Road to Compliance and Endorsement: Inventory of the Holy Land of Cryptocurrency Exchange Registration
Text | Editor Niu Niu | Source Bi Tongtong | PANews
The highest increase was 132.58%. Tongcheng Holdings announced that it would change its name to Huobi Technology, and Huobi founder Li Lin became the chairman of the board of directors. The stock price exploded again the next day.
Recently, the founder of Circle posted on the official blog, announcing the launch of Circle's new subsidiary in Bermuda and the regulatory license it has obtained. At the same time, it also stated, "Unfortunately, due to regulatory restrictions in the United States, we are temporarily unable to provide these new services to Americans."
IPOs, shell listings, small country registrations and licenses, and exchanges that have not yet fully entered the mainstream compliance society are looking for endorsements in a fancy way.
Facing the supervision of powerful countries, encrypted exchanges can only choose to migrate to foreign countries with loose policies.
For example, in 2017, with the introduction of the strict "94" document in mainland China, cryptocurrency exchanges in mainland China were forced to shut down. Therefore, many cryptocurrency exchanges in the mainland have to choose to "go overseas". At that time, the United States and Hong Kong, which have relatively loose policies on cryptocurrencies and a better financial technology environment, often become their ideal choices.
However, in recent years, Hong Kong’s supervision of cryptocurrencies has gradually become more stringent (PANews once wrote an article to understand Hong Kong’s policies). The regulation in the United States is becoming more and more strict. In addition to choosing to "suspend service to American users", some exchanges are also considering setting up subsidiaries in other regions or relocating directly.
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Bermuda
Let’s start with the Bermuda region mentioned at the beginning of this article.
Bermuda is one of the few jurisdictions with comprehensive prudential and AML/ATF regulated legislation for the broad DAB (Digital Asset Business) ecosystem, including digital asset exchanges, ICOs, payment service providers with digital assets , custodial wallet service providers, and market makers/dealers/dealers of digital assets.
In September 2018, The Bermuda Monetary Authority (BMA) published The Digital Asset Business Act 2018 (DABA), outlining what documents are required when applying for a digital asset business license. As a complement to the Act, the BMA has also published the Digital Asset Business (Cybersecurity) Rules 2018, the Digital Asset Business (Client Disclosure) Rules 2018 and the Digital Asset Business (Prudential Code) 2018 (Annual Return )rule". And, the same AML/CFT legislation that applies to other financial sectors also applies to digital asset businesses.
Two types of licenses: Class F (full) and Class M (defined term)
DABA requires anyone carrying on a digital asset business within Bermuda (unless exempted) to apply for a license from the BMA. There are two classes of licenses: Class F (Full License) and Class M (Defined Term License).
Class M licenses aim to be regulatory 'sandboxes' for start-ups, with a special focus on businesses looking to innovate and participate in the testing of new products and/or services. Type M licenses may impose modification requirements on businesses as well as certain restrictions imposed by the BMA. Regardless of the type of license the applicant applies for,The BMA has the power to grant an M-class license if it deems that an M-class license is more appropriate. The Class M license is only valid for a specified period of time, after which the licensee may cease operations, apply for an extension or transition to a Class F license.
Category F licenses are full licences, not limited to a specific period of time, but may be restricted if the BMA deems it necessary. For example, Circle, an encrypted financial company, has obtained a Class F DABA license. Circle commented, "At the heart of DABA is the recognition that digital assets represent a new class of assets that cannot be placed under traditional regulatory frameworks. Digital assets can simultaneously serve as utilities in investment contracts, goods, services, and payment currencies. "
Applicant Minimum Requirements
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Seychelles
In early August, Seychelles exchange operator MERJ Exchange Ltd. listed tokenized securities on its own stock, which CEO Edmond Tuohy said in an interview with Bloomberg was aimed at beating rivals, including the soon-to-be SIX, the Swiss exchange company that launched security tokens, and the Gibraltar Stock Exchange.
Seychelles, an archipelagic country in the central-western Indian Ocean, has a more relaxed attitude towards digital currencies. According to the data of "Feixiaohao", as of press time, there are a total ofHuobi Global, KuCoin, BitMEX, DigiFinex51 digital currency exchanges are registered in Seychelles.
In Seychelles, the department in charge of cryptocurrency-related matters is the Seychelles Financial Services Authority (FSA).
