Cryptocurrency License

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In most jurisdictions, you will be required to apply for a cryptocurrency license if you want to set up a cryptocurrency business. This ultimately depends on your intended business activity as there are different requirements involved.
For example, if you are planning to run a cryptocurrency exchange or cryptocurrency wallet, there is a high chance that you will require a cryptocurrency license. However, if you are trading cryptocurrency using your own funds, there is a high probability that you will not require any licenses.
Before committing to incorporate such a business it would be wise to seek legal advice as regards the licensing options, on whether you would need to also apply for a license as the penalties for running a financial services type business without a license can be substantial.
Tetra Consultants is proficient in providing professional legal advice to entrepreneurs who are interested to form a company licensed for a cryptocurrency exchange or cryptocurrency wallet. We will advise you on all the aspects starting from the setting up of an offshore entity to the preparation of documents and many other aspects related to obtaining a cryptocurrency license.

What is cryptocurrency?

A cryptocurrency is simply a virtual currency that acts as a medium of exchange. It is structured by using cryptography to secure financial transactions of the coin ownership, verify the transfer of assets and control the creation of extra units.
Cryptocurrencies are a form of payment to exchange online goods and services (digital transactions). In most cases, cryptocurrencies are beyond the reach of the central authority but are mostly maintained by supporters and communities.

What is a cryptocurrency license?

A cryptocurrency license is a document authorizing an entity to conduct a regulated cryptocurrency business according to the laws of the proposed jurisdiction. In other words, it is a document allowing the entities to carry on the cryptocurrency business as cryptocurrency exchange operators or cryptocurrency depository wallet operators.

Importance of Compliance and AML Policies for Cryptocurrency Licensing

The implementation of Anti-Money Laundering (AML) policies and measures in compliance is essential for cryptocurrency businesses in achieving licensing and regulatory permission. Because cryptocurrencies are decentralized by design, such businesses involve a specific set of challenges that may facilitate various forms of illicit activities ranging from money laundering to funding terrorism. Here are several reasons why adherence to AML policies becomes crucial in the process of acquiring a cryptocurrency license:

Regulatory requirement

There is a rising need for cryptocurrency exchanges and other VASPs to adopt stringent policies of AML in efforts to curb financial crimes by most governments around the world. International standards that have been set by organizations such as the FATF include requirements that VASPs conduct Know Your Customer (KYC) checks and monitor for suspicious transactions. Non-adherence to these standards is met with severe fines; take for instance the case whereby crypto businesses had to pay over US$5.8 billion in fines back in 2023 for failure to have adequate AML controls in place.

Risk mitigation effective

AML measures help minimize risks associated with money laundering and fraud. Most transactions involving cryptocurrencies are anonymous; therefore, businesses should have sound processes of verification of identities and monitoring systems for transactions. Such controls not only save companies from legal exposure but also improve their operations’ integrity.

Creating trust and credibility

The compliance aspect of AML not only instills trust in the minds of customers and investors, but it also involves showing a commitment to security as well as accountability. A compliant cryptocurrency platform shows up first both credibility as a priority, which is absolutely crucial for attracting real users as well as investors. In years to come, proof of regulatory compliance will more and more be what determines stand-out businesses in a highly competitive ecosystem.

Encouraging stability in the market

The major concerns to the cryptocurrency market’s stability are strong compliance frameworks. In preventing illicit activities, AML policies contribute to a more transparent and reliable financial ecosystem that could add more investor confidence in it. Such stability is vital since acceptance and integration of cryptocurrencies tend to rise in mainstream finance.

Global standardization

As national jurisdictions keep abreast with the changing AML framework benchmarked to organizations like FATF, becoming compliant becomes a norm for any crypto company registration to operate. Since regulatory standards differ from one region to another, strong AML programs become necessary and facilitate companies to do business lawfully and efficiently across more than one market, thus reducing the risk of legal hassles and smooth cross border transactions.

What are the types of cryptocurrency licenses?

Companies wanting to apply for a cryptocurrency license should be aware that there are usually two types of cryptocurrency licenses that cryptocurrency companies can obtain.

Cryptocurrency exchange license

A cryptocurrency exchange license or a cryptocurrency exchange service provider license allows a company to provide exchange services to those interested in trading cryptocurrencies against fiat currencies or other cryptocurrencies.

