bahrain consisting of regulated crypto asset services without obtaining a license from the CBB.

Regulated crypto asset services means doing any of the following:

  1. reception and transmission of order;
  2. execution of orders on behalf of clients;
  3. dealing on own account;
  4. portfolio management;
  5. crypto asset custodian;
  6. investment advice;
  7. exchange of crypto assets;
  8. digital tokens advisor.

Applicants may combine two or more regulated crypto asset services and obtain a cryptocurrency license from CBB, provided the services belong to the same list of services and there is no conflict of interest. Licensees will be required to pay an annual license fee equivalent to 0.25% of their operating expenses.

Applicants for such a license must submit a completed Form 1 (Application for License), accompanied by a letter signed by an authorized representative of the applicant marked for information by the Director of the Licensing Authority, together with a list of other documents (e.g. business plan, copy of the applicant’s memorandum and articles of association etc.). CBB makes a decision within 60 calendar days after the application is deemed complete (i.e. containing all required information and documents).

License Categories

One of four licenses is applied for:

  • Category 1 – services (reception and transmission of orders + investment advice), capital requirements (25,000 BHD – approximately 66500 euros).
  • Category 2 – services (crypto-assets trading as an agent + portfolio management + crypto assets custodian + investment advice), capital requirements (100,000 BHD – approximately 266,000 euros).
  • Category 3 – services (trading of accepted cryptoassets as agent or principal + portfolio management + crypto assets custodian + investment advice), capital requirements (200,000 BHD – approximately 532100 euros).
  • Category 4 – services (exchange of crypto assets + crypto asset custodian + digital tokens advisor), capital requirements (300,000 BHD – approximately €798200).

The CBB may at its discretion require a licensee to hold additional capital in an amount and form it specifies if deemed necessary to ensure the financial integrity of the licensee’s operations.

Granting license and Refusing to grant

In order to obtain a license, the applicant must comply with the CBB Act, the CBB Regulations, and other applicable regulations in Volume 6. If a license is granted, CBB will notify the applicant in writing, and CBB will also publish its decision to grant a license in the Official Gazette and in two local newspapers (one published in Arabic and one in English).

If CBB intends to deny an application for a license (for example, the rules of the acts were ignored, false information was provided or it was not provided at all etc), it will notify the applicant in writing. Applicants will have at least 30 days from the date of the written notice to appeal the decision in accordance with the appeal procedure specified in the notice.

Taxation

Bahrain’s National Revenue Bureau (NBR) published an updated version of the Financial Services VAT Manual on January 1, 2022, which clarifies the VAT taxation of cryptocurrency transactions.

The tax levied on each type of crypto-asset is different.

  1. Payment tokens are not subject to Value Added Tax (VAT). Customers can fully withhold profits from cryptocurrency, including transactions with crypto assets.
  2. Utility tokens are similar in nature to multi-purpose or one-time vouchers.
  3. Asset tokens are generally not subject to VAT. Asset tokens are exempt from VAT on tokens delivered at a discount.
  4. The VAT treatment of hybrid tokens must be determined on a case-by-case basis and, depending on the specific circumstances, may be a single composite delivery or multiple deliveries of goods and/or services.

Bahrain still does not recognize cryptocurrency as legal tender due to its instability. The jurisdiction in which crypto assets are held is still unclear, which can make taxation difficult. Fortunately, the country does not tax individual gains from cryptocurrency trading.

Conclusion

Bahrain is a country that has recently started to develop FinTech. In general, it attaches great importance to finance and banking, which contribute greatly to its GDP. The Kingdom of Bahrain, in contrast to many other countries in the Middle East, is keen to increase in this area in order to give the economy a boost.

Bahrain has formed and introduced a list of regulations and rules that aim to maintain and regulate the crypto-asset market in the country. With these innovations, Bahrain is in a good position to benefit greatly from the crypto-asset sector in the Middle East.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Regulative environment of Virtual Assets in Romania

Romania is one of the countries of the European Union, and, like other countries, is awaiting the introduction of new rules established by the Regulation of the European Parliament and of the Council on the markets for crypto-assets (hereinafter referred to as “MiCA”).

Since there is currently a lack of regulatory clarity, in this article we propose to look at the main positions of the Government regarding this issue.

Regulation of cryptocurrencies in Romania

At the current stage, in Romania there is no separate legislative paper on cryptocurrencies which establishes rules and procedures for their treatment, acquisition and use. Romania, like many countries that have not adopted special rules at the national level, but uses the EU regulatory framework for cryptocurrencies.

