For crypto service providers the regulatory compliance is about to change. So, firms offering services for the exchange between virtual and regular currencies, as well providers of custodian wallets for virtual currencies will have to apply for a licence with DNB. We expect the new crypto-legislation to come into effect in the course 2024. Blenheim helps out financial service providers with application procedures and regulatory and compliance. We’re happy to give you a brief introduction on the licensing procedure for crypto services.
Legal framework for crypto assets and services
The MiCAR applies to persons and companies engaged in the issuance of crypto assets or offering services related to crypto assets in the EU. It contains rules for licensing crypto service providers and crypto asset issuers. Crypto services include the operation of a trading platform for crypto assets, exchange services in respect of crypto assets and the safekeeping of crypto assets, as well as the professional advice and management of portfolios relating to crypto assets. The regulation does not apply to crypto assets covered by other legislation, such as miFID II.
Distinction between crypto licence and notification
A distinction is made between compulsory licensing and notification. Providers of crypto asset services (CASP`s) a licence is compulsory and notification for other financial institutions (notification). For CASP`s, the licence application to the Financial Markets Authority (AFM) will include a (integrity) test of board members and shareholders. For other financial institutions wishing to be a CASP for similar services, there will be a notification requirement. Which will include a smaller documentation requirement and there will be no comprehensive test for the board et cetera. For banks, investment companies, fund managers and e-money institutions, as mentioned, there will be a notification requirement. This will take considerably less time
Not all crypto assets are subject to a licence
Crypto assets are defined as a digital representation of a value or right that can be traded via a distributed ledger. Thus, outside this definition are crypto assets that are not exchangeable and uniquely represent real assets (Non-Fungible Tokens). Also excludes are crypto assets that have the same characteristics as existing financial products or instruments. Stablecoins are covered by the MiCAR, but they will be subject to specific and additional rules distinguishing between stablecoins whose value is linked to multiple currencies, commodities or cryptos (asset-referenced tokens) and stablecoins whose value is linked to the value of a single currency (electronic-money tokens). The European Banking Authority (EBA) determines which of the categories (asset-referenced token, electronic-money token or utility token) the crypto asset falls under.
Requirements for Providers of Crypto Asset Services (CASP`s)
CASP`s must obtain a licence from a financial regulator and comply with a whole raft of requirements. This licence allows them to conduct MiCAR-regulated activities in all European Economic Area (EEA) countries. The licensing requirement applies even if the service is only offered in the Netherlands. A CASP will therefore need a licence to offer its service. The legislative proposal as agreed in Brussels shows that the licence describes which crypto asset services the crypto asset provider needs to be licensed for. The European Securities and Markets Authority must create a register containing information on the entities authorised to offer crypto asset services.
The rules applicable to providers and issuers differ depending on the type of crypto asset, with stricter rules applying to asset-referenced tokens. For all crypto asset services, they must be offered by a legal entity with its registered office in the Union and they must comply with their licence condition at all times.
The Dutch licence procedure for a CASP
First, the provider must submit an application to the AFM. A law firm can also file the application. The AFM will send a receipt within 5 days and simultaneously assign a manager who will become your first contact throughout the procedure. The AFM will then do the first completeness check. Should anything be incomplete, the AFM will set a deadline for you to complete the application. If the application is not made complete within the deadline, the AFM may reject the application. So, accurate en complete application are of the essence.
Once everything is complete, the AFM will start the evaluation, which must be done within 40 days by law. During the first 20 days of this, the AFM can request additional information, this will pause the application by up to 20 days. Several meetings will be held throughout the process, this depends on the complexity, scale and nature of the application. After this, the AFM will deliberate on the application. Finally, the AFM will grant or refuse the licence. The whole procedure may at least take 5 months.
Prepare your license application with your Blenheim lawyer
Our firm has substantial experience in Dutch licence procedures. We’re happy to refer to the standard book Business licences in the Netherlands of founding partner Mark van Weeren. Are you planning on or already offering crypto services? If so, you will need a licence from AFM. Applications can be filed as from April 22, 2024. As a pre-scan can be done before the full application. This licence application will be quite complex and requires special knowledge. The AFM also prefers applications based on legal advice from a specialized law firm. Blenheim has an extensive team of licensing specialists. We are ready and happy to assist you.