Cryptocurrency wallet license

A cryptocurrency wallet or a cryptocurrency service provider license, meanwhile, is issued to companies who wish to offer e-wallets or virtual token wallets.

Who is the issuing authority of a cryptocurrency license?

A cryptocurrency license is issued by the regulatory authority regulating the cryptocurrency business or digital assets in the country.
For example in Singapore, cryptocurrency companies are regulated by the Monetary Authority of Singapore under Singapore’s Payment Services Act, 2020. Hence cryptocurrency businesses have to obtain a license from the regulatory authority to operate a cryptocurrency exchange or wallet.

Why do we need a cryptocurrency license?

Depending on the choice of your cryptocurrency license, you will be enabled to provide an array of services.

Cryptocurrency exchange license

The cryptocurrency exchange license allows the license holder to provide crypto exchange services, including fiat-to-cryptocurrency, cryptocurrency-to-cryptocurrency, and cryptocurrency-to-fiat exchanges.

Cryptocurrency wallet license

The cryptocurrency wallet license allows the license holder to provide services concerning the generation and storage of encrypted customer keys.
A crypto wallet license allows your company to carry out businesses similar to a cryptocurrency wallet. Wallets are digital offline (cold wallets) and online tools (hot wallets) based on public-key cryptography used to securely send and receive cryptocurrencies. The cryptocurrency wallet license covers services where the private wallet keys are created or held, while the funds belong to the user and not to the service provider.

What are the positive implications of having an offshore cryptocurrency license?

Cryptocurrency traders can gain maximum advantages from setting up a company in an offshore jurisdiction and having an offshore cryptocurrency license. The key advantages include the following:
- Efficient asset protection;
- A high level of beneficial owners’ confidentiality and separation of company assets from personal assets;
- Cryptocurrency-friendly policies and banking infrastructure;
- Tax incentives;
- Several forms of company ownership are available: the choice will depend on your business goals.

What are the disadvantages of not getting a cryptocurrency license?

The company can be blacklisted, and international trade activities can be permanently blocked.
Visas can be canceled, and restrictions on traveling can be applied by the respective government.
All the managers, shareholders, and even owners can be deported.
No local sponsors will make a deal with your company, and your business activities will be halted.
The company’s expansion plans will be terminated.
A heavy fine may be imposed, and all the company’s assets can be seized.

What are the regulatory requirements and documents for a cryptocurrency license?

For a typical cryptocurrency license, a regulator would want you to consider the following factors before proceeding with the application.

Minimum capital requirement

The foremost point of consideration is to meet the minimum capital requirements to operate a cryptocurrency business in the proposed jurisdiction.
For example, in Malta, to get a Malta VFA license, there is a requirement of having a minimum capital of at least €730,000 as regulated by the Malta Digital Innovation Authority (MDIA).

Economic substance requirement

Another important aspect is fulfilling the economic substance requirement to ensure the presence of your cryptocurrency business in the proposed jurisdiction.
For example, in Estonia, a cryptocurrency business operator is required to have a physical office, local management team, and compliance officer in Estonia as regulated by the Estonia Financial Intelligence Unit (FIU) for obtaining an Estonia cryptocurrency license.

Fit & proper key managerial personnel

While setting up an entity for a cryptocurrency business, you need to ensure that the key managerial personnel are qualified to operate the business.
For example, in the Philippines, when obtaining a Philippines cryptocurrency license, there is a mandatory requirement to have an internal control system in place, ensuring that the candidates handling such critical internal control are fit & proper.

Costs Associated with Cryptocurrency Licensing

Acquiring a cryptocurrency license varies in expense for businesses and can strongly impact a business’s budgeting. Our team at Tetra Consultants details all of the costs to secure a cryptocurrency license and maintains high transparency throughout the process.
The scale of the licensing fee varies according to jurisdiction and license type. Beyond the one-time fees, a licensee also incurs operation costs, such as maintaining an Anti-Money Laundering and Know Your Customer fit and proper status. Other expenses include regular audits, capital reserves held to cover at least six months’ operational costs, and annual license renewals.
At Tetra Consultants, we ensure that you are well-informed of all costs involved, from initial setup to long-term maintenance, helping you budget and avoid unexpected expenses. Our support will guide your business to regulatory compliance and financial stability in a competitive market.

