Belgium takes first steps in regulating cryptocurrency

On 27 January 2022, a draft law was passed in Parliament by which the Belgian federal government, through an amendment to the Belgian anti-money laundering legislation, obliges providers of cryptocurrencies to register in Belgium, under the supervision of the Belgian Financial Services and Markets Authority (FSMA).

As soon as this legislation comes into force, in principle 10 days after its publication in the Belgian Official Gazette, it will be prohibited for natural or legal persons from a third (non-EEA) country to provide or offer on Belgian territory, as an ordinary professional activity, even if this constitutes only an ancillary or complementary activity, services for the exchange between virtual currencies and fiduciary currencies, or to offer crypto wallets.

For purposes of a good understanding, a "provider of a crypto wallet" is defined as "an entity that offers services to secure cryptographic private keys to hold, store and transfer virtual currency on behalf of its clients" and "services for the exchange between virtual currencies and fiduciary currencies” are defined as "services consisting of purchase or sale transactions, with own capital, wheregy virtual currency is exchanged for fiduciary currency or fiduciary currency for virtual currency".

So, do the large and well-known cryptocurrency platforms (Coinbase, Binance, Kraken...) now all have to register in Belgium with the FSMA in order to continue to offer their services in Belgium?

According to the new law, only providers governed by Belgian law or by the law of another EEA Member State who have a branch office or any other form of permanent establishment in Belgium may still offer their services in Belgium, subject to registration with the FSMA.

Non-European providers are thus excluded from the outset. This is difficult to understand, given that most platforms known and used in Belgium operate from outside Europe.

European providers must at least have a branch office in Belgium or some other form of permanent establishment. To know what exactly is meant by a "permanent establishment", we need to look at the case law of the European Court of Justice, however, the law does explicitly state that when the aforementioned providers have set up "electronic infrastructures" on Belgian territory through which they offer their services, they will be deemed to be established in Belgium.

What exactly is meant by "electronic infrastructures"? The law itself does not contain any indications, but in the preparatory works it seems that the law specifically envisages "Automated Teller Machines (ATMs) on Belgian territory with which virtual currencies can be exchanged for fiduciary currencies" although this is not reflected in the provisions of the new law itself.

So it seems that, for the time being at least, the so-called electronic cryptocurrency exchanges (Coinbase, Kraken, KuCoin, Binance, eToro,...) do not fall within its scope of application.

As long as these electronic cryptocurrency platforms do not establish a branch office in Belgium or any other form of permanent establishment or set up any electronic infrastructure in Belgium, they do not fall under the application of the Belgian anti-money laundering legislation and do not have to register with the FSMA. It is unfortunate, however, that the lack of clarity in the terminology used in this law will undoubtedly give rise to many interpretation problems.

The exact rules and conditions for registration with the FSMA, as well as the information and documents that applicants will be required to submit in support of their application, still need to be elaborated in a Royal Decree. What is certain, however, is that the persons responsible for the management of the providers will have to be able to demonstrate that they are ‘fit and proper’ to perform their activities. Moreover, registration will be refused if persons with a five percent (5%) stake in the provider or the persons exercising control over the provider are not suitable given the need for sound and prudent management.

The law also provides for prison sentences ranging from one month to one year and/or fines ranging from EUR 400 to EUR 80,000 for those who engage in providing crypto wallets or services for the exchange between virtual currencies and fiduciary currencies without being registered with the FSMA, or after having renounced such registration, or after such registration has been cancelled.

This law will be promulgated and published in the Belgian Official Gazette as soon as it has been ratified by the King.