Crypto Exchange & Custodian Wallet Licensing in Slovenia

  • December 18, 2019

On 9 July 2018, an amendment to the Directive on the prevention of money laundering and terrorist financing (AML Directive) entered into force, which provides for greater transparency regarding actual business ownership and sets stricter requirements in relation to the prevention of money laundering and terrorist financing.

In this blog post, we are introducing the Slovene regulation in its draft version. The law has not yet entered into force and the changes are possible before 10th January 2020. The purpose of this post is to shed light on the direction on where the Slovenian regulation is heading.

Shortly about the AML Directive

The AML Directive (AMLD) is the first action taken by the European Commission in the context of the Action Plan to strengthen the fight against terrorist financing and to make greater efforts to improve fiscal transparency and prevent tax abuse. The stricter rules on transparency include, inter alia, full public access to the registers of beneficial owners, greater transparency of the registers of beneficial owners of investment funds and the coherence of the two. The new rules set stricter requirements for verifying high-risk third-country clients and provide a legal basis for the exchange of confidential information and cooperation between competent authorities in the field of anti-money laundering and terrorist financing, which oversee credit and financial institutions, and credit rating supervisors, including the European Central Bank.

In terms of payment and related services, the AMLD change extends customer due diligence requirements to the virtual currencies as well (for several reasons, the European Commission, the European Banking Authority and the European Central Bank, in 2018, abandon the use of the term virtual currencies and introduce the concept of crypto assets ) and sets stricter rules for the use of electronic money. 

Virtual currency exchange offices involved in virtual currency exchange services and fiat currencies, as well as custodian wallet providers providing private cryptographic key security services on behalf of their clients, will be required to store and transfer virtual currencies obliged to identify their customers and report suspicious transactions to the competent authorities. In the area of ​​electronic money, however, the AMLD amendment lowers the limit for its anonymous use. Accordingly, anonymity without payer identification will only be allowed in two cases, namely:

(i) for payment at a physical point of sale (eg in a shop) up to a maximum of EUR 150; and

(ii) for online payment of less than EUR 50.

As already written in one of our previous Blog, the new Article 47 of the 5AMLD provides that: “The Member States shall ensure that providers of exchange services between virtual currencies and fiat currencies, and custodian wallet providers, are registered, that currency exchange and cheque cashing offices, and trust or company service providers are licensed or registered, and that providers of gambling services are regulated.

SLOVENIA

Slovenian Flag

Let’s see how Slovenia is tackling this issue and which approach is it going to take.

The draft of the Anti-Money Laundering and Terrorist Financing Act (ZPPDFT-1) is being prepared and stipulates that legal entities and natural persons will be obliged to implement measures for detecting and preventing money laundering and terrorist financing when providing cryptocurrency exchange platform service, custodian wallet providers and services providing assistance with currency exchange services.

Slovenia is implementing a “soft” approach to the regulation of such providers, meaning that it is going to register crypto exchanges and custodian wallet providers and not license them.

The procedure is supposed to be less burdensome and costly than the licensing procedure in Germany or the Netherlands. Slovenia will establish a register of cryptocurrency exchange service providers, trust wallets, and services that provide assistance with exchange services, which shall be maintained and managed by the Bank of Slovenia, which shall be a supervisory authority as well.

REGISTRATION RULES

Rules on the method of entering data into the register of cryptocurrency exchange service providers, custodian wallets and services that assist in the exchange services shall apply within six (6) months of its entry into force.

Crypto exchanges and custodian wallet providers are obliged to enter the data in the register within three (3) months after the implementation of the rules.

Considering the above, crypto exchanges and custodian wallet providers will have time to enter the register until fall 2020.

DISCLOSURE OF INFORMATION TO THE REGULATOR & FITNESS TEST

Cryptocurrency exchanges and custodian wallet providers will be obliged to enter in the register the following information: 

  1. on a legal person, sole proprietor or an individual who independently performs a business, namely: a company, address, seat, registration number, and tax number; 
  2. legal representative: personal name, address of permanent and temporary residence, national ID number or date and place of birth, tax number, citizenship; 
  3. activity: indication of the registered activity and description of the business model.

The minister responsible for finance, in agreement with the Bank of Slovenia, shall specify in more detail the manner of entering the data to be entered in the register.

Currently, the rules are in preparation and it is not yet known what kind of documentation will service providers have to submit to support the fact and whether the management (directors) of crypto exchanges and custodian wallet providers will have to go through any kind of fitness test.

FOREIGN SERVICE PROVIDERS OPERATING IN SLOVENIA

The same rules shall apply to non-domestic companies (foreign service providers having their registered seat or place of incorporation in a country other than Slovenia), which will also have an obligation to register in Slovenia in case that a cryptocurrency exchange or custodian wallet provider purposely carry out the activity in the territory of the Republic of Slovenia (Activity Level Approach). This means that service providers who are actively targeting Slovenian customers by translation website to the Slovene language, placing Ads, attending Slovenian conferences and promoting their services there, or otherwise addressing customers on Slovenian territory, shall have to register as well.

This prevents service providers from evading their obligations when they are targeted at the Slovenian market and at Slovenian customers. How will the activity-level approach be carried out in real and to which extent will the regulator allow activities to be carried out without registration, remains to be seen.

The registration procedure shall be performed in the Slovene language. It is not yet known if the regulator will enable the registration process in English as well.

THE REGISTRATION COSTS

The costs of the registration process and entry into register are not yet specified. Neither is specified, for how long the registration certificate shall be valid and if there is going to be an expiration date if the registration.

CONCLUSION

Rules in Slovenia have not yet entered into force, however, the deadline for implementation of the AMLD is approaching and we shall get all the necessary answers very soon. We will keep you updated. Stay tuned.

IURICORN is here to help you with the registration procedure and any questions you might have. We are here to help.

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