In November 2018, the Seychelles FSA released the "FinTech Regulatory Sandbox Framework", hoping to provide a regulated environment that "allows private entities to conduct small-scale real-time testing of FinTech financial services or products in a controlled environment" to To enable Seychelles registered companies to carry out financial services related to fintech in the securities industry. "
But so far, PANews has not found follow-up reports on the framework on the FSA official website, nor has the FSA issued specific bills or regulations related to the FinTech regulatory sandbox.
Earlier, some media speculated that the licenses that may be involved in the establishment of a digital currency exchange in Seychelles include the Dealer's License for Seychelles and the Financial Adviser's License in Seychelles. Broker's License, Seychelles Securities Dealer License. Of course, these licenses are all licenses within Seychelles' existing financial regulatory system, not specifically set up for digital currency transactions. It is worth mentioning that, it is reported thatMalta。
Malta
BinanceBinanceMove company registration to Malta; four months later, cryptocurrency exchangeOKExDeclares that Belize is re-domiciled to Malta; at present,Bittrex、DQR、ZB.COM、Exchain、BitBay A number of exchanges have opened trading platforms or offices in Malta. The legend of the country's name comes fromPhoenician "Maleth" (meaning "safe haven")The island country of China, because of its open and positive attitude, has become a safe haven for blockchain and cryptocurrency, and is known as "blockchain and digital currency paradise".
On November 1, 2018, Malta officially entered into force three digital asset-related bills: the Innovative Technology Arrangements and Services Act, the Virtual Financial Assets Act (VFAA) ) and the Malta Digital Innovation Authority Act. These bills “aim to provide legal security to investors and operators, while ensuring the continued growth and development of Malta’s cryptocurrency sector and DLT”.
In Malta, both cryptocurrency exchanges and ICO issuers must comply with these three acts. At the same time, applications related to blockchain and cryptocurrencies are licensed by the Malta Digital Innovation Authority (MDIA) and the Malta Financial Services Authority (MFSA).
VFAA lists the types of DLT (distributed ledger technology) assets: (1) electronic currency; (2) financial instruments; (3) virtual tokens; (4) virtual financial assets (VFA).
In addition, DLT exchange refers to any trading platform or facility in Malta or other jurisdictions, where any form of DLT assets can be traded according to the rules of the platform or facility.
VFAA regulates DLT assets and related service providers by introducing a mandatory regulatory system, including initial virtual financial asset offering (Initial VFA Offering, approximately equal to ICO) and virtual financial asset exchange (VFA exchange, approximately equal to cryptocurrency) exchange). In addition, VFAA also introduced a new concept, virtual financial asset agent (VFA agent).
Financial Instruments Test
VFAA authorizes MSFA to perform a mandatory financial instrument test (Financial Instruments Test, FIT). For an ICO, if the test result is "Yes", then this ICO or cryptocurrency will be subject to MiFID (EU Financial Instruments Directive Market) constraints . Of course, even if the ICO is not considered a financial instrument in Malta, it may still be considered a security or financial product in other jurisdictions.
If the ICO tests to be a non-financial instrument, it must be registered with the MDIA to comply with a set of transparency requirements and must be submitted to the MDIA White Paper. A standardized list of information needs to be included in the white paper to enable interested investors to make an informed assessment of the proposed project, token structure and characteristics, and team background. In addition, the ICO sponsor team must conduct Fit & Proper test and due diligence to ensure that the ICO project will not adversely affect the country's reputation.
For a cryptocurrency exchange platform, all assets traded on the platform must pass the financial instrument test, which will determine whether the cryptocurrency exchange platform is subject to other laws and regulations. If the cryptocurrency exchange platform supports fiat currencies, then depending on how it is structured, the platform may need to be licensed by a payment institution.
Both ICOs and cryptocurrency trading platforms should develop an operating plan outlining their systems, security access protocols, etc., and be supervised by the competent authorities.
All ICO projects must appoint a VFAA-accredited VFA agent, who will also be the representative of the ICO project in order to represent the ICO project to the MFSA. A VFA agent needs to be a lawyer, accountant, auditor or anyone else who has the authority, qualifications and experience deemed necessary by the MFSA, and is required to have various responsibilities and expertise under the VFAA. Businesses can apply for VFAA licenses for the above activities through VFA agents.
It needs to be pointed out that, as one of the member states of the European Union.Malta must require its domestic ICO projects and cryptocurrency exchanges to comply with all EU regulations, for example, the General Data Protection Regulation.
