Since the evolution of Bitcoin in 2009, the crypto market has widened beyond leaps and boundaries. It has become the field for many innovators and entrepreneurs to advance in the growing economy. At the same time, working with digital assets has become increasingly risky and often has led to market turmoil. Therefore, regulating under a jurisdiction has become a necessity to provide a safe environment for investors. The scenario has led to issues with VASP licenses specific to the business that offers crypto services. Read further to learn more about them in detail.
What is A VASP(Virtual Asset Service Providers) License?
The VASP Act was first enacted on October 31st, 2020, following the consultation with the Financial Action Task Force. It provides a clear legal framework for Virtual Asset Service Providers who offer payment, monetary, and other custodial services using digital assets (i.e. blockchain-based coins). Maintaining the integrity and security of the financial industry was the main motive behind formulating the regulations.
A VASP license would endorse a service provider with a legal status. Financial firms must follow the regulatory standards outlined by the agency to acquire the license. They would evaluate the ethical practices followed and the transparency of reporting by firms. The overall requirements include,
- Efficiency in business operations.
- Adequate capital supply
- Risk management protocols to protect assets from cyber threats.
- Anti-fraud measures done by the organization
- Accounting practices
- Proper segregation of client and company assets
Who Needs A VASP License?
The arrival of blockchain has disrupted the fintech industry, paving the entry of many crypto exchanges, virtual asset brokers, wallet service providers, and investment providers. This led to the increased adoption of cryptocurrencies into the mainstream as they were considered as the hedge against inflation. Apart from that, the introduction of ETF investment vehicles in 2024 has further boosted investors’ exposure to crypto-related products and services.
Organizations that are involved in offering any of these services would require a VASP license. It can be bought by those who fall into this category
- Crypto businesses launching ICOs.
- Firms offering wallet services to store digital assets.
- Crypto exchanges facilitate the trading of spot and CFD coins.
How to Acquire A VASP License?
Obtaining a VASP license would increase the trust among the investors. It provides a legal authority to operate in the digital asset market. Here are the steps for an exchange to obtain the license.
1. Develop the Right Business Model
Businesses planning to launch wallet custodial services or crypto exchanges first need to clearly determine their objects. Based on the goals, a clear business model should be developed.
2. Create AML and KYC Compliance Protocol
For any crypto service providers, Know Your Client and Anti-Monetary Laundering are strict protocols to be adhered to. It is the responsibility of the firm to ensure no fraudsters or blacklisted personnel are registered on the platform.
3. Select the Right Jurisdiction
Choosing the jurisdiction must be done strategically. Depending on the location of the business and market, the licensing procedures and costs may vary.
4. Fulfill the Auditing Requirements
A rigorous in-house auditing process is required to complete the VASP licensing process. Finance records, policies, risk management processes, and other materials must be properly verified.
5. Renewal and Maintenance
The VASP law is subject to changes based on the marketing conditions and policymakers. So, it is the duty of the service provider to make regular efforts to align with the changing policies.
Exchanges With VASP License
Holding a VASP license would attract more users to the business and enhance trust. It leverages the chances for exchanges to widen their scope. Here are some top exchanges that have acquired those and are operating legally.
Binance
Binance is a leading centralized crypto exchange that was founded in 2017. It facilitates trading, listing, fundraising, de-listing, and withdrawing cryptocurrencies. Very soon, the platform became the largest exchange operating globally, holding over 200 million users. Recently, Binance received its VASP license from Dubai. Further, it has also been received from other regions like Argentina, Lithuania, Spain, and Poland.
OKX
OKX is a trusted platform and has acquired VASP licenses in various jurisdictions. Its headquarters are in Hong Kong, Singapore, the UAE, and the Bahamas. OKX offers a range of advanced features, including margin borrowing, earning rewards through staking and savings, and securing cryptocurrency-backed loans. Additionally, it provides innovative products like mining pools and operates its own blockchain, OKExChain.
Bitget Pursues VASP License to Strengthen Compliance in Indian Crypto MarketCoinbase
The US-based exchange Coinbase aids in buying, selling, transferring, and storing cryptocurrency. It supports over 10,000 assets and features an NFT marketplace where anyone can create and trade digital collectibles. With over 110 million users across the world, it remains the most prominent exchange and operates in about 100 countries. It is secure for users and a regulated platform with a VASP license.
Kraken
Founded in 2011, Kraken ranks among the largest digital asset exchanges globally and leads in euro liquidity and trading volume. With a worldwide client base, Kraken supports trading over 200 cryptocurrencies and 8 fiat currencies (GBP, EUR, USD, CAD, JPY, CHF, AED, and AUD).
To Wrap Up
The VASP license remains a hallmark of trust for crypto exchanges and lets them operate legally within a jurisdiction. Existing manipulative risks and the highly volatile nature of the crypto market have made regulatory authorities come up with a legal framework. Applying for a VASP license requires thorough documentation, but securing it would boost the status of the exchange and win the trust of its investors. It demonstrates that the particular business respects investor rights and provides a safe environment.
