Overview of Global Cryptocurrency Asset Licenses (I): Europe and America

Author: Mankun Blockchain

In the wave of booming global fintech, the virtual currency asset market has increasingly become the focus. Different countries and regions have built their own distinctive regulatory frameworks and licensing systems based on their financial systems, regulatory goals, and market demands.

This article will delve into the licensing situation of major countries in Europe and America (the United States, the United Kingdom, Canada, and Switzerland) regarding the regulation of virtual currency assets, providing a detailed analysis of their regulatory systems, policies, regulations, as well as the application requirements and scope of various licenses, offering comprehensive and accurate information for relevant practitioners, investors, and those interested in virtual currency asset regulation.

United States

(1) Overview of the U.S. Virtual Currency Regulatory System

The U.S. virtual currency regulatory system is known for its complexity and multi-layered nature, covering multiple federal and state regulatory agencies. These agencies implement corresponding regulatory measures based on the different functions, nature, and uses of virtual currencies. Below is a detailed overview of the U.S. virtual currency regulatory framework and major agencies.

1. Federal Level Regulation

(1) Securities Law Regulation: The U.S. Securities and Exchange Commission (SEC) plays an important role in virtual currency regulation, primarily responsible for reviewing whether virtual currencies constitute securities. If a virtual currency meets the standards of the Howey test (investment contract test), such as raising funds through an ICO (Initial Coin Offering), it is considered a security and must comply with the relevant provisions of the Securities Act. In recent years, the SEC has taken enforcement actions against several unregistered ICOs and certain cryptocurrency trading platforms to maintain market order and protect investors' interests.

(2) Commodity Law Regulation: The U.S. Commodity Futures Trading Commission (CFTC) defines mainstream virtual currencies like Bitcoin and Ethereum as commodities and regulates their derivatives markets (such as futures and options). Although the CFTC has limited direct oversight of the spot market, it has enforcement authority over market manipulation and fraud to ensure market fairness and transparency.

(3) Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) Regulation: The Financial Crimes Enforcement Network (FinCEN) is the primary agency responsible for AML and CFT regulation. It requires virtual currency exchanges and custodial service providers to register as Money Services Businesses (MSBs) and comply with the relevant provisions of the Anti-Money Laundering Act (AML) and the Bank Secrecy Act (BSA). These businesses must implement Know Your Customer (KYC) procedures and report suspicious transactions to prevent illegal fund flows.

(4) Tax Regulation: The Internal Revenue Service (IRS) treats virtual currencies as property rather than currency and levies capital gains tax on their holding and trading. Additionally, using virtual currencies to pay for goods or services may also trigger taxable events. The IRS's tax regulation ensures tax compliance for virtual currency transactions, providing a stable source of tax revenue for the government.

2. State Level Regulation

The attitudes and regulations regarding virtual currencies vary significantly among U.S. states. Among them, New York's BitLicense is one of the strictest regulatory frameworks, requiring virtual currency businesses to apply for licenses and meet specific compliance requirements. In contrast, some states adopt more lenient regulatory policies to attract cryptocurrency businesses.

This inter-state regulatory disparity poses challenges for virtual currency businesses and prompts the U.S. government to seek to promote a unified national regulatory framework for virtual currencies.

(2) Important Policies and Legislation

1. Digital Asset Market Structure Bill (Draft): This bill aims to clarify the regulatory boundaries between securities-type and commodity-type crypto assets, providing legal protection for the healthy development of the virtual currency market. By clarifying the scope and standards of regulation, this bill helps reduce the risks of regulatory arbitrage and cross-market manipulation.

2. Digital Tax Compliance Bill (DAC8): This bill focuses on the tax transparency of virtual currency transactions, requiring virtual currency exchanges and wallet providers to report transaction information to tax authorities. This will help combat tax evasion and improve tax compliance.

3. Executive Orders: In 2022, the Biden administration issued an executive order on the development of digital assets, emphasizing the promotion of innovation and strengthening consumer protection. This executive order requires regulatory agencies to enhance coordination and cooperation to promote the healthy development of the virtual currency market and protect consumers' legitimate rights and interests.

(3) Major Licenses: MSB, BitLicense

1. Money Services Business (MSB) License

Money Service Business is a registration and regulatory requirement imposed by the government or regulatory agencies on companies providing financial services such as money transfer, payment services, or currency exchange.

