Navigating cryptocurrency regulation in the EU: A guide to obtaining a crypto exchange license in 2023

Navigate crypto regulations securely

As the cryptocurrency industry continues to evolve, navigating the complex regulatory landscape in the EU can be a daunting task for companies seeking to obtain a license for their exchange.

What are the current regulatory must-haves? What will happen if you run an unlicensed exchange? How does EU crypto law evolve every day? In this article, we find the answers to all those questions and help you get a crypto exchange license in 2023.  

Current regulatory requirements

Navigating the regulatory landscape of cryptocurrency in the EU can be a complex and challenging process. Although they vary between EU member states, there are some general guidelines that companies can follow to ensure compliance with regulatory standards.

  • Registering the business. The crypto exchange must be registered as a legal entity in the EU, which involves incorporating a company and obtaining a license or authorization.
  • Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. Crypto exchanges are required to follow strict KYC and AML procedures to prevent money laundering and terrorist financing. This involves verifying the identity of customers, keeping detailed records of transactions, and reporting suspicious activities to the supervising authority.
  • Financial requirements. Crypto exchanges may need to meet certain financial requirements, such as maintaining a minimum amount of capital or obtaining insurance to cover potential losses.
  • Technical requirements. Crypto exchanges must have robust technical measures in place to protect customer funds and prevent hacking, such as implementing secure storage solutions and two-factor authentication.
  • HR requirements. Crypto exchanges must have certain in-house experts like  AML compliance officers, communication with local authorities and management of the business.
  • Compliance with EU regulations. Crypto exchanges must comply with EU regulations, such as the General Data Protection Regulation (GDPR) and the Markets in Financial Instruments Directive II (MiFID II).

Please note that these requirements vary between EU member states and are subject to change as regulations continue to evolve.

How to get a crypto exchange license?

To obtain a license for a cryptocurrency exchange, companies must:

  • Develop a comprehensive compliance strategy
  • Cultivate a mutually beneficial rapport with regulators
  • Partner with compliant service providers including legal advisors
  • Maintain ongoing compliance with the rapidly-changing regulatory environment

Companies should conduct thorough research and understand the regulatory landscape before launching a cryptocurrency exchange. Follow a proactive approach to compliance and invest in the resources and expertise necessary to meet regulatory requirements. Positive relationships with regulators can also be helpful in securing licenses and avoiding regulatory issues.

Is it possible to run a crypto exchange without license?

Running a cryptocurrency exchange without a license is considered illegal in many EU countries, with penalties ranging from fines to asset confiscation and imprisonment. Moreover, unlicensed exchanges may face difficulty in accessing banking services, posing challenges in operating and expanding their business. Furthermore, running an unlicensed exchange can negatively impact a company’s reputation and erode customer trust, which may be challenging to restore in the future.

In order to prevent such repercussions, it is best to obtain legal and regulatory counsel prior to launching a cryptocurrency exchange and to guarantee full compliance with all applicable regulations. Typically, this will entail fundamental measures like obtaining a license, hiring required specialists, executing KYC/AML protocols, maintaining meticulous transaction records, and frequently assessing and enhancing compliance policies and procedures.

Recent developments in EU cryptocurrency regulation

Recent changes in EU cryptocurrency regulations have significantly complicated and increased the cost of obtaining a license for crypto exchanges. In order to obtain a license, exchanges must adhere to stringent KYC/AML procedures and comply with various regulations while also developing internal policies. Additionally, companies are obligated to assign employees responsible for compliance and reporting. 

To maintain compliance, companies must keep pace with the latest developments in both EU and local cryptocurrency regulations, and be prepared to adapt to any changes in the regulatory environment as they occur. 

These requirements emphasize the importance of careful planning and preparation to ensure successful and sustainable operation of a cryptocurrency exchange within the EU. 

Key factors considered by regulators

Within the EU, financial regulators or national financial authorities such as the Financial Crime Investigation Authority (FCIA) in Lithuania or Police in Estonia oversee the assessment of cryptocurrency exchange license applications. These authorities take into account a range of factors, including:

  • Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) requirements
  • Know-Your-Customer (KYC) procedures
  • Security and risk management measures
  • Operational and financial stability
  • Market integrity
  • Technology and infrastructure
  • Compliance with EU laws and regulations

These ensure that cryptocurrency exchanges operate in a secure, trustworthy, and transparent manner while abiding by all applicable laws and regulations. In order to satisfy these requirements, companies seeking cryptocurrency exchange licenses must be prepared to provide evidence of their compliance with the above factors.

Wrapping up

Obtaining a license for a cryptocurrency exchange in the EU is essential for companies that want to operate in a compliant and legitimate manner, despite the complex and resource-intensive regulatory landscape. By developing a comprehensive compliance strategy and seeking expert guidance, companies can navigate the challenges and position themselves for success in the growing cryptocurrency market.

VILP Solutions is an expert law firm in international crypto law, with a team of experienced attorneys who can provide the guidance and support you need to succeed in the blockchain industry. We are here to help you navigate the complex and constantly changing landscape of crypto law.

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