Starting a crypto business in the US can open big opportunities. It can also pose significant regulatory challenges. The type of license you need depends on the nature of your business, its location, and how you manage digital assets.
A weak licensing plan will result in delays, additional expenses, or compliance issues. Businesses should understand their activities in advance of applying for a license, understand which regulators apply to them, and get their compliance system in place.
Making these adjustments early in the process can help to demystify licensing and help to avoid unnecessary issues.
Start With Your Business Model
The first thing you must do is to determine what your business will do. Will you operate an exchange? Offer custody? Transfer digital assets? Issue tokens? Provide investment advice? The regulatory requirements are different for each activity.
For example, FinCEN has stated that certain businesses exchanging or transmitting convertible virtual currency may fall within the money transmitter framework. That’s why crypto licensing should start with a detailed review of your business model, and not an application form.
Identify Federal Requirements
There are multiple federal agencies involved in crypto regulation in the U.S. Requirements vary according to the type of services and assets. Registration, reporting, recordkeeping, and anti-money laundering obligations may apply to qualifying activities.
It is advisable for a company to evaluate its activities before determining what registrations or approvals are required. An early correct analysis can save time and money in making changes later.
Review State Licensing Rules
Compliance with federal regulations is one part of the equation. State requirements are important, too. Each state has its own regulations for businesses that involve digital currencies. Requirements could be different depending on which services are provided and which customers are served.
Before starting a business that plans to do business in multiple states, it’s important to develop a state-by-state licensing map.
Review Costs, People, and Technology
Application fees are not the only costs of licensing. Compliance staff, legal, technology, audits, insurance, regulatory costs, and reporting are all expenses businesses should expect to deal with. The business should also identify who will manage compliance after approval. A license is not an excuse for not complying with the law.
All these obligations should be supported by technology. Systems can be required to track transactions, keep customer records, safeguard sensitive data, and generate reports as needed. A realistic budget and staffing plan will help to avoid the unpleasant surprises that can arise during the application process.
Plan for Ongoing Compliance
Getting a license is the first step. Regulatory obligations can continue for as long as the business operates. Rules can change. New guidance can be added by the regulators. A company can also expand to new states or add new digital asset services.
For these reasons, businesses should keep an eye on regulatory changes and assess compliance initiatives periodically. Develop a compelling licensing strategy plan before you submit an application.
Identify services, federal and state requirements, develop policies for compliance, estimate costs, and assign responsibilities to qualified professionals.