Regulatory Agency: Financial Crimes Enforcement Network (FinCEN) under the U.S. Department of the Treasury

Scope: (1) Money Transmission: Providing services to transfer funds from one place to another, such as cross-border payments via banks, wire transfers, or online platforms. (2) Currency Exchange: Providing services to exchange between currencies, such as converting U.S. dollars to euros or Chinese yuan to U.S. dollars. (3) Issuing and Selling Payment Instruments: Companies providing services such as traveler's checks, prepaid cards, or electronic wallet top-ups. (4) Digital Currency Services: Including cryptocurrency trading, wallet services, and the exchange and trading of Bitcoin or other digital currencies.

Requirements:

(1) Registration: Businesses must register as MSBs with FinCEN and comply with the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations.

(2) Compliance Program: Develop and implement an effective AML compliance program, including KYC and suspicious activity reporting.

(3) Reporting Obligations: Regularly submit reports to FinCEN, such as large cash transaction reports and suspicious activity reports.

2. New York State Virtual Currency License (BitLicense)

BitLicense, "New York State Department of Financial Services Virtual Currency License," is a regulatory framework launched by the New York State Department of Financial Services (NYDFS) in 2015, specifically designed to regulate companies engaged in virtual currency-related businesses within New York State. Depending on the specific business activities of the company, it is divided into the following two types:

· Virtual Currency License: A license for basic virtual currency businesses. This type of license applies to businesses that do not involve the transmission of fiat currency.

· Virtual Currency and Money Transmitter License: Applicable to companies that not only deal with virtual currencies but also involve converting virtual currencies into fiat currency or conducting transfers.

Regulatory Agency: New York State Department of Financial Services (NYDFS)

Scope: Companies engaged in virtual currency businesses within New York State, including (1) receiving, storing, and transferring virtual currencies. (2) Virtual currency exchange: Converting virtual currencies into U.S. dollars or other currencies, or vice versa. (3) Virtual currency trading: Buying and selling virtual currencies such as Bitcoin. (4) Payment processing: Services for making payments using virtual currencies.

Requirements:

(1) Capital Requirements: Meet the minimum capital requirements set by NYDFS to ensure financial soundness.

(2) Compliance Program: Establish a comprehensive compliance and risk management plan, including AML, KYC, and cybersecurity measures.

(3) Reporting Obligations: Regularly submit financial and compliance reports to NYDFS.

United Kingdom

(1) Major Regulatory Framework in the UK

The United Kingdom (as well as Switzerland mentioned below) is a non-EU member state with its own independent legal framework for virtual assets, not falling under the EU member states' MiCA framework.

1. Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT)

According to the 2017 Anti-Money Laundering Regulations (amended in 2020), all virtual currency businesses must register with the FCA.

Businesses must meet: Customer Due Diligence (KYC): Verify user identity and assess transaction risks. Suspicious Activity Reporting (SAR): Timely report suspicious transactions to regulatory authorities. Compliance Program: Establish internal control processes to comply with AML/CFT regulations.

2. Consumer Protection

Virtual currencies themselves are not considered legal tender or financial instruments, so user funds are not protected by the Financial Services Compensation Scheme (FSCS). The FCA imposes bans on certain crypto derivatives (such as contracts for difference, options, etc.) to prevent retail investors from incurring significant losses due to high volatility.

3. Tax Policy

Capital Gains Tax (CGT): Selling virtual currencies may incur capital gains tax. Income Tax: Profits from mining or receiving payments in virtual currencies may be subject to income tax. Value Added Tax (VAT): Certain virtual currency transactions may involve VAT, but virtual currencies used for payments are generally exempt from VAT.

4. Stablecoin Regulation

· The UK plans to impose stricter regulations on stablecoins, especially those used as payment methods.

· The Bank of England views stablecoins as a potential systemic risk and proposes requirements for transparency of reserve assets and operational audits.

5. Market Abuse and Fraud Prevention

· The FCA warns investors about the high risks associated with virtual currency-related investments and encourages trading through registered service providers.

· Companies that are not registered or licensed may be placed on the FCA's warning list.

• 1. Financial Conduct Authority (FCA)

· The FCA is the core regulatory agency for virtual currencies in the UK.

· Regulated businesses include cryptocurrency exchanges, custodial wallet service providers, etc.

• 2. Bank of England (BoE)

· Regulates stablecoins and payment systems.

· Focuses on risks related to financial stability and plays a leading role in future central bank digital currency (CBDC) research.