Main regulatory authorities in the field of finance and fintech, are the Financial Supervision Authority (hereinafter referred to as ASF) and the National Bank of Romania (hereinafter referred to as BNR). ASF and BNR are responsible for the supervision and monitoring of banks and financial companies operating in Romania. The ASF protects the interests of financial market participants and is responsible for the supervision of financial products, information published by companies, and financial service providers, while the BNR is responsible for the supervision of individual financial institutions (for example, credit institutions, investment firms, payment institutions, non-banking financial institutions and electronic money institutions) and the proper functioning of the financial system as a whole.

BNR’s position is quite clear with regard to cryptocurrencies that are very volatile and pose a high risk for investors to result in financial losses as a result of investing in cryptocurrencies. In particular, from July 15, 2020, providers providing services for the exchange of virtual and fiat currencies, as well as providers of depository wallets, are required to comply with Law No. 129/2019 “On Prevention and Combating Money Laundering and Financing of Terrorism” in some legal acts with subsequent amendments and additions, among other things, with the requirement to obtain permission or registration with the Ministry of Finance through the Foreign Exchange Licensing Board.

The rules administered by the National Bank of Romania do not prohibit credit institutions from offering account services to providers engaged in the exchange between virtual currencies and fiat currencies, as well as providers of custodial wallets. Credit institutions are required to comply with Law No. 129/2019, namely, by applying “Know Your Customer” and risk management measures in the field of prevention of money laundering and terrorist financing. However, it should be borne in mind that the provision of services takes into account the risks that a credit institution may face when servicing such customers.

Thanks to rapid circulation of virtual currencies (current estimates show that there are more than 2 million crypto holders registered in Romania, which is equivalent to 10% of the population), the Romanian Government started to organise working groups for regulating the business of virtual asset service provider. As a first step, the Romanian Government decided to safeguard the national interest by regulating such new emerging technologies in the most vulnerable areas, including from the tax, anti-money laundering/know-your-customer (“AML/KYC”) and criminal law perspectives.

In addition, more than 15 new activities based on the new emerging technologies have also been established by private service providers in Romania, including:

(i) initial coin offerings (“ICOS”);

(ii) initial exchange offerings;

(iii) cryptocurrencies that have 1:1 parity with fiduciary coins (stablecoins);

(iv) exchange services between cryptocurrencies (crypto exchanges);

(v) exchange services between cryptocurrencies and fiat currency,

(vi) cryptocurrency storage services (crypto wallets);

(vii) services for monitoring transactions/payments with cryptocurrencies (tracking tools);

(viii) transaction validation activities (mining farms); (ix) liquidity assurance services (farming pools/landing platforms);

(x) e-commerce services (marketplace);

(xi) cryptocurrency payment/receipt services (transaction/payment processors);

(xii) online games (crypto games);

(xiii) NFT generation services;

(xiv) secure telecommunications services; and

(xv) governance system decentralisation services.

Virtual Assets Service providers and digital wallet services already operating in the European markets and fulfilling requirements of the the fifth anti money laundering directive (5AMLD) will not be exempted from the Romanian authorisation procedure if they intend to expand their activity in this country. Thus, in order to legalize business activities in Romania, all providers of virtual currency exchange services and digital wallets must obtain authorisation from the Romanian Digitization Authority, Also, since 2019, the Romanian Criminal Code has classified digital currencies as a “means of payment without cash. The only purpose of the classification is to sanction crimes such as theft or embezzlement committed in connection with cryptocurrencies.

However, despite the absence of a legal definition of cryptocurrencies as a category, Romania still uses the concept of “virtual currency” in the legislation. So, in Art. 114 of the Fiscal Code of Romania states that one of the income from third-party sources is income received from transactions with virtual currency. Income from the exchange of virtual currency, according to Art. 116 of the Romanian Fiscal Code, is defined as the positive difference between the sale price and the purchase price, including the direct costs associated with the transaction. Income below the level of 200 lei/transaction (41 euro) is not taxed, provided that the total income in the financial year does not exceed the level of 600 lei (123 euro). Such income should be declared and submitted to the relevant fiscal authorities.

Types of tokens

Analyzing EU legislation and new proposals for Regulation, it can be said that MiCa will most probably allocate the following types of tokens in the near future:

  • “Asset-pegged token” means a type of crypto-asset designed to maintain a stable value by referencing the value of multiple fiat currencies that are legal tender, one or more commodities, one or more crypto-assets, or a combination of such assets;
  • “Electronic money token” or “electronic money token” means a type of crypto asset whose main purpose is to be used as a medium of exchange and which is designed to maintain a stable value by referring to the value of a fiat currency. it is legal tender;
  • “Utility token” means a type of crypto asset that is intended to provide digital access to a good or service available in the DLT and is accepted only by the issuer of that token.

Conclusion

As indicated above, at the moment it is difficult to say that a regulated and transparent cryptocurrency market has been formed in Romania. Romania has not adopted the necessary laws that would establish clear rules for the treatment of cryptocurrencies in the country, however, it should be noted that in anticipation of the final adoption of MiCA, further steps by the governments of the Member States of the European Union can be predicted.

