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Operation licenses for crypto businesspeople: the Cayman Islands, Lithuania, and Estonia

4/16/2022 8:00:00 AM
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Digital currencies are known for their anonymity and decentralization, but at the same time, the crypto industry is emerging fast. Governments see the enormous potential of cryptocurrencies and more countries are attempting to establish clear crypto market rules and laws, including licenses for crypto businesses. Let's have a look at the rules for obtaining operation licenses for businesses related to the crypto industry in different countries.

A beginner player may obtain licenses from different crypto-friendly countries; nevertheless, each jurisdiction has its own set of requirements and risks. For instance, due to Europe's draconian tax regime, we normally advise our clients to avoid the continent. However, there are some benefits to doing business in Europe, including access to the EU market, and in the crypto industry there are some specific places like Estonia and Lithuania, where you can find many crypto-friendly banks. Also, there are other options such as the Cayman Islands. Let’s highlight the main characteristics of these jurisdictions regarding crypto licenses:

- The Cayman Islands. They have the Virtual Asset (Service Providers) Law, 2020. It is “A law to provide the framework for the conduct of virtual asset business in the islands; to provide for the registration and licensing of persons providing virtual asset services; and for incidental and connected purposes”. 

- Lithuania. Lithuania is now one of the few European Union member states where legal financial transactions with cryptocurrencies are feasible, and the state has granted official authority to conduct and regulate cryptographic commerce. 

- Estonia. Many European crypto exchanges have their headquarters in Estonia, which requires newcomers to create a business and apply to the Financial Services Authority of the European Union (FSAEE). The incorporation certificate, KYC certificate, and risk evaluation paperwork are all necessary. The cost of a license is 3 300 Euros.

In this jurisdictions you will find some of the best offshore banks for cryptocurrency. Something else to consider is whether you want to operate with a cryptocurrency exchange license or a crypto wallet and custodian services license. However, since you must choose a jurisdiction in which to operate with crypto, a crypto license is one of the most important considerations, it does not matter which one. 

Crypto licenses in the Cayman Islands

The Cayman Islands is a leading global financial center that has earned a reputation for being one of the world's most creative and business-friendly places to do business over several decades.

As we have mentioned before, in this jurisdiction they have the Virtual Asset (Service Providers) Law, 2020 (“VASP Law”). It is “A law to provide the framework for the conduct of virtual asset business in the islands; to provide for the registration and licensing of persons providing virtual asset services; and for incidental and connected purposes”. Likewise, the Cayman Islands Monetary Authority announced the opening of registration or notification for firms wanting to provide virtual asset services in line with the VASP Law.

In the VAPS Law, the regulators defined the terms in really specific details. For instance, they portray the meaning of “virtual asset service provider” in the first articles of the law. There, a virtual asset provider may be:

- A company incorporated under the Companies Law (2020 Revision); 

- A general partnership/limited partnership established under the Partnership Law (2013 Revision); 

- A foreign company registered under Part IX of the Companies Law (2020 Revision); 

- A limited liability company formed and registered under the Limited Liability Companies Law (2020 Revision); among others. 

Someone with this license provides virtual asset service as a business or in the course of business in or from within the Islands and is registered or licenced by the Law. For that Law, virtual service tokens are not virtual assets. Likewise, a natural person shall not carry on, or purport to carry on, in or from within the Islands virtual asset service as a business or in the course of business.

Additionally, a person purports to carry on virtual asset service where the person —

- “Uses one or more words that connote virtual asset service either in English or in any other language, in the description or title under which the person carries on business”;

- “Makes a representation in a document or makes a representation in any other manner that the person is carrying on virtual asset service”; or

- “Otherwise holds out as carrying on virtual asset service”.

Please note that virtual asset issuers, virtual asset custodians, virtual asset trading platforms, and companies offering financial services connected to the sale of a virtual asset, such as virtual asset dealers, are all included in the VASP definition.

In addition to the VASP Law, all entities providing virtual asset services must comply with AML/CFT/CPF and Sanctions obligations, including those outlined in the Anti-Money Laundering Regulations (2020 Revision) and the Authority's Guidance Notes (Amendment) (No. 5): Virtual Asset Service Providers, both of which were published in February 2020.

The VASP Application Form on the Authority's Regulatory Enhanced Electronic Forms Submission (REEFS) web platform can be used to register or notify. During phase 1 of the law (before February 2021), a KYD 1,000 (USD 1,196.17) assessment charge was required with all registration applications. This fee could be paid using the REEFS portal when applying. On approval of an application for registration, registrants would additionally be charged an assessment fee. All this was according to a subsidiary note of the Cayman Islands Monetary Authority (CIMA).

However, the VASP Law has not established a specific amount. “The application fee shall be such amount that is payable by an applicant for registration or licensing after assessment and approval of the application by the Authority, such fee being within the prescribed range and determined by the Authority based on, but not limited to, the nature, size, scope and complexity of the virtual asset service or fintech service set out in the application less the assessment fee”. For further details on this matter, you can check the CIMA’s website or get in contact with one of our local experts, prepared to answer each one of your questions. 

Also, take into account that according to the law, this application fee shall be paid no later than 30 days after being notified of the fee by the Authority. Then, once you are registered, on or before 15th January in each year you must pay the prescribed renewal fee. Section 5 of the VASP Law, regarding Fees, provides more details on this aspect. 