• 3. Her Majesty's Revenue and Customs (HMRC)

• Responsible for tax policies related to virtual currencies, including capital gains tax and value-added tax.

(3) Major License: Virtual Asset Service Provider Registration with FCA

The FCA's Virtual Asset Service Provider (VASP) license is established by the UK government under the 2017 Anti-Money Laundering Regulations (amended in 2020), requiring companies engaged in virtual asset-related businesses to register with the FCA (Financial Conduct Authority) and accept regulatory oversight. Its core goal is to prevent money laundering and terrorist financing, while promoting transparency and compliance in the virtual asset industry.

1. Businesses required to apply for a VASP license include:

(1) Cryptocurrency Exchanges:

· Provide services for exchanging fiat currency and cryptocurrency.

· Provide services for exchanging between cryptocurrencies (such as trading between Bitcoin and Ethereum).

(2) Custodial Wallet Service Providers:

· Provide services for holding virtual assets, including storing private keys and securing digital assets.

(3) Other Virtual Asset Services:

· Involve activities related to ICOs/IEOs (Initial Coin Offerings), token sales, etc.

2. When applying for a virtual asset service provider license, businesses must meet the following requirements:

(1) AML and CFT Compliance

· Businesses must develop and implement a comprehensive anti-money laundering and counter-terrorism financing plan, including:

Customer Due Diligence (KYC): Verify customer identity and monitor transaction activities.

Suspicious Activity Reporting (SAR): Report to the FCA when abnormal transactions are identified.

Risk Assessment: Conduct dynamic risk assessments of customers and business relationships.

Data Retention: Retain transaction and KYC records for at least 5 years.

(2) Senior Management Team Review

• The FCA will conduct "Fit and Proper" tests on the management of the business:

  Management personnel must have compliance experience and a good ethical record.

  Must provide proof of no criminal record and financial background investigation results.

(3) Funding and Resource Requirements

• The applying business must demonstrate sufficient financial resources and technical capabilities to support operations.

• Must have a clear business model and compliance funding plan.

(4) Appointment of Compliance Officer

• The business must appoint a Compliance Officer responsible for overseeing the implementation of AML/CFT policies and reporting to the FCA.

(5) Cybersecurity and Technical Requirements

• The business must demonstrate that its IT systems and cybersecurity measures meet industry standards and can protect customer funds and sensitive information.

• Regular security audits and stress tests must be conducted.

(6) Consumer Protection

• Must ensure that customer assets are separated from the company's operational funds.

• Must clearly disclose service terms and potential risks to customers.

Canada MSB License

(1) Key Regulatory Framework in Canada

1. Money Services Business (MSB) Registration

As of June 1, 2020, Canada has included virtual currency service providers (VASP) in the definition of MSB, including:

· Providing services for exchanging virtual currencies and fiat currencies.

· Providing services for exchanging between virtual currencies.

· Providing virtual currency transfer services.

2. Application of Securities Law

Virtual currencies may be considered securities or derivatives, and the following businesses must comply with relevant securities regulations:

· Cryptocurrency Exchanges: Must register with provincial securities regulators.

· Token Issuance (ICO/IEO): If tokens have the nature of investment contracts, they must comply with securities regulations.

Investment Management: Investment funds involving virtual assets must obtain investment manager registration.

3. Tax Policy

The Canada Revenue Agency (CRA) treats virtual currencies as commodities rather than legal tender, involving the following tax requirements:

· Capital Gains Tax: Selling or exchanging virtual currencies must declare capital gains.

· Income Tax: Mining income or receiving payments in virtual currencies must be included in taxable income.

· Goods and Services Tax (GST)/Sales Tax (HST): Certain virtual currency transactions may apply.

4. Consumer Protection

· Canada requires virtual asset platforms to protect user funds, typically requiring a custodial mechanism.

· Platforms must clearly disclose transaction risks and prohibit misleading advertising.

5. International Cooperation

· Canada adheres to the Financial Action Task Force (FATF) standards for virtual asset regulation, ensuring consistency with international AML/CFT frameworks.

(2) Major Regulatory Agencies

1. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

· Responsibilities: Responsible for AML and CFT supervision of virtual currency service providers (VASP).

· Registration Requirements: All companies engaged in virtual currency trading or transfer must register with FINTRAC as Money Services Businesses (MSB).

2. Canadian Securities Administrators (CSA)

· Responsibilities: Regulates activities involving securities or investment contracts related to crypto assets (such as exchanges, investment platforms, etc.).