In conclusion, it should be said that cryptocurrency in Romania is not regulated (except for the need to declare revenues made from the transfer of virtual currency in accordance with the provisions of Articles 114, 116 of the Fiscal Code), however, it is not prohibited, which allows it to be freely circulated. Romanian legislation does not distinguish different types of tokens into separate categories yet, but is expected to do so by implementing EU wide laws in its jurisdiction. While we can expect an improvement in the regulation of virtual assets, due to the latest changes in EU legislation. Further harmonization of legislation will inevitably facilitate doing business with crypto assets not only in Romania, but throughout the European Union.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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License for Virtual Assets Service Providers in Uzbekistan: prospects for Crypto business

Earlier, we wrote that Uzbek Citizens are now allowed to trade with crypto assets in licensed crypto exchanges. In July 2022, the National Agency on Perspective Projects of the Republic of Uzbekistan (hereinafter referred to as: – “NAPP”) which is the licensing authority in the field of circulation of crypto assets announced licensing procedures for new market participants. Licensing of service providers in the field of circulation of crypto assets is carried out in accordance with the Regulations on the procedure for licensing the activities of service providers in the field of circulation of crypto assets, approved by order of the Director of the NAPP from July 2022. Today, we will discuss the process and conditions for obtaining Virtual Asset Service provider (VASP) licenses.

Requirements for virtual asset service providers

A license to carry out the activities of service providers in the field of circulation of crypto-assets of services is issued only to legal entities – residents of Uzbekistan. The license requirements and conditions for service providers are as follows:

·Availability of an electronic platform and (or) a complex of hardware and software located on servers on the territory of the Republic of Uzbekistan;

·storage of information on all transactions related to crypto assets , identification data of platform participants, materials relating to the relationship of service providers with platform participants (including between platform participants), including business correspondence, for five years;

·compliance with the requirements of the legislation of the Republic of Uzbekistan in the field of circulation of crypto assets, legalization of proceeds from crime, financing of terrorism and financing the proliferation of weapons of mass destruction, as well as the storage and use of personal data;

·a ban on advertising in the field of circulation of crypto assets, including promises about the effectiveness (income) of activities related to the use of crypto assets, a ban on the dissemination of information that making transactions with crypto assets is an easy way to get rich, and accepting payment or paying with crypto assets in the territory Republic of Uzbekistan, subject to the requirements that they cannot be used as legal tender;

·do not conduct transactions with anonymous crypto-assets;

·provision of information related to the implementation of the activities of the platform, free of charge at the request of the authorized body;

·other requirements in accordance with regulatory documents.

Additional licensing requirements and conditions for crypto exchanges are as follows:

·quotation of crypto assets based on supply and demand;

·the presence of an authorized fund formed in cash in the amount of at least five thousand multiples of the base calculated value (1 BCV = 300,000 soums; 5,000 BCV = 1,500,000,000 soums ≈ EUR 134722), of which three thousand multiples of BCV (3,000 BCV = 900,000,000 soums ≈ EUR 80833) is reserved on a separate account with a commercial bank of the Republic of Uzbekistan;

·the functions of control over the activities of service providers and their compliance with regulatory legal acts on combating the legalization of proceeds from crime, the financing of terrorism and the financing of the proliferation of weapons of mass destruction are assigned to the licensing body of service providers and the relevant competent state bodies;

·the statutory fund of service providers is formed only at the expense of funds and other property of their founders. Funds allocated for the formation of the statutory fund of service providers are not allowed to be replenished by attracting credit or pledge funds and other similar funds;

·legal entities pay a commission for activities in the field of circulation of crypto assets. Fees are distributed between the State Budget of the Republic of Uzbekistan and the Agency.

In addition, a license is not issued to companies registered in offshore zones, as well as to persons whose convictions for economic, corruption and information crimes have not been expunged or extinguished.

License types

Licensing of service providers in the field of circulation of cryptoassets is carried out in accordance with the Regulations on the procedure for licensing the activities of service providers in the field of circulation of cryptoassets, approved by order of the Director of the Agency No. 32 dated July 14, 2022 (No. 3380 dated August 15, 2022).

Types of activities for which service providers in the field of circulation of crypto assets are licensed:

a) crypto exchange an organization that provides an electronic platform for the purchase, sale and (or) exchange of crypto assets;

b) mining pool – an organization that provides an electronic platform that combines computing power to support the mining process;

c) crypto depository – an organization that provides an electronic platform and (or) a set of hardware and software tools for the provision of services for the issuance, initial placement and storage of crypto assets;

d) crypto store – an organization that provides an electronic platform and (or) a set of hardware and software tools for the provision of services related to the purchase and (or) sale of crypto assets.