Crypto licenses in Lithuania

Lithuania is now one of the few European Union member states where legal financial transactions with cryptocurrencies are feasible, and the state has granted official authority to conduct and regulate cryptographic commerce. The Lithuanian government, which is well-known in the traditional financial sector (FIAT) and the licensing of electronic money, also offers the authorisation of a virtual currency. In that sense, there are two types of licenses available in Lithuania for operating with virtual currency:

1. Licensing for cryptocurrency exchanges (Cryptocurrency exchange license). A corporation with such a license can exchange digital money for capital or vice versa, as well as cryptocurrencies for cryptocurrency.

2. License for crypto wallet and custodian services (Crypto wallet and custodian services license). Customers' cryptocurrency wallets can be managed by a Licenced company, which can also generate and store encrypted client keys.

General Requirements

The regulator has the right to request more information and a detailed/white paper description of the cryptography company's proposed activity during the licensing procedure. Only once all essential information has been gathered and all licensing conditions have been met can a License be issued. Then, after acquiring a License, each change in the structure of a cryptocurrency firm (address, owner, board member, beneficiary, AML officer) must be registered in the register with the entire set of documentation.

Financial Crime Investigation Service (FCIS) considers and regulates cryptocurrency License applications, which are then issued by the Lithuanian Business Register. It is an independent unit of the Lithuanian Police and Border Police Department. Likewise, cryptocurrency banks in Lithuania are regulated by the Law on the Prevention of Money Laundering and Financing of Terrorism, in particular Order No V-5 of January 2020.

It is important to highlight that a limited liability company (UAB) must be founded in Lithuania to provide bitcoin trading or storage services, in order to apply for a cryptocurrency License. The authorized capital of the company must be at least 2500 EUR. The formation of a crypto corporation can be done totally online, without the need to travel to Lithuania or obtain a Lithuanian electronic resident card. If this seems interesting to you, let one of our experts guide you through the process and make it even easier. 

Regarding the structure, a cryptocurrency company's structure must include at least one member, who can be both an owner and a board member. He is also a director of AML, a cryptographic firm. In general, it takes about 1-2 months to form a Lithuanian entity with a License.

For money laundering and terrorism funding prevention, an AML officer/officer must have prior professional expertise and a stellar reputation (Lithuanian residency is not necessary). Furthermore, to comply with AML/KYC standards, the licensed company must retain a complete and up-to-date record of all customers and transactions. The FCIS Control Authority has the authority to make enquiries about the company's operations, particularly in regards to AML/KYC policy compliance.

For the company, certain requirements must be met.

- All customers must go through identity verification and identification procedures.

- Customer data should be preserved and made available to the regulator if necessary.

-Internal control and risk assessment mechanisms should be in place at the organization.

- Having a compliance officer for KYC/AML.

- Submitting reports to the regulator (Financial Crimes Investigation Service).

- Members of the board of directors, as well as the company's owners, must have a spotless reputation and no criminal history.

Another amazing advantage of applying for a crypto trading license in Lithuania is that there is no requirement for cryptographic company owners or board members to be physically present in the country. This was established so that foreigners/non-residents of Lithuania could engage in cryptographic activities legally while in their country.

Crypto operation license in Estonia

Because it is a member of the EU, has low corporate taxes, and has a very innovative climate, Estonia is one of the best places to launch a crypto enterprise. In 2017, the Estonian government set out on a path to digitalize the economy and began providing a favorable environment for the growth of fintech enterprises and start-ups. One of the policy's effects was the passage of a modified version of the Anti-Money Laundering Act, which included the terms "virtual currency" (which include cryptocurrencies) and "electronic cash-box." The most significant legislative reform was the creation of specific permission (a license) that authorizes cryptocurrency trading, including exchanges for traditional or fiat money.

With the "Virtual Currency Service Provider" license, you can oversee all primary crypto operations. You'll save a lot of time and hassle by not having to apply for multiple licenses for different purposes. It's a single license that covers all important operations and takes around a month to obtain. This license is issued by the Financial Intelligence Unit (FIU, or RAB in Estonian).

Furthermore, the license comes with full EU passport rights, allowing you to run your crypto business across the EU without the need for additional licenses or the construction of a branch in another country.

General requirements

Regarding the requirements for a License, please note that you will need a) local presence, through a physical office, director, and anti-money laundering officer; b) 12,000 EUR authorized capital; c) a bank account in the EU. Also, consider 4,900 EUR and more for the procedure itself. Furthermore, reputation, education and experience are important as well. Some key documents to have during this process are the following: business plan, AML policy, police clearance certificate, your resume and an extract plus charter from the company. 

Although the FIU may need a physical visit with you in Tallinn, Estonia's capital, you can register your crypto firm and, in most situations, the licensing process can be completed remotely through a representative. Finally, it can take two months or a little more to complete the full process. As in the other two countries portrayed in this article, we have local experts in Estonia that can make sure you get everything right and on time when applying for this license that will open many doors in a great market for your company in the crypto sector. 

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Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice or recommendations. Investing in financial products or cryptocurrencies involves risks, and you should be aware of the potential risks involved before investing. The content on this website is not intended to be a solicitation or offer to buy or sell any financial products or services. The information provided does not take into account your specific investment objectives, financial situation, or needs, and should not be relied upon as a substitute for professional financial advice. You should seek independent advice from a financial advisor or other professional before making any investment decisions. Please be aware that the legal status of cryptocurrencies and other financial products may vary in different jurisdictions and may be subject to regulation. It is your responsibility to ensure compliance with any relevant laws and regulations governing the sale and marketing of financial products and services in your jurisdiction.

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