Last Updated on Aug 31, 2021 by James W
If you are interested in carrying out big deals with cryptocurrencies, then it may be required to consider the option of launching a cryptocurrency exchange. It is promising from the point of raising money. But, at the same time, it is regulated in most well-standing jurisdictions and requires obtaining a license for crypto exchange.
It is reasonable but sometimes a bit complicated. Still, if you involve professional consultants in the process, it may be carried out easier. Surely, the procedure varies depending on the considered jurisdiction. But, certain general and common aspects may be highlighted also.
Any license is official permission from the state authority that enables its holder to conduct allowed types of activities subject to specific conditions. The violation of such conditions may result in imposing sanctions or negative consequences on the effect of such license (up to its cancellation). The license is issued for the types of activities that are of public interest, for many reasons, like because they are risky. Dealings with cryptocurrencies are the exact types of risky operations.
To get such a licence, an applicant needs to fulfil a number of requirements. Afterwards, certain conditions for keeping this license active also have to be observed. Otherwise, this may result in negative consequences. If we speak about professional activities with cryptocurrencies, they are regulated and require obtaining a license too, including in the case with a crypto exchange.
Types of Licenses to Exchange Cryptocurrencies
Generally, a license may be issued for:
- Classical exchange where all operations are carried out by using different cryptocurrencies only.
- Fiat exchange where conventional currencies (USD, EUR) may be used during the carrying out of exchange transactions. License for fiat exchanges that allows making exchanges of conventional currencies to crypto and vice versa.
The process of getting this license may vary and be complicated depending on the jurisdictions and a concrete business case. Still, involving a specialized law firm in the cryptocurrency industry can make this process a number of times easier.
Requirements for Getting a License for Cryptocurrency Exchange
The exact range of requirements a businessman should follow varies depending on one’s business objectives. But, it is possible to highlight major groups of demands that have to be observed.
Legal Formalities during the Registration/Purchase of a Company
Any cryptocurrency license should be held by a separate legal entity with a concrete registered address, management and contact details. This can be arranged in a couple of ways: (i) by creating a new company or (ii) purchasing the existing one. Both cases have peculiarities. For instance, if a businessman decides to register a new company, it may be necessary to deposit a minimum amount of chartered capital. If the decision will be in favour of an exciting company, it is necessary to conduct due diligence of such a company. In both cases, the involvement of professional lawyers is required.
AML and KYC Obligations to Comply with
The matter of AML (anti-money laundering) and KYC (Know Your Customer) compliance are one of the most crucial for launching a project and getting a license for crypto exchange. Certain demands may vary depending on the jurisdiction, but, these are the most common ones:
- implementing acceptable methods of personal data collection
- regular checking of internal documents to decrease the risks related to money laundering
- training of personally responsible for the analysis
- implementation of sufficient accounting practices
You may be also required to hire an AML officer for making all arrangements in this regard. The local legislation may require to hire a resident to perform these obligations, for instance.
Arranging Other Matters
Launching a cryptocurrency exchange is not related to getting a crypto exchange license only. It is also necessary to acquire and arrange the operation of respective software and hardware, security systems, user interface, etc. Involving payment operators requires also special attention as this matter guarantees the efficient operation of a crypto exchange after obtaining a license. The list of arrangements is not exhaustive. But, each of them requires separate legal considerations.
TOP Jurisdictions for a Crypto Currency Exchange
Lots of jurisdictions enable the practical realization of an idea to launch a crypto exchange. The exact choice, of course, depends on concrete business priorities. Still, many businessmen find workable these jurisdictions:
- Hong Kong
Opening a cryptocurrency exchange in most countries is accompanied by the observation of legal formalities, like obtaining a respective license, compliance with the AML and reporting requirements, etc. Obtaining a license is a core requirement that all businessmen should adhere to. The procedure of obtaining such varies depending on the considered case. The complexity of the process may be easily eliminated thanks to the involvement of experienced lawyers in your operational team.