The license is issued for an unlimited period, and the license is issued separately for each type of licensed activity.

Submission of applications for obtaining a license by applicants

Applications of applicants for obtaining licenses, as well as the documents attached to them, can be accepted by e-mail to the email address of the Agency info@napp.uz or sent by mail to the legal address of the agency: Nukus street , 22, Mirabad district, Tashkent city or can be accepted upon delivery in person.

Following documents that must be submitted to obtain a license:

a)name and legal form of the legal entity, its postal address, taxpayer identification number (TIN), location, e-mail address, name of the bank and bank account, type of licensed activity, reason for filling out the application (obtaining a new license or re-registration), an application reflecting consent of the license applicant to comply with license requirements and conditions;

b)information about the management of the license applicant (head, his deputies) and the founder, specified in Appendix 2 to the Regulation . In this case, information about the founders is displayed up to the last beneficial owner;

c)if the management (head, his deputies) and the founders of the license applicant are foreign citizens, a certificate of non-conviction from the competent authority of the relevant foreign state for the crimes provided for by subparagraph “h” of paragraph 9 of the Regulation ;

d)a certificate from a commercial bank stating that the statutory fund (capital) has been formed for the implementation of crypto -exchange activities and the corresponding part of the statutory fund (capital) has been allocated.

In the case when the management (head, his deputies) and the founders of the license applicant are citizens of the Republic of Uzbekistan, the licensing authority independently considers the circumstances provided for in subparagraph “h” of paragraph 9 of the Regulations. The above documents must be approved (signed) by the head of the license applicant. It is not allowed to require the license applicant to submit documents that are not provided for by the Regulations . No fee is charged for consideration of an application for a license.

Terms of consideration of the application

The decision to issue or refuse to issue a license is made within 20 working days from the date of receipt of the license applicant’s application. The status of applications can be tracked by this link . Requirements and conditions that must be met by legal entities when carrying out licensed activities:

a) the presence of an electronic platform and (or) a complex of hardware and software located on servers on the territory of the Republic of Uzbekistan;

b) store information about all transactions related to crypto assets , identification data of platform participants, materials relating to the relationship of service providers with platform participants (including between platform participants), as well as business correspondence for five years;

c) compliance with the requirements of the legislation of the Republic of Uzbekistan in the field of circulation of crypto assets, legalization of proceeds from crime, financing of terrorism and financing of the proliferation of weapons of mass destruction, as well as the storage and use of personal data;

d) Compliance with the requirements for advertising in the field of circulation of cryptoassets, determined by clause 11 of the Regulations ;

e) not to carry out clandestine mining (mining activities on the computing power of third parties using special software without their notification and consent) and operations with anonymous crypto assets, including mining of anonymous crypto assets (crypto assets operating on the principle of anonymity);

f) free provision of information related to the operation of the platform, at the request of the licensing authority;

j) timely and full payment of remuneration for activities in the field of circulation of crypto assets, established by law;

Prevent a VASP from being run by people who:

·participated or suspected of participating in terrorist activities or proliferation of weapons of mass destruction;

·not cleared or convicted of crimes related to economic crimes, as well as money laundering, terrorism, proliferation of weapons of mass destruction, their financing, organized crime, drug trafficking, corruption, and crimes related to information technology;

In addition, do not allow the participation of persons specified in subparagraph “h” and companies registered in offshore zones in the authorized capital (capital) of service providers.

Fees

The amount of the state fee for licensing the activities of service providers in the field of circulation of crypto assets:

Paragraph 2 of subparagraph “g” of the Decree of the President of the Republic of Uzbekistan PQ-3832 dated July 3, 2018 “On measures to develop the digital economy and the sphere of circulation of crypto assets in the Republic of Uzbekistan” and in accordance with order No. 39 of the Director of the Agency (NAPP) dated August 30, 2022, The amount of the state fee for issuing a license to carry out the activities of service providers in the field of circulation of crypto assets is determined in the following amounts compared to the amount of the base calculation effective on the date of their payment:

In terms of the turnover of crypto assets, the amount of the state fee for issuing a license to increase the activities of service providers is determined in the following amounts compared to the basic calculation of the value (1 BCV = 300,000 UZS at the time of writing), effective on the date of their payment:

·for a crypto-exchange – 73,400 multiples of the BCV (EUR 1977715);

·for mining – 1900 multiples of BCV (EUR 51 195);

·for a crypto-depository – 18,400 BCV (EUR 495 776);

·for a crypto store – 2600 multiples of the BCV (EUR 70 055).

