A new regulatory framework for the provision of certain crypto-asset services in Belgium
In February 2022, Belgium introduced a new legal framework regulating the provision of certain services related to virtual assets in Belgium. This initiative runs ahead of the regulatory initiatives at the European level, notably the “MiCa” proposal, and significantly strengthens the supervision on professional services related to virtual assets.
As the regulatory framework provides for only limited transitional measures, immediate action by virtual asset service providers is required.
This article summarises the new Belgian regulatory framework.
The new Belgian regulatory framework applicable to virtual asset service providers (VASPs)
The fifth AML Directive (AMLD V)1 broadened the personal scope of regulatory requirements under anti-money laundering and terrorist financing rules and regulations (AML/CFT Laws and Regulations)2 to “providers of exchange services between virtual currencies and fiat currencies” and “custodian wallet providers” (together referred to as virtual asset service providers or VASPs).
Belgium implemented AMLD V and its predecessors in the Law of 18 September 2017 on the prevention of money laundering and terrorist financing, as amended from time to time (the AML Act)3.
In summary, the AML Act provides that:
- VASPs are subject to AML/CFT laws and regulations, including know-your-customer (KYC) due diligence requirements;
- it is prohibited for VASPs governed by the laws of a third country (ie non-EEA jurisdictions) to carry out virtual assets exchange services or custodian wallet services in Belgium; and
- VASPs with an establishment or electronic infrastructure in Belgium must register with the Belgian competent authority, the Financial Services and Markets Authority (FSMA).
This client alert discusses the recently introduced ban on non-EEA VASPs and Belgian registration requirements for VASPs.
Ban on third-country VASPs
The Act of 1 February 2022 amending the AML Act to introduce provisions related to the status and supervision of providers of exchange services between virtual and fiat currencies and custodian wallet providers4 (VASP Act) introduces a prohibition for natural persons and legal entities domiciled in or governed by the laws of a non-EEA jurisdiction (third country) to provide, on a professional basis, exchange services between virtual currencies and fiat currencies and custodian wallet services on Belgian territory.
In practice, the legislator expects third-country VASPs to establish an entity in Belgium or another EEA jurisdiction and to operate via that entity in Belgium.
The prohibition only applies to providers of exchange services when they offer to exchange virtual currencies and fiat currencies (virtual assets-to-fiat or fiat-to-virtual assets) with their own capital. It does not apply to platforms where users of the platform can exchange virtual assets between each other or to exchange services where one virtual asset is exchanged for another. Furthermore, the Act does not cover initial coin offerings (ICOs).
The VASP Act sanctions non-compliance with criminal sanctions (imprisonment from one month to one year and/or a fine of EUR400 to EUR80,000). These criminal sanctions supplement the pre-existing administrative sanctions for non-compliance with AML/CFT obligations (such as fines up to EUR5 million or 10% of the annual turnover, whichever is higher).
Registration conditions for VASPsAll VASPs with an establishment or electronic infrastructure in Belgium must register with the FSMA.
The Royal Decree of 8 February 2022 on the regulation and supervision of virtual assets services providers5 (VASP Royal Decree) lays down the rules and conditions for registration with the FSMA, and the conditions for carrying out these activities and the supervision that such service providers are subject to.
Furthermore, the FSMA published FAQ on its website to assist VASPs with the application of the new regulatory framework6.
The registration requirement applies to:
As discussed above, the AML Act prohibits any virtual assets exchange service or custodian wallet service by third-country VASPs. They cannot register with the FSMA without setting up a legal entity in the EEA.
It is not relevant whether the VASP carries out the activity as its principal or ancillary activity. Undertakings that are already regulated under other financial services laws remain subject to the registration requirement but benefit from less comprehensive registration conditions.
The VASP Royal Decree introduces detailed requirements that VASPs must meet on a permanent basis.
The key requirements are:
Transitional regime for current VASPs
The VASP Act did not contain any transitional provisions. Therefore, the ban on non-EEA VASPs entered into force ten days after its publication (ie on 21 February 2022).
The VASP Royal Decree enters into force on 1 May 2022. However, the Royal Decree provides for a grandfathering provision. VASPs that are not registered by that date maintain their authorisation, provided that they notify the FSMA before 1 July 2022 and submit a complete application to the FSMA before 1 September 2022.
Coordination with the EU initiatives regarding crypto-assets regulation
It is likely that this new Belgian regulatory framework will be replaced by a legislative initiative at European level. Notably, the Proposal for a Regulation on Markets in Crypto-Assets (the MiCA Proposal) aims at establishing uniform rules for crypto-asset service providers and issuers at the European level.
As there may be an overlap between the new Belgian regulatory framework and the expected harmonisation of these rules on the European level, service providers must monitor closely how the regulatory framework evolves over time.
Furthermore, the AML Package published by the European Commission in July 2021 will bring further changes in terms of information required when providing crypto-assets transfers. For more information on this specific proposal, please refer to our previous client alert related to the AML/CFT Package.
Belgium has not waited for the European legislator to establish a robust framework of financial supervision on VASPs. The introduction of this regulatory framework requires immediate action from providers of exchange services between virtual currencies and fiat currencies and custodian wallet providers. If these service providers wish to continue providing their services on Belgian territory, they must, at least, notify the FSMA before 1 July 2022 and submit a complete application file with the FSMA before 1 September 2022.
Our Fintech and Financial Services team is happy to assist you with any query you might have, including the restructuring of your activities in Belgium and the preparation of the notification and application file with the FSMA.
1 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (Text with EEA relevance), OJ L 156, 19 June 2018, p. 43.
2 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC, OJ L 141, 5 June 2015, p. 73, read in conjunction with the laws transposing the directive and related laws and regulations.
3 Law of 18 September 2017 on the prevention of money laundering and terrorist financing to introduce provisions related to the status and supervision of providers of exchange services between virtual and fiat currencies and custodian wallet providers, BS
4 Law of 1 February 2022 amending the Law of 18 September 2017 on the prevention of money laundering and terrorist financing to introduce provisions related to the status and supervision of providers of exchange services between virtual and fiat currencies and custodian wallet providers, BS 11 February 2022.
5 Royal Decree of 8 February 2022 on the regulation and supervision of providers of exchange services between virtual currencies and fiat currencies and custodian wallet providers, BS 23 February 2022.
6 FSMA, Virtual Asset Service Provider (VASP).