Applying for a VASP License: What Are the Key Considerations?

A VASP, or Virtual Asset Service Provider, includes businesses offering financial services related to virtual assets. These services can involve custody (holding digital assets), advisory (providing investment advice), or trading (buying and selling assets).

To get a VASP license, businesses must meet specific regulatory standards and requirements, which have evolved to ensure the security and integrity of financial systems.

In this article, we will explore the key considerations surrounding VASP licensing and analyze the application process.

Regulatory requirements for obtaining a VASP license 

Regulatory frameworks for VASPs have expanded beyond the initial focus on Anti-Money Laundering (AML). Authorities now take a comprehensive approach to ensure financial integrity and stability. They evaluate:

• Business practices: Assessing ethical and efficient operations.

• Capital adequacy: Ensuring sufficient financial resources.

• Organizational structures: Evaluating internal governance.

• Risk management protocols: Managing potential risks.

• Market abuse prevention: Implementing anti-fraud measures.

• Accounting practices: Ensuring transparent financial reporting.

• Asset segregation: Keeping client assets separate from company assets.

• IT and cybersecurity: Protecting digital assets and data from cyber threats.

   

1. AML and KYC compliance for VASPs 

A fundamental aspect of VASP operations is implementing a comprehensive Anti-Money Laundering (AML) and Know Your Customer (KYC) strategy. VASPs need a risk-based AML framework tailored to the unique nature of virtual assets. This includes strong KYC procedures to verify client identities and assess transaction risks.

2. Cybersecurity in VASP license applications 

Cybersecurity is crucial in VASP license applications. VASPs must prioritize the protection of digital assets and customer data against a backdrop of evolving cyber threats. Taurus-PROTECT, for instance, is an example of a custody solution designed to prevent unauthorized access and theft, ensuring the security and integrity of digital assets. 

3. Financial criteria for VASP licensing

VASPs seeking a license must meet strict financial and capital requirements. This ensures they have the financial strength to operate sustainably and protect their customers' interests. Regulatory authorities carefully review several aspects:

• Financial statements: To verify the accuracy and health of the company's finances.

• Capital adequacy ratios: To confirm the company has enough capital to cover potential losses.

• Liquidity positions: To check if the company can meet its short-term obligations and handle market fluctuations.

4. Jurisdiction selection for VASPs 

Choosing the right jurisdiction is a strategic decision for VASPs. Regulatory frameworks, legal requirements, and supervisory approaches vary widely across different regions. To align with the regulatory environment that best suits their business model, VASPs should consider:

• Clarity and predictability of regulations: Ensure the rules are clear and stable.

• Speed and efficiency of the licensing process: Evaluate how quickly and efficiently they can obtain a license.

• Ongoing compliance expectations: Understand the long-term compliance requirements and their impact on operations.

5. Documentation and reporting requirements 

The VASP license application process requires careful preparation and submission of a comprehensive application file. This file acts as a detailed dossier covering various aspects of the VASP's operations. The documentation typically includes:

• Detailed information about the VASP's business model

• Compliance policies

• Financial records

• Risk management procedures

• Other materials demonstrating the VASP's readiness to operate within the regulated framework

The goal is to provide regulatory authorities with a thorough overview of the VASP's operations, policies, and capabilities.

Ultimately, obtaining a VASP license requires a deep understanding of regulatory expectations and a proactive approach to compliance. VASPs must not only address the foundational AML and KYC requirements but also establish robust cybersecurity measures, meet stringent financial criteria, carefully consider jurisdictional implications, and document their operations.