20% of the fee will be distributed to the settlement account of the Agency for Perspective Projects in a commercial bank. The remaining 80% will go to the state budget. According to the data , the monthly fees for the implementation of work in the field of circulation of crypto assets are set at the following multiples of the base calculation value (BCV = 300,000 UZS at the time of writing) in force on the date of payment, for:

  • miners – 10 multiples of BCV- (EUR 270)
  • crypto exchanges – 400 multiples of BCV (EUR 10 778);
  • mining pool – 100 multiples of BCV (EUR 2 695);
  • crypto-depository – 5 multiples pf the BCV (EUR 135);
  • crypto-shop – 20 multiples of the BCV (EUR 539).

In this case, if the license is received before the twentieth day of the current month, the fee for this month is paid in full, and if the license is received after the twentieth day of the current month, it is paid from the first day of the next month.

In case of suspension or termination of activities in the field of circulation of crypto assets, the accrual of commission is suspended from the first day of the next month. The remuneration is transferred to the treasury account of the Agency for Perspective Projects of the Republic of Uzbekistan before the tenth day of the current month in the form of an advance payment.

Our conclusion

The government of Uzbekistan is legalizing the circulation of Virtual assets and digitizing its financial system. The crypto transactions are not subject to taxation and VASP license can be obtained only by foreign companies, which gives a green light for new market participants. However, costly license fees and requirements to host local servers storing personal data about Uzbek citizens inside the country can be another obstacle for newcomers to the VASP business in the country and might discourage innovation.

While Uzbekistan has the best proposition for IT companies in terms of tax benefits, as residents of IT Park are completely free from taxes and the government supports foreign investments and is ready to provide an infrastructure to do business. We help you to obtain relevant licenses and permits for your business and ready to provide a legal guidance for smooth transition into Uzbek market.

The content of this article is intended to provide a general guide to the subject matter, not be considered as a legal consultation.


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Norway – Regulation of Crypto and Virtual assets

Norway is the world’s leader in terms of living standards with a high level of GDP.

In addition, it is a country of high technology and political stability. All these factors attract new investors to this country to look for suitable ways to earn money. Cryptocurrency has become another popular investment options in Norway.

According to the Norwegian Government Financial Market report 2021, the virtual asset market has grown rapidly in Norway in recent years, and it has grown especially strongly over the past year. During the pandemic, Norwegian consumers have been increasingly looking for new savings and investment options. Cryptocurrency during this period attracted special attention, compared to other investment options.

Also, the Central Bank of Norway (hereinafter: – “NB”) recently reported that Norwegians use cash coins and banknotes for about 3-4 per cent of their financial transactions. This makes Norway the most cashless society in the world and allows Norwegian consumers to adapt to virtual currencies.

However, in the 2021 report, NB indicates that cryptocurrency is a potential risk to financial stability due to its volatility. In the report, the bank indicates that institutional investors are showing a growing interest in cryptocurrencies and that international banks and other financial institutions are currently exploring opportunities for such investments and offering crypto-related services to clients. It is important to note that NB is paying attention to stablecoins (the cryptocurrency with a stable exchange rate) – “stablecoins can become systemically important”.

Similar risk warnings have also been issued by the Norwegian Financial Supervisory Authority (hereinafter: – “FSAN”). FSAN is an independent state body that performs the function of oversight of enterprises subject to regulatory requirements.

Regulation

There is currently no legislation or regulatory framework in Norway that specifically addresses the regulation of cryptocurrencies. However, some laws apply to activities and services based on virtual currencies, mainly the Law on Measures to Combat Money Laundering and Financing of Terrorism (hereinafter: – “AML law”). In addition to AML law, Securities Trading Act and Financial Undertakings Act regulate payments, investments and utility tokens.

Norway is not a member of the European Union, however, Norway is part of the European Economic Area, which links Norway to the EU internal market and forms the basis of Norway’s European policy. EU legislation does not automatically translate into Norwegian national law, but has a significant impact on it.

In its paper from 2018, FSAN set out the only official definition of virtual assets so far. Thus, virtual currency is defined as a digital representation of value that is not issued by a central bank or other government agency (i.e., not money), but that can be transferred, stored, or traded electronically. Cryptocurrency itself is not a financial instrument under Norwegian law. As such, recommendations for buying and selling cryptocurrencies are not subject to the advisory rules of the Securities Act.

Anti-money laundering requirements

In October 2018, the Ministry of Finance (hereinafter: “MF”) adopted new anti-money laundering rules. The changes concern Norwegian service providers for the exchange and storage of virtual currency. As of 2018, these providers must be registered with the FSAN following Money laundering law.

Following paragraph 5 of article 4 of the AML law, the current law applies to exchange platforms and virtual currency storage services.

It is worth noting that following subjects fall under the auspices of AML law if the company is registered in Norway; the company operates from Norway, or the company’s activities are focused on the Norwegian market.

