16. 05. 2022
An overview of some of the legislative obligations in the area of trading in virtual currencies such as Bitcoin, Litecoin, Ethereum and similar cryptocurrencies, including the risks involved according to the Slovak law.
What is meant by virtual currency (cryptocurrency) according to the Slovak law?
The legal definition of virtual currency can be found in Act No. 297/2008 Coll. on the protection against the legalization of proceeds of crime (AML Act), where it is stated that a virtual currency is a digital medium of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily linked to a legal tender, and which has no legal status of currency or money, but is accepted by certain natural persons or legal entities as an instrument of exchange that can be electronically transferred, stored or electronically traded.
Who can legally trade virtual currencies (cryptocurrencies) in Slovakia?
Act No. 455/1991 Coll. on Trade Business (Trade Business Act) states that natural and legal persons may legally trade cryptocurrencies if they hold a license to provide virtual currency wallet services or virtual currency exchange services.
Until recently, it was sufficient to have a trade license in the form of a free trade, but with the amendment of Act No. 297/2008 Coll. on the protection against the legalization of proceeds of crime and the protection against the financing of terrorism and on the amendment and supplementation of certain acts (the so-called AML Act), virtual currency wallet services and virtual currency exchange services have been included among the so-called tied trades from 1 November 2020, which are a bit more difficult to obtain.
Can cryptocurrencies also be traded by entrepreneurs with a free trade acquired by 31.10.2020?
Trade licenses that were issued for the aforementioned activities until 31.10.2020 as free trades will expire pursuant to the amendment to the Trade Licensing Act on 28.2.2021. Entrepreneurs who wish to legally trade in cryptocurrencies after this date must obtain a new aforementioned bound trade license. Otherwise, businesses expose themselves to the risks described below.
What does the business license for providing virtual currency wallet services or virtual currency exchange services entitle the entrepreneur to?
Within the framework of the operation of the trade for the provision of virtual currency exchange services, the entrepreneur has the right to carry out virtual currency transactions through his business activity, the subject of which is the purchase of virtual currency for euros or foreign currency or the sale of virtual currency for euros or foreign currency.
The operator of a trade license for the provision of virtual currency wallet services may provide services for the protection of private cryptographic keys on behalf of its clients, for the holding, storage and transfer of virtual currency.
What is required for a natural person to obtain a cryptocurrency trading license in Slovakia?
In general, in order to obtain a trade license certificate for the operation of an activity which is a tied trade, the applicant - a natural person must meet the general conditions, the special conditions for the operation of the trade and pay the administrative fee. The same applies to obtaining a license to provide virtual currency wallet services or virtual currency exchange services.
The general conditions for operating a trade include reaching the age of 18, legal capacity and integrity.
A special condition for the operation of a bound trade is the demonstration of professional competence, which is demonstrated on the basis of the education achieved or on the basis of the submission of a decision on the recognition of the document on education issued by the Ministry of Education, Science, Research and Sport of the Slovak Republic.
The amount of the administrative fee is set at EUR 15, or EUR 7.50 for electronic filing, for each tied trade separately.
What is required to obtain a cryptocurrency trading license for a legal entity in Slovakia?
Even in cases where the applicant is a legal person, the general conditions, the special conditions for the operation of the trade and the administrative fee must be met. In the case of a Slovak legal person, the general conditions must be fulfilled by its statutory body or, if appointed, by its responsible representative. The appointed responsible representative must also meet the special conditions for the operation of the trade, i.e. proof of professional competence.
In the case of an enterprise of a foreign person, the general conditions must be met by the head of the enterprise of the foreign person and, in the case of an organizational unit of an enterprise of a foreign person, by the head of the organizational unit of the enterprise.
What are the legal obligations of virtual currency service providers or virtual currency wallet services in Slovakia?
The above-mentioned amendment to the Act on the Protection against the Legalization of Proceeds from Crime and on the Protection against the Financing of Terrorism included service providers in connection with cryptocurrency trading among the obliged persons covered by the Act.
Obliged persons under the Act are also subject to a number of fundamental obligations, including, for example, the exercise of due diligence in the form of verifying the identification of clients prior to entering into a business relationship, reporting unusual transactions to the financial intelligence unit, ascertaining whether the client is a politically exposed person, and, in particular, the development of an internal directive (the so-called "own activities program"), which takes into account risk factors and determines the scope of due diligence in order to prevent the legalization of the proceeds of crime and money laundering.
The above list of obligations is by no means exhaustive, but is a demonstrative enumeration of the most important obligations imposed on obliged persons by law.
What are the risks to entrepreneurs who trade in virtual and virtual currencies without the necessary trade licenses or who fail to comply with their obligations under the Slovak AML Act?
Entrepreneurs trading in cryptocurrencies without the requisite free trade licenses are primarily exposed to the risk of being fined for unauthorized business activities, up to a maximum of EUR 3 319, as well as to the risk of being banned from operating.
The threat of fines of up to EUR 1 000 000 also appears to be a significant risk in the event that the operator of the above-mentioned trades fails to comply with its obligations under the AML Act.
As entities operating in the cryptocurrency trading sector are among those receiving increased attention from banks and financial institutions, it is advisable that such entities also have appropriate internal processes and contractual relationships with business partners.
VAVRO LEGAL can offer its experience and comprehensive legal services to entrepreneurs involved in cryptocurrency trading in Slovakia who are interested in eliminating the aforementioned risks.