Cryptocurrency exchange and virtual wallet operating licenses

Company that transacts virtual currencies often must apply for two activity permits, which can be:
  • providers of a service of exchanging a virtual currency against a fiat currency
  • providers of a virtual currency wallet service
Cryptocurrency exchange and wallet service provider licenses are issued by the Estonian Financial Intelligence Unit
Who requires exchange or wallet licenses?
A license for the service of exchanging cryptocurrencies for fiat currency is mandatory for those providing such service for commission. In other words, if subjects A and B have agreed to exchange BTC for EUR/USD and make the transaction, this is not an exchange service and such subjects are not bound by regulation. However, if A starts offering this transaction to consumers as a service (for commission), it becomes an exchange service.

The second type of license is a cryptocurrency wallet service. It is a service, where the provider of the wallet service creates or holds (has access to) the private wallet key, while the funds belong to the user, and not to the service provider. Example: MyEtherWallet (or Ledger Nano S, Trezor, Jaxx, Mist) services do not fall under this regulation. Bitwala (or Coinbase) have access to the private key and therefore are regulated.

Requirements to an Estonian crypto-company
The company shall be registered in Estonia. There should be a member of the management board (director), who is also a responsible person. He plays a role of compliance office before the Estonian Financial Intelligence Unit. All persons associated with the company must have good reputation.

Excerpts from the penal register for all related persons (shareholders, directors, ultimate beneficiary owners and the responsible person), copies of passports of all the above-mentioned persons. Normally, all documents must be in English (or in Russian) and certified with an apostille. The documents must not be older than 3 months. It is also necessary to submit: CVs of related persons, description of planned activities.

Why these licenses are also useful to ICO companies?
Most ICO aim to exchange the collected cryptocurrency for fiat and deposit it in a bank account to meet their operational needs. Therefore, ICO in a way facilitate exchange of cryptocurrency for fiat. Thus, a number of crypto-exchanges, PSP, as well as banks refuse to work with ICO, which fail to properly identify buyers of their tokens.

Obtaining the abovementioned licenses helps you to prove to banks, crypto-exchanges and payment service providors that you are complying with AML/KYC regulation and that your cryptocurrencies related activities are regulated.
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