· Scope: When virtual currencies are considered securities, they must comply with the Securities Act requirements.

3. Provincial Financial Regulatory Agencies

· For example, the Ontario Securities Commission (OSC) directly regulates crypto asset platforms within the province.

(3) Major License: MSB

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) includes virtual currency-related businesses under the Money Services Business (MSB) License regulatory scope. Companies holding an MSB license must comply with relevant AML and CFT regulations.

1. Scope of Application

The following businesses must apply for an MSB license:

(1) Providing services for exchanging virtual currencies and fiat currencies.

(2) Providing services for exchanging between virtual currencies.

(3) Providing virtual currency transfer services (such as transfers, payments, settlements).

(4) Providing any other financial services involving virtual currencies.

2. License Application Requirements

To apply for an MSB license, the following conditions and requirements must be met:

(1) Registration Requirements

· Register with FINTRAC: Any company engaged in virtual currency business must register as an MSB.

· The registration application must be completed before the company starts operations.

(2) AML and CFT Compliance

Businesses must develop and implement an AML/CFT compliance plan, including:

· Risk Assessment: Assess the risks of money laundering and terrorist financing based on the business model.

· Customer Due Diligence (KYC):

Verify customer identity (identification proof, address proof, etc.).

Monitor customer transactions and identify suspicious behavior.

· Record Keeping: Retain all transaction records and customer information for at least 5 years.

· Reporting Obligations: Suspicious Transaction Reporting (STR): Identify and report abnormal transactions.

Large Virtual Currency Transaction Reporting: Transactions exceeding CAD 10,000 must be reported to FINTRAC.

· Appointment of Compliance Officer: Designate a Compliance Officer responsible for overseeing the implementation of the compliance plan.

(3) Technical and Security Requirements

· Secure technical measures must be adopted to protect customer assets and data.

· Regular cybersecurity audits must be conducted to ensure that technical systems meet industry standards.

(4) Funding and Financial Requirements

· The company must demonstrate sufficient financial resources to support operations.

· Ensure that customer funds are separated from company funds to avoid conflicts of interest.

Switzerland

Switzerland is known as a "paradise for cryptocurrencies and blockchain," with a regulatory framework that supports innovation while emphasizing financial stability and anti-money laundering (AML) requirements. Switzerland adopts a technology-neutral principle, adjusting existing laws and regulations to cover virtual currency and blockchain-related businesses.

(1) Key Regulatory Framework in Switzerland

Switzerland's regulatory framework is based on existing financial regulations and is mainly divided into the following categories:

1. Anti-Money Laundering and Counter-Terrorism Financing (AML)

· All businesses involved in virtual currency exchange, trading, custody, or transfer services must comply with AML regulations.

· Businesses must:

Register as Financial Intermediaries (through FINMA or designated self-regulatory organizations).

Implement customer due diligence (KYC).

Report suspicious transactions (STR).

2. Financial Market Infrastructure Act (FMIA)

· Tokens with securities nature (such as stock tokens or bond tokens) are regulated under the FMIA.

· Any business providing trading platforms or custody services must meet the requirements for securities trading or financial market infrastructure.

3. Classification of Crypto Assets

FINMA classifies virtual assets into the following three categories:

(1) Payment Tokens: Primarily used for payments or transfers, such as Bitcoin and Ethereum; subject to AML regulations but not considered securities.

(2) Utility Tokens: Provide access to blockchain applications or services; only considered securities when used as investment tools.

(3) Asset Tokens: Represent rights to assets (such as debts, equity, or physical assets); regulated under securities laws.

4. Blockchain and DLT Act

· Introduces the legal status of DLT securities: Grants DLT-issued securities the same legal status as traditional securities.

· Custody and bankruptcy protection: Clarifies the legal responsibilities of custodians of DLT assets and provides bankruptcy protection for held crypto assets.

(2) Major Regulatory Agencies

1. Swiss Financial Market Supervisory Authority (FINMA)

· Responsibilities: Responsible for regulating virtual currency businesses involving financial markets and financial services, especially those related to securities, payments, and banking services.

· Core Regulatory Focus:

Anti-money laundering and counter-terrorism financing (AML/CFT).

Investor protection and market integrity.

Compliance with the Swiss Financial Market Infrastructure Act (FMIA) and the Anti-Money Laundering Act (AMLA).

