The Isle of Man is often cited as a leading jurisdiction in the virtual currency sector but how does the regulatory regime for virtual currency business activities in the Isle of Man actually work in practice ?
This article answers some frequently asked questions with reference to the relevant legislation in the Isle of Man.
What is virtual currency business in the Isle of Man ?
The answer is found in the Proceeds of Crime Act (Business in the Regulated Sector) Order 2019 and also the Designated Businesses (Registration and Oversight) Act 2015
“convertible virtual currency activity” means issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies, virtual assets or similar concepts where the concept is accepted by persons as a means of payment of goods or services, a unit of account, a store of value or a commodity;
As you can see, it is a very broad definition.
Is it Regulated in the Isle of Man ?
In the Isle of Man, convertible virtual currency activity is within the ‘regulated sector’ and the AML/ CFT code applies if (i) It is carried on by way of business and (ii) in or from the Island.
In practice, being within the ‘regulated sector’ means appointing an Money Laundering Reporting Officer (‘MLRO’), risk assessing customers, taking their due diligence and generally following the guidance (requirements) set out in the Isle of Man Regulator’s AML / CFT handbook.
Do virtual currency businesses require licencing in the Isle of Man ?
In the Isle of Man details of licencable financial services activities are detailed in the Regulated Activities Order 2011 (most recently updated 2019).
Virtual currency activity is not listed as a ‘regulated activity’ and therefore a financial services licence is not required.
Do virtual currency businesses require any other permissions to operate ?
Yes, the Designated Businesses (Registration and Oversight) Act 2015 requires certain ‘designated’ businesses to register with the Financial Services Authority (‘FSA’).
Such businesses are within the regulated sector (for AML/CFT purposes) but they don’t require a financial service licence. Accountants, estate agents, lawyers and businesses trading in high value items are examples of other categories of ‘designated’ business in the Isle of Man which require registration with the FSA. See Schedule 1 of the Act for a full list.
The FSA is responsible for granting registration to designated businesses is also required to supervise such businesses by way of a regular program of inspections and compliance and statistical returns to ensure compliance with the AML / CFT code.
While designated businesses require ‘registration’ rather than ‘licensing’ – do not assume that registration is always a straightforward routine process. The FSA has the power to deny registration for a variety of reasons and it regularly uses this power – particularly with reference to virtual currency businesses that do not meet their registration criteria.
The FSA has issued sector specific guidance in respect of Virtual Currency Business and the following questions and answers document which sets out their registration requirements in this sector.
Unlike many jurisdictions, the Isle of Man benefits from clarity over the regulation of virtual currency business activity. The regulatory environment itself is deliberately (and not unreasonably) designed to be equivalent to that imposed upon other types of financial service businesses.
Katz & Co. specialises in practical matters relating to the establishment of virtual currency and blockchain sector businesses in the Isle of Man. For further assistance contact Martin Katz.