Providing crypto-assets / cryptocurrencies services in Portugal

27 June 2022

Nuno Nogueira Pinto

Crypto-assets are digital representations of assets based on blockchain technology, which are not issued by a central bank, credit institution or e-money institution, and that can be used as a form of payment in a community that accepts it or for other purposes such as attributing the right use of certain goods and services or a financial return.

For this purpose, the term crypto-assets embraces other terms that are usually associated with it, such as tokens, coins, cryptocurrencies or virtual currencies.

The activity of issuing and commercializing crypto-assets (such as cryptocurrencies) in Portugal currently lays on a legal loophole and it is only regulated and supervised in what regards to Anti-Money Laundering (AML). Bank of Portugal (BoP) is the competent authority for that supervision, as well as for the registration of the entities that intend to provide the following services in Portugal:

Exchange services between crypto-assets (such as cryptocurrencies) and fiat money (for instance, Euro or Dollar);
Exchange services between one or more crypto-assets;
Services whereby a crypto-asset is moved from one address or wallet to another address or wallet (transfer of crypto-assets and cryptocurrencies);
Services for the custody and administration of crypto-assets and cryptocurrencies or instruments that allow controlling, holding, storing, or transferring crypto-assets, including private cryptographic keys.

The application for registration with the BoP by entities that intend to carry out activities with crypto-assets (such as cryptocurrencies) comprises four main areas:

i. Suitability: the entity shall demonstrate that its ultimate beneficial owners, as well as the shareholders, holders of voting rights, directors and top managers have the competence and qualifications (shown through CV and proof of academic attendance) and meet the necessary conditions of suitability (in addition to criminal records, these persons shall demonstrate the absence of ongoing criminal or administrative proceedings or other sanctions or prohibitions of exercise of regulated activity against them).

ii. Program of activities and business plan: entities shall provide BoP with a detailed description of the business areas and services to be provided, with an organizational chart and specification of the human, technical and material resources allocated to the exercise of the activity (including geographical location in Portugal), along with a detailed description of the computer architecture and IT system and of the cryptographic key infrastructure.

iii. Internal control system: entities shall provide BoP with a full description of the internal controls, procedures, and mechanisms to comply with legal or regulatory provisions aimed regarding AML, including the information systems used (focusing on tools for filtering and monitoring clients and crypto assets / cryptocurrencies transactions), as well as a risk matrix with the identification of all the risks to which the entity and its activity will be subject.

iv. Finally, entities that apply for registration with BoP regarding crypto assets must provide detailed information attesting to the origin of the funds to be used for the realization of the share capital, including information and documentation on the jurisdiction of origin of these funds, its generating source and the integral circuit of the financial flows since its origin, with specification and detailed evidence of the associated financial movements and of all the intervening entities (banks, payment service providers, etc.).

One should emphasize that the competence of BoP, after the registration procedure is concluded, is limited to AML, and does not extend to other areas, such as prudential or behavioural supervision.

A final note should be made to mention that the current absence of regulatory framework won’t last much longer. The European Regulation on Markets in Crypto-Assets (MiCA Regulation) is being prepared, which will aim to guarantee innovation and fair competition and, at the same time, a high level of consumer protection and the integrity of crypto-asset markets. Another objective of the MiCA Regulation is to ensure financial stability and take into account the risks that may arise, for monetary policy, from crypto-assets that seek to stabilize their price by reference to a currency or an asset.

With these objectives in mind, the MiCA Regulation will establish uniform transparency and disclosure requirements for the issuance and admission to trading of crypto-assets, in addition to consumer protection rules regarding the issuance, trading, exchange, and custody of crypto-assets/cryptocurrencies, as well as measures of market abuse prevention aimed at ensuring the integrity of markets. Furthermore, the new MiCA Regulation will establish the conditions for the authorization and supervision of crypto-asset and cryptocurrencies service issuers and providers.

If you have further questions regarding this matter, get in touch with Nuno Nogueira Pinto and he will be delighted to assist you.