Required Documents

To obtain a typical cryptocurrency license, you will need to provide the following documents to the regulators:
- Clean criminal and credit records of all directors, UBOs, and shareholders
- CVs of all directors, UBOs, and shareholders
- Local office address and related documents, directed by a local manager
- Company webpage
- Business plan
- Financial forecasts for the first year
- Internal control norms of the company
- Procedure norms of the company
- AML policies

Top Jurisdictions for Obtaining a Cryptocurrency License

With the increasing popularity of cryptocurrencies globally, some jurisdictions are gaining recognition for their favorable conditions conducive to crypto businesses. The crypto-friendliness of offshore locations often includes various regulatory frameworks and tax benefits, making them attractive for companies looking for a cryptocurrency license. Our company establishment experts at Tetra Consultants have extensive experience in helping clients obtain cryptocurrency licenses efficiently in different jurisdictions.

British Virgin Islands (BVI)

BVI is a popular destination for crypto-related businesses seeking an offshore location. Established laws and a robust infrastructure provide security and stability for crypto businesses. The jurisdiction’s lack of income or capital gains tax on cryptocurrency companies is highly attractive for entrepreneurs. Virtual asset service providers are mandated to register as VASPs under the BVI Virtual Asset Service Providers Act 2022. Registering a company in BVI offers a safe and tax-effective base for launching your cryptocurrency business.

Seychelles

Seychelles provides a strategic location for crypto businesses with a favorable regulatory environment and high confidentiality for company owners. Many large cryptocurrency companies, such as Binance and BitMEX, have operations there. With the VASP Act 2024 in effect, crypto businesses must obtain a trading license from the FSA. Seychelles’ low tax rates, political stability, and strong financial infrastructure make it an attractive option. Company incorporation in Seychelles offers privacy and flexibility while meeting international standards.

Switzerland

Switzerland is renowned for being crypto-friendly, with many blockchain projects establishing their headquarters there. Its regulatory framework supports decentralization, innovation, and inclusivity. The country imposes no income or capital gains tax on crypto ventures, providing a tax-efficient environment for investors. Registering a company in Switzerland can position your business in a progressive, innovation-driven environment.

Singapore

Singapore is one of the world’s leading financial centers with a stable economy and a business-friendly environment. The country’s infrastructure and high internet penetration rates make it almost ideal for crypto businesses. Singapore’s progressive stance on cryptocurrencies is evident from the number of investments in blockchain projects. Personal and corporate cryptocurrency holdings benefit from tax exemptions, although profits from active trading are taxed at a rate of 17%. Registering a company in Singapore provides a supportive regulatory framework conducive to innovative blockchain activity.

Malta

Malta is known as “Blockchain Island” due to its proactive approach to cryptocurrency regulation. The country has established comprehensive regulations for blockchain and cryptocurrency businesses, including the Malta Digital Innovation Authority Act and the Virtual Financial Asset Act. These regulations have solidified Malta’s reputation as a premier destination for crypto-friendly operations. Tax incentives and simplified licensing procedures further enhance its appeal. Registering a company in Malta enables you to operate in an English-speaking environment with significant support for blockchain and crypto ventures.
With Tetra Consultants, registering a crypto company in any of these top jurisdictions ensures full regulatory compliance and positions your business for long-term success in the fast-evolving cryptocurrency sector.

What is the procedure for obtaining a cryptocurrency license?

To set up and operate a cryptocurrency exchange, a license is required. The procedure varies depending on the jurisdiction. Tetra Consultants summarizes the common steps involved in obtaining a cryptocurrency license:

Step 1: Determining the appropriate jurisdiction and cryptocurrency license requirements

Based on your company’s planned activities and customer base, Tetra Consultants will advise you on the most suitable jurisdiction and type of cryptocurrency license for your business model.
We familiarize you with requirements such as paid-up capital, local economic substance criteria, timeframes, and regulations before engagement begins.

Step 2: Entity formation & registration

Tetra Consultants conducts due diligence on the management and shareholders of the firm. Once we receive all KYC documents, incorporation documents, and power of attorney, we begin registering the company with the local Companies Registry.
After successful registration, we provide corporate documents, such as the Certificate of Incorporation and Memorandum and Articles of Association.