2. Swiss National Bank (SNB)

· Responsibilities: Focuses on the potential impact of virtual currencies on monetary policy and financial stability.

3. Implementing Agency for the Blockchain and Distributed Ledger Technology (DLT) Act

· Switzerland has passed the Distributed Ledger Technology Act (DLT Act), which regulates the legal status of DLT and crypto assets.

(3) Major Licenses: FINMA

The Swiss Financial Market Supervisory Authority (FINMA) is responsible for managing and issuing various licenses related to virtual assets and financial services.

1. Banking License

Scope: Providing deposit services, crypto asset custody, and businesses related to fiat currency exchange. Cryptocurrency exchanges or platforms that hold customer funds typically require this license.

Main Requirements:

· Minimum Capital Requirement: At least 10 million Swiss francs in capital.

· AML Compliance: Implement anti-money laundering (AML) and customer due diligence (KYC) plans.

· Risk Management: Effective risk control systems and internal audit mechanisms.

· Separation of Customer Funds: Customer funds must be strictly separated from company funds to ensure fund safety.

Regulatory Advantages: After obtaining a banking license, businesses can legally handle customer funds and attract more institutional investors.

2. Securities Dealer License

Scope

· Trading platforms, brokers, or token issuers involved in tokens with securities nature (such as asset tokens).

· Providing customers with securities trading, matching services, or sales of tokenized assets.

Main Requirements

· Capital Requirement: Minimum of 1.5 million Swiss francs.

· Regulatory Reporting: Regularly submit trading reports and financial data to FINMA.

· Transparent Operations: Ensure that platforms or services meet the transparency and fairness requirements of the Financial Market Infrastructure Act (FMIA).

· Compliance Program: Establish a robust internal compliance program to manage market risks and money laundering risks.

3. FinTech License

Scope

· Targeted at businesses involved in innovative financial technologies, such as providing blockchain technology, smart contract services, or DLT platforms.

· Allows businesses to accept up to 100 million Swiss francs in customer deposits, but not for loans or interest payments.

Main Requirements

· Capital Requirement: At least 300,000 Swiss francs.

· Compliance Obligations: Comply with AML regulations; implement strong KYC policies.

· Customer Fund Protection: Provide fund custody guarantees and clearly define the scope of fund usage.

· Technical Standards: Ensure the security and stability of the technical platform.

· Applicable Advantages: Designed specifically for small innovative companies, lowering the high barriers of traditional banking licenses.

4. Asset Management License

Scope

· Targeted at businesses providing management of virtual assets or traditional financial assets.

· Includes fund management companies or companies managing tokenized assets.

Main Requirements

· Capital Requirement: Depending on the scale of managed assets, capital requirements typically range from 500,000 to 2 million Swiss francs.

· AML Compliance: Implement anti-money laundering and counter-terrorism financing policies.

· Reporting and Transparency: Regularly report asset management activities to FINMA.

· Customer Fund Custody: Ensure customer funds are safely held and meet bankruptcy protection requirements.

Regulatory Advantages

· Attract high-net-worth clients and institutional investors, enhancing the credibility of the business.

Mankun Lawyer Summary

The regulation of virtual currency assets in Europe and America presents diverse characteristics.

· The United States has established a complex multi-layered regulatory system that covers both federal and state levels, clarifying the regulatory scope through various laws, with major licenses such as MSB and BitLicense applicable to different virtual currency businesses, imposing strict requirements on registration, compliance, and reporting.

· The United Kingdom, with the FCA as the core regulatory agency, regulates virtual currency businesses based on anti-money laundering, consumer protection, tax policies, and other regulations, requiring companies to meet compliance standards across multiple dimensions to prevent money laundering and protect consumer rights.

· Canada includes virtual currency service providers in the MSB definition, regulating them through agencies like FINTRAC, with provisions on MSB registration, application of securities laws, and tax policies, where the MSB license application involves requirements across registration, compliance, technology, and funding.

· Switzerland, with FINMA as the main regulatory agency, constructs a regulatory framework based on existing financial regulations, classifying virtual currencies for regulation, with its banking licenses, securities dealer licenses, fintech licenses, and asset management licenses each focusing on different types of virtual currency-related businesses, providing various options for companies to conduct compliant operations in Switzerland.

Overall, the regulatory measures in these countries aim to balance innovation and risk in the virtual currency market, protect investor rights, and maintain financial market stability. As the virtual currency market continues to develop, regulatory policies will also evolve and improve.