Also, according to article 10 of the AML law the company undertakes to perform a customer verification if:

  • it has established business relationships with clients;
  • transactions are made with customers with whom the company does not have an established business relationship, while:
  1. the transaction amount is equal to or greater than 100,000 NOK (9,500 euros);
  2. the transaction is a money transfer equal to or greater than NOK 8,000 (750 euros);
  • there is suspicions of money laundering or terrorist financing.

In addition, measures are established that apply to the client when the client is an individual or a legal entity.

If the customer is an individual, the following information should be obtained about the customer:

  • name and address;
  • the national identity number (fødselsnummer), D number or, if the client does not have such a number, another unique identification code. For persons without a Norwegian identity number or D number, date of birth, place of birth, gender and citizenship, including whether the person has multiple citizenships, must be obtained.

If the customer is a legal entity, the following information should be obtained about the customer:

  • company name;
  • organizational form;
  • organization number;
  • address;
  • the name of the CEO and members of the board or persons holding a similar position.

All of these measures must be documented and established to understand the ownership and control structure of the client.

According to article 35 of the AML laws, persons who are authorized to report to FSAN must, through internal control in the company, ensure compliance with the law. When required by the risk and nature of the business assessment, the organization shall:

  • appoint a compliance officer;
  • assess the suitability of employees for knowledge of the rules of this law;
  • organize an independent compliance audit with the internal regulations of the company.

It should not be forgotten that banks must also comply with money laundering regulations in all cases when valuables are transferred to the bank. This also includes values that are realized through cryptocurrency. When clients need to transfer money received from investments in or trading cryptocurrencies, banks are required to conduct surveys about to identify where the funds come from. Especially when the government has identified the money laundering risk associated with cryptocurrencies as high, banks are required to conduct thorough investigations. Therefore, customers should expect that Norwegian banks may require relevant documentation for transfers in cryptocurrency.

Licensing

There is no license for virtual asset providers in Norwegian jurisdiction, however, companies that provide such services must register with the FSAN and obtain the appropriate permission to operate.

The registration is mandatory for entities that provide services, such as:

  • offer customers to trade or exchange virtual currency into an official currency, such as Norwegian kroner, or vice versa;
  • offer customers to switch between different types of virtual currencies, for example, between Bitcoin and Ethereum;
  • facilitating trade and exchange by linking buyers and sellers, for example through a trading platform;
  • holding private cryptographic keys on behalf of others to transfer, hold or trade virtual currency.

Providers of the above services are subject to the rules, regardless of how the service is organized. Therefore, the registration obligation also applies to service providers who:

  • are currently operating without registration in the business register,
  • conduct business through a private account,
  • work through platforms; or
  • whose activities are aimed at the Norwegian market.

The activity itself is the basis for registration requirement.

Registration

It is possible to apply for a registration by sending an email form to FSAN. The application documents to FSAN must be supported with the following necessary information as specified in the articles 1-3 of the AML law:

  • the name of the applicant;
  • form of organization and organization number;
  • legal address;
  • the services offered;
  • name, residential address and date of birth or d-number of the CEO or persons holding a similar executive position; members of the board or persons holding a similar position;
  • documentation by risk assessments and company procedures, as per articles 7 and 8 of the AML act.

FSAN notes that service providers must be registered in the commercial register and the provision of services will be carried out through a separate company account. As part of the registration, the company must attach the following documents:

  1. the type of service offered, with a detailed description of the exchange service and/or storage service. The documentation should contain specific descriptions of the functionality of the service. For example, following need to be explained: how transactions should be made; what types of currencies (official and virtual) can be exchanged and/or stored; how transactions should be carried out and briefly about what systems are used, etc.;
  2. enterprise risk assessment and money laundering procedures to identify risk associated with its activities. The procedures should, among other things, be adapted to the nature and scale of the business and be based on an assessment of the risks of the business;

Completed Suitability assessment form and a certificate of non-conviction no older than 3 months or the general director, board members, or another person who actually manages the business.

FSAN may reject applications that do not comply with the requirements of the Money Laundering Act. If the information attached to the application for registration is incomplete, the regulator will not register the company. It is forbidden to launch services for the exchange or storage of virtual currency until FSAN makes a positive decision on registration. If the conditions for registration are no longer met, FSAN may withdraw the registration.

Virtual currency service providers, in turn, are required to report following money laundering regulations and must comply with some requirements to prevent and detect attempts to launder money obtained by criminal means and terrorist financing. By following the link, it is possible to see the crypto companies that are registered and have received a permission to operate from FSAN in Norway.

Fintech license

FSAN recently announced the “regulatory sandbox” to issue fintech licenses to financial companies, new players who want to offer financial services, or players outside the financial industry who offer services to companies under supervision.. In the regulatory sandbox, companies are allowed to launch innovative new products, technologies and services under the supervision of FSAN.