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Jersey
Matters related to cryptocurrency trading in Jersey are regulated by the Jersey Financial Services Commission (JFSC).
As early as 2015, the government of the island of Jersey in the United Kingdom announced legislation on the operation of digital currency exchanges. On October 21, 2015, the Chief Minister's Department of Jersey released the "Regulation of Virtual Currency Policy" (Regulation of Virtual Currency Policy), which aims to "establish a business-friendly framework to encourage financial services and digital Innovation, employment and growth in the sector are priorities for the Jersey Government".
On 23 September 2016, the Jersey Assembly (legislative) published the Proceeds of Crime (Miscellaneous Amendments) (Jersey) Regulations 2016.
According to the latest revision of the 2008 Anti-Money Laundering Order, virtual currencies are also included in its scope of regulation.
A virtual currency exchange is defined as "any form of exchange of virtual currency for currency and vice versa," but "provision of services to third parties does not include provision of services by a company to its affiliates."
Any cryptocurrency payment of £15,000 (approximately $18,500) and every transaction above this amount, or a group of companies participating in the transaction, is considered a "high-value dealer". Such dealers must be registered and supervised by the JFSC, and comply with Jersey's money laundering and counter-terrorist financing laws.
The Anti-Money Laundering Order requires individuals operating a "money services business" to register with the JFSC and comply with the jurisdiction's Anti-Money Laundering and Counter-Terrorist Financing laws if their annual turnover exceeds £150,000 (approx. procedures, appoint a money laundering compliance officer and reporting officer, and ensure that record keeping and customer due diligence measures are implemented to prevent and detect money laundering and terrorist financing. "If the annual income of a digital currency exchange exceeds 150,000 pounds for the first time, within three months from the day when the income exceeds the limit, the person in charge must register in accordance with the provisions of the 2008 Act, otherwise he will face criminal penalties."
Individuals operating virtual currency exchanges as businesses with an annual turnover of less than £150,000 are exempt from the act. These businesses must notify JFSC that they are carrying on such business, but they areduty freeof. There is no fee for this notification.The purpose of the exemption is to create "a regulatory sandbox for innovation...secondary title
Gibraltar
In Gibraltar, blockchain and cryptocurrency-related matters are regulated by the Gibraltar Financial Services Commission (GFSC).
The country passed the "Financial Services (Distributed Ledger Technology Providers) Regulations 2017" (Financial Services (Distributed Ledger Technology Providers) Regulations 2017) in December 2017, and GFSC also released the Gibraltar Distributed Ledger Technology Regulatory Framework Regulatory Framework, referred to as DLT framework).
It states that, from 1 January 2018, any company carrying on business in or from Gibraltar,The use of distributed ledger technology (DLT) to store or transfer value belonging to others (DLT activities) requires GFSC authorization as a "distributed ledger technology provider"(Distributed Ledger Technology Providers, DLT providers); and need to apply to GFSC for "Distributed Ledger Technology Providers License" (DLT Providers License). GFSC will provide applicants with application guidance and evaluate the nature and complexity of the applied project.
The application process generally includes an initial application assessment and a full application and presentation.
Applying companies for DLT providers need to first apply to GFSC for an initial application assessment and pay a non-refundable initial application assessment fee of £2,000 to GFSC. GFSC will evaluate applicant companies from the following perspectives: how DLT is applied and its maturity; the added complexity due to the use of smart contracts; whether the company holds or controls client assets; the type of customers the company will work with, such as retail, Experienced or professional investors, or institutions; the number and types of products and services provided to customers, etc. Also, GFSC will make the final decision on the full application fee and expected annual fee for the assessment based on the complexity of the assessment.
In the subsequent "Complete Application and Demonstration" link, the presentation of the applicant company generally includes the following: 1) The background of the key people who promote business development, including relevant skills and experience; 2) The business plan, including the company / Group's structure, products and services, target market, strategy, etc.; 3) financial projections; 4) demonstrating how the company will meet the 9 regulatory principles of the DLT framework.
It is reported that in addition to the local Gibraltar Blockchain Exchange (GBX), in July 2019, the Mexican cryptocurrency exchange Bitso also obtained the DLT license from GFSC, becoming the first such regulated exchange in Latin America. In August, crypto lending platform Lendingblock and bitcoin derivatives trading platform Quedex also received DLT provider licenses from the GFSC; the latter was the first crypto derivatives trading platform to receive such a license.