Step 3: Opening a corporate bank account

Tetra Consultants will open a corporate bank account with a reputable financial institution. The minimum paid-up capital required for licensing will be deposited into this account.

Step 4: Document preparation

Our legal experts will prepare the necessary documents for the cryptocurrency license application. These include the business plan, financial statements, AML/CFT policy, and insurance policy as per local regulations.
Once documents are ready, Tetra Consultants will provide prototypes for review and send them for e-signatures before proceeding with the license application.

Step 5: Meeting local economic substance requirements

If the local regulator requires economic substance (e.g., a local registered address and approved personnel), Tetra Consultants will assist in meeting these criteria, including recruiting local employees.
Our HR team will shortlist candidates and conduct preliminary interviews for key roles, including compliance officers. You can then finalize the selection, and we will help prepare employment contracts.
We will compile a list of potential office spaces, considering factors like location and cost, to help you choose the best option. Tetra Consultants will also handle lease agreements once a space is selected.

Step 6: License application filing

After completing the above steps, Tetra Consultants will submit the license application to the local regulator. Depending on the jurisdiction, you may need to attend an interview before approval. We will prepare you for the interview and assist with follow-up actions.
Once approved, your firm will receive the cryptocurrency license and must start operations within the stipulated timeframe to maintain the license.

Maintaining a Cryptocurrency License: Post-License Requirements

After obtaining a cryptocurrency license, it is essential to comply with ongoing regulatory requirements to ensure the license remains valid. These requirements vary by jurisdiction but commonly include:

Compliance with AML and KYC Regulations

Ongoing compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations involves:
- Conducting regular audits of customer transactions to detect suspicious activities.
- Maintaining updated KYC records for all clients.
- Training staff on compliance protocols and regulatory changes.

Financial reporting and audits

Many regulatory bodies require licensed cryptocurrency businesses to submit financial reports and undergo periodic audits.

Operational compliance

Adhering to operational standards set by regulators involves:
- Ensuring cybersecurity measures are in place to protect client data.
- Maintaining a physical presence in the licensing jurisdiction.
- Updating business practices in line with evolving regulations.

Communication with regulatory authorities

Maintaining open communication with regulatory authorities includes:
- Promptly reporting changes in business structure or ownership.
- Notifying regulators of significant incidents or breaches that may impact compliance.

Legal Implications of Operating Without a Cryptocurrency License

Operating a cryptocurrency business without the required licenses can result in severe legal consequences. Regulations vary by jurisdiction, but common implications include:

Criminal sanctions

Running a cryptocurrency business without the proper license is often criminalized. For instance, under 18 U.S.C. § 1960 in the U.S., operating an unlicensed money transmitting business can lead to up to five years in prison.

Financial sanctions and penalties

Unlicensed operations can incur heavy fines. For example, Binance faced a $2.25 million fine in India for non-compliance, and similar companies in the U.S. paid over $4 billion in fines for license and AML violations.

Civil liabilities

Unlicensed operators may face lawsuits from customers or investors for losses due to lack of oversight, leading to substantial financial liabilities and reputational damage.

Operational restrictions and shutdowns

Regulatory authorities may shut down unlicensed businesses. For instance, offshore crypto exchanges banned in India faced severe operational risks and long-term brand damage.

Increased scrutiny and regulatory action

Operating without a license can attract heightened scrutiny, leading to more thorough investigations and legal challenges that disrupt operations.

Loss of business opportunities

Without proper licensing, businesses may struggle to partner with banks, payment processors, or financial institutions, limiting growth and market expansion.

How long does it take to obtain a cryptocurrency license?

Before starting an engagement, Tetra Consultants provides a project plan outlining timelines for company registration, document preparation, and license application, ensuring clarity for all parties.

Our services

Tetra Consultants assists cryptocurrency companies with regulatory and licensing needs, providing comprehensive support for entity formation and operation.
Tetra Consultants specializes in obtaining cryptocurrency licenses, helping you operate legally in your chosen jurisdiction with expert guidance.
We also assist in obtaining other offshore financial licenses aligned with your business goals.

Find out more!

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