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Crypto Laws in Europe: The Friendliest Position to Sign in Your Startup

5 Mins read

If you’re interested in launching your crypto business but don’t know where to start, look to Europe. Here you’ll find easy ways to register your start-up and a positive regulatory environment designed to encourage innovation in this field, which is experiencing explosive growth.

Why in Europe? While the crypto business hasn’t been around for very long, several European countries were among the first to recognize the tremendous potential of digital currencies. You can transform the financial landscape, create new jobs, and contribute to the overall health of their economies. These countries, including Denmark, Estonia, Germany,  Slovenia and Switzerland among others, moved quickly to develop a framework in which entrepreneurs could develop crypto-asset-related businesses and a thriving digital economy.

And while many are looking for ways to capitalize on the rise in awareness and acceptance of crypto by mainstream financial institutions and consumers alike, it’s difficult to navigate the myriad of rules and regulations that are currently in place surrounding coin development and crypto asset management.

To help standardize crypto regulation, the European Union is currently in the process of refining its definitive regulatory framework known as “MICA” or “Markets in Crypto Assets Regulation.”  When adopted, MICA will become the world’s largest and most comprehensive framework for the digital currency industry.

“The lack of an overall Union framework for crypto-assets can lead to a lack of users’ confidence in those assets, which will hinder the development of a market in those assets and can lead to missed opportunities in terms of innovative digital services, alternative payment instruments or new funding sources for Union companies,” MICA developers conclude.

With MICA in place, all 27 countries in the EU will operate within the new regulatory environment.  Yet, each country will continue to manage its crypto business development within its borders that are distinctive and unique.

“Europe has always led the way in the digital currency revolution, which is why its regulatory environment is much more developed,” said Vadym Kurylovych (VK), CEO of STEX, an Estonia-based crypto exchange. “New crypto businesses will find certain countries in the EU have found the perfect balance of innovation and regulation, making it easier to succeed.”

Estonia: EU’s First “Digital Republic” a Leader in Regulatory Framework

Early on, Estonia recognized the value of the digital economy and the drive to currency innovation. Requiring businesses to maintain a physical residence in country was identified as a barrier toward growth as well as counter-intuitive in the virtual age.

In 2014, the Republic launched its e-Residency program, which provides a government-issued digital identity to non-residents. With an e-passport, entrepreneurs have the same access to company formation, banking, payment processing, and taxation processes as physical residents. Documents are signed with a smart card, making the process as seamless and transparent as possible for E-passport holders.

“Branding itself the first “digital republic” in the world, Estonia has digitised 99% of its public services,” reports. “And, in an era when trust in public services are declining across the globe, Estonia persistently achieves one of the highest ratings of trust in government in the EU. The Estonian government claims that this digitisation of public services saves more than 1,400 years of working time and 2% of its GDP annually.”

Crypto businesses based in Estonia must adhere to not only the country’s regulatory requirements but the EU’s AML (Anti-Money Laundering) and the US Financial Crimes Enforcement Network (FinCEN).

The republic also requires crypto companies to adhere to its own regulations designed to support the development of sound crypto asset service providers (CAS).

“Estonia’s regulatory environment is transparent, which makes compliance easier for a company to implement,” VK, of STEX, said.  “In addition, companies such as ours build in added protections, which contribute to building trust and confidence of those on our site.”

Switzerland’s “Blockchain Act” Ushers in “New Era” in crypto industry

Known as one of the world’s largest financial hubs, Switzerland continues to be an innovator in developing the digital currency industry. “Switzerland has the highest rate of crypto ownership in Europe (among the highest in the world),” according to GlobalWebIndex.

Last year, the country passed the Swiss “Blockchain Act, which “covers the exchange of digital securities, sets standards for cryptocurrency exchanges and solves money laundering problems, legitimizing an industry that many fear,” one industry observer noted.

The new laws took effect February 1 and has been heralded as a defining moment in the industry, according to “Switzerland has ushered in a new era for the digital assets industry after the tokenized securities law took effect on February 1. Known as the Blockchain Act, it sets a firm legal basis for digital asset exchange and tokenization while tackling the threat of digital currency money laundering.”

The effect of the new laws has been immediate. “Already, leading Swiss companies are rushing to announce new products as the new law takes effect,” Coingeek reports. “Crypto Broker AG announced February 1 that it had received a securities house license by the watchdog, FINMA. The license will allow it to broaden the scope of its products and services and work with more regulated parties.”

Through its persistence in exploring better ways to govern the digital currency market, Switzerland continues its quest to maintain its leadership position in crypto.

“Switzerland has been actively working towards establishing itself as a crypto haven and hub over the last few years. It saw it as an opportunity to attract crypto firms by actually providing them with clear, accessible, and well laid-out regulations,” observes Offshore Protection. “This is achieved while most other countries were still grappling with the task and trying to wrap their heads around how the industry could be regulated and whether or not it could fit within the existing legal frameworks.” 

Germany: Embracing 5AMLD

With its robust crypto economy, Germany continues to update its digital currency innovation to keep pace with the changing market conditions and updated regulations.

“In 2019, Germany implemented 5AMLD expansively by defining crypto assets in its Banking Act, with crypto assets appearing in the definition of financial instruments (e-money and certain monetary values expressly excluded), introducing a new service called “crypto safekeeping” or “Crypto Custody Business” (the custody, administration and safeguarding of crypto assets), and allowing banks to sell and hold cryptocurrencies for their clients – these new rules became effective on 1 January 2020,” blockchain technology news reports.

5AMLD or the “5th Anti-Money Laundering and Counter Terrorist Financing Directive,” which was effective in January 2020, was adopted by the EU to “contribute to global security, the integrity of the financial system and sustainable growth — and, as was anticipated, widened the regulatory perimeter to capture crypto, and entities dealing with crypto, through new definitions of “virtual currency” and “virtual asset service providers” (or VASPs).”

The legislation identified cryptocurrency businesses as “obliged entities,” a category previously reserved for traditional financial institutions. Under the new law, crypto companies must now comply with AML/CFT (Anti-Money Laundering/ Combating the Financing of Terrorism) and other reporting requirements.

Germany’s move demonstrates the value of coordinated regulatory efforts by the EU and its countries as they move to combat risk issues related to crypto.

“All of us in the industry have an obligation to not only comply with the constantly changing regulations, we need to ensure that compliance is transparent and also seamless for the customer,” VK added.

The Ever-Changing Regulatory Challenge

No doubt, in the last 12 months, digital currencies have moved into the spotlight on the world’s financial stage.  Bitcoin alone has a market capitalization of more than $3 Trillion US.  Institutional investors have jumped into the digital currency market, and many countries are planning on introducing their own Central Bank Digital Currencies (CBDC).  Almost daily, large and distinguished financial institutions around the world are opening digital currency units or are offering digital custody services.

As the digital currency landscape evolves, Europe will continue to lead the way in creating a regulatory environment that protects the consumer without stifling innovation. As the EU states, the whole point of MICA is to address “regulatory uncertainty and positively contributes to the harmonization of crypto-asset requirements across Europe.”

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