The purpose of the sandbox is to:

  • promote innovative companies by gaining a deeper knowledge of the rules;
  • contribute to the expansion of FSAN ‘s understanding of new technological solutions in the financial market;
  • contribute to an increase in technological innovation and the emergence of several new players.

FSAN notes that admission to a regulatory sandbox is not an endorsement or assessment of the quality of a product, technology, or service.

Sandbox participants can be existing financial companies, new players that want to offer financial services or players outside the financial industry that offer services to companies under the supervision. Worth to note that, at the moment, no company involved in the provision of services related to cryptocurrency has received this license in Norway.

EMI license

Companies wishing to issue electronic money (monetary value stored electronically and recognized as legal tender) must apply for e-money license. Electronic money can be issued with some types of licenses (Articles 2-4 of the Financial Enterprises Law), and an electronic money company license is one of them. E-money companies are considered financial companies and are subject to the same provisions as other financial companies in the Financial Companies Act and the Financial Companies Regulations, unless otherwise stated. To obtain a license to issue electronic money, applicants must meet the following requirements:

  1. The initial capital of the enterprise must be at least 350,000 euros the equivalent of Norwegian kroner. After operations as an e-money enterprise have been initiated, there is a requirement for responsible capital which must be met at all times.
  2. Liability insurance or equivalent guarantee for the prepared form FSAN.

The board, general manager, actual managers and managers of key functions of an electronic money company must be suitable for the position held, following Article 3-5 of the Law on financial enterprises.There is a requirement that the e-money company’s board, general manager, actual managers and managers of key functions are suitable to hold their position or office, cf. Section 3-5 of the Financial Enterprises Act. The application must contain qualifications, professional experience and conditions mentioned in the Financial Enterprises Act §§ 9-1 to 9-3, as well as a police certificate. The composition of the board must meet the requirements of Section 8-4 of the Financial Enterprises Act. The suitability assessment form associated with circular 14/2015 Assessment of suitability requirements must be used. If persons who hold the aforementioned positions or positions are replaced, the undertaking must send a notification to the Norwegian Financial Supervisory Authority about this.

  • The application must contain the qualifications, professional experience and conditions specified in articles 9-1-9-3 of the Law on Financial Enterprises, as well as a certificate of non-conviction.
  • The composition of the board must comply with the requirements of Article 8-4 of the Law on Financial Enterprises. The suitability assessment form attached to Circular 14/2015 must be used. In case of replacement of persons holding the specified positions or positions, the company sends a notification to the FSAN.

Companies-applicants must have following internal procedures in place:

  • procedures to ensure the security of customer funds;
  • e-money redemption procedures;
  • internal control procedures;
  • anti-money laundering compliance procedures.

It is possible to apply for EMI license form the following Application link. Information with relevant officials fees for Application processing can be obtained from this link. The term for consideration of the application is usually three months after payment of the fee. If the application does not contain the information necessary to decide on issuing a permit, the period shall be calculated from the moment of receipt of all relevant and necessary information.

Taxation

The Norwegian tax authorities have established that virtual currency is considered an asset for tax purposes. As a result, income from virtual currency complies with the general rules of asset taxation, and profit and income are calculated as income from the capital for both legal entities and individuals (currently taxed at a rate of 22%). Cryptocurrencies are not subject to exemptions or special tax rules that apply to regular (fiat) currency, stocks, bonds, financial instruments or other types of assets with special exemption rules.

The taxation requirement applies regardless of whether the virtual currency is sold, bought, mined or held. Every individual or entity must value, report and document profits, losses, dividends and assets on a tax return.

VAT is not to be calculated if the virtual currency is considered as an alternative means of payment. This is stated in the EU Court judgement in case C-264/14 (Hedquist), which the Ministry of Finance has stated in a ruling dated 6 February 2017 is to be used as a basis for deciding similar exemptions in Norwegian VAT Act (Value Added Tax Act). The Directorate assumes that this must also apply to other types of virtual currencies if the aforementioned pre-conditions are fulfilled.

Results

Based on the foregoing, it should be said that Norway does not have a regulatory framework specifically regulating cryptocurrency. But recently the Norwegian government has stepped up in this regard. So in the latest financial report, NB concluded that the growing volume of cryptocurrencies requires new rules, and there is also a need for special rules that regulate the risks associated with the use of cryptocurrencies. In addition, the topic of cryptocurrencies is now being actively considered in the EU, and all subsequent legislative results of the EU in this area will have a significant impact on Norwegian legislation. Therefore, it can be assumed that Norway will expand and improve the legislative framework in the field of crypto regulation in the near future to better meet the demands of digital economy.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Finland – current regulatory measures for Virtual assets

The cryptocurrency market has been and remains one of the fastest growing area of finance around the world.

The development of cryptocurrencies, various types of tokens invariably positions various govenments to seek to set a controling framework of this area of ​​the financial market in order to make it more predictable, regulated, and also to prevent the risks associated with the volatility of cryptocurrencies and opportunities for money laundering and terrorist financing.

Finland decided to follow the example of other countries and adopted a separate legislative act at the national level with the aim of regulating issues related to the circulation of crypto assets.

Legislative measures

The active development of the regulation of virtual assets in the countries of the European Union began after the adoption of the joint proposal of the European Parliament and the European Commission “On Cryptoasset Markets” on September 24, 2020. However, Finland was concerned about the regulation of crypto markets a little earlier and adopted the Law “On Virtual Currency Providers” (hereinafter referred to as the Law), which came into force on May 1, 2019. The said Law governs the following:

  • rules and procedures for issuing virtual currency,
  • the procedure for providing virtual currency exchange services; as well as
  • the procedure for providing custodial wallet services.

Article 2 of the law in established what should be considered a cryptocurrency; accordingly, a cryptocurrency is a measure of value in digital form, which:

  • was not issued by the central bank of any state or other government body;
  • is not legal tender;
  • is a means of payment;
  • may be transferred, stored or exchanged electronically.

Despite the presence of a definition in the Law, at the moment there is no difference at the legislative level between different types of cryptocurrencies, and different types of tokens (for example, utility or security tokens) are not defined. Therefore, the question of whether a particular crypto asset or token falls under the scope of the Law on Providers of Virtual Currency must always be considered on a case-by-case basis analysis.

Regulator and Authorization

In Finland, issues related to supervision and regulation of the financial sector are regulated by a separate body — the Financial Supervisory Authority, or FIN-FSA to be shorter. According to the Law and related regulations, in order to carry out the abovermentioned activities, individuals and legal entities must register with FIN-FSA. Registration is mandatory for – “virtual currency exchange services”, “custodian wallet providers,” and “issuers of virtual currencies.”.

At the moment, there are only 3 exceptions in Finnish law, in which a person who is engaged in activities related to crypto assets should not be registered. Entities who carry out the following services are exempted from registration:

  • provision of services with virtual currency in a limited or closed network;
  • provision of virtual currency services not on a permanent basis in connection with the implementation of other activities that require separate licensing, registration or authorization;
  • carrying out activities with virtual assets that are issued by government agencies.

The full list of registered virtual asset service providers are open to public and can be accessed on the FIN-FSA’s website in the section ‘Registers’ under ‘Lists of supervised entities’.

The main problem regarding the implementation of virtual currencies in Finland is that, according to the Law, registration in FIN-FSA can only be obtained by a person who has the right to do business in Finland, which forces such a person to go through additional bureaucratic procedures to carry out activities, as well as register a company or a branch in Finland. Also among the mandatory requirements in the Law there are provisions on the marketing of the services of a virtual currency provider. Thus, the registrant is obliged to provide clients with information that may concern them, while the scope of such information must be determined in each specific case and in relation to each of the clients. Providing false or other information that is misleading is prohibited, as well as other unfair or discriminatory treatment of the client.

For registration it is necessary to submit an application for registration to FIN-FSA by means of a written application for registration in Finnish or Swedish along with the required documents. It is also possible to submit an application with attachments in other languages, however, this requires prior approval from FIN-FSA.

Registration is required to ensure customers that virtual currency providers comply with their legal requirements regarding:

  • reliability of the provider, which consists in its compliance with legal requirements;
  • storage and protection of clients’ money in accordance with applicable law;
  • separating the funds of the provider and the funds of customers that he receives in connection with the activities carried out;
  • compliance and continued compliance by the provider with marketing requirements;
  • compliance by the provider with the legislation on combating money laundering and the countering terrorism finacing.

Going forward, only virtual currency providers meeting statutory requirements can continue their activities in Finland. Virtual currency providers failing to comply with statutory requirements will not be allowed to do business in Finland, conditional fine might be enforced against them.

Findings

Делая выводы из вышеизложенной информации, следует сказать, что, несмотря на принятое национальное законодательство, следует также обратить внимание на законодательство ЕС в отношении криптовалют с учетом специфики правовой системы ЕС. Основной проблемой предоставления услуг с виртуальными валютами в Финляндии является проблема с трансграничным оказанием таких услуг, что вытекает из требования иметь компанию или филиал в Финляндии. Поэтому сейчас необходимо внимательно следить за развивающейся правовой базой в ЕС, особенно за процессом принятия регламента «О рынках криптоактивов», который позволит вам более тщательно прогнозировать развитие бизнеса и оценивать риски, если вы хотите работать в Финляндии.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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