Back on 12 April 2023, together with Susan O’Neill of SuLu Solutions and Peter Oakes of Fintech Ireland we issued the first Registered Virtual Asset Service Providers - Ireland Map. [See April 2023 Blog here] 

We have now updated the Map to Version 2 as at Monday 17 July 2023.

Welcome NoFrixon Limited and Pionew Ireland Limited to the Map.

No Frixon was registered on 31 May 2023 and Pionew Ireland followed on 11 July 2023.  Both firms are registered to 

• (i) provision of exchange services between virtual assets and fiat currencies
• (ii)  exchange between one or more forms of virtual assets; and  
• (iii) transfer (to conduct a transaction on behalf of another natural or legal person that  moves a virtual asset from one virtual asset address or account to another) of virtual assets. 

Pionew Ireland is also registered be a (iv) Custodian wallet provider.

They join Coinbase Europe Limited, Coinbase Custody International Limited, Gemini Intergalactic Europe Limited and Zodia Custody Ireland Limited and Paysafe Payment Solutions Limited.

According to records at the Companies Registration Office,

• NoFrixion Ireland has 6 Irish resident directors (Aaron Clauson, Kathryn Hotten, Maurice Roche, Patrick Pinschmidt, Kieran Francis Mcloughlin and Feargal Brady); and
• Pionew Ireland has two USA resident directors (Robert Francis Morris and Tang Guojing) and one Irish  resident director (Anne Rothwell).

BTW, Fintech Ireland and Peter Oakes are supporting MiCA Ready which tracks materially important EU news on MiCA and Digital Assets Africa

​MiCA will protect investors by increasing transparency and putting in place a comprehensive framework for issuers and service providers including compliance with the anti-money laundering rules. The new rules cover issuers of utility tokens, asset referenced tokens and so-called ‘stablecoins’. It also covers service providers such as trading venues and the wallets where crypto-assets are held. This regulatory framework aims to protect investors, preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector.

It also introduces a harmonized regulatory framework in the European Union which, given the global nature of crypto markets, is an improvement compared to the current situation with national legislation in some member states only.

This article is co-authored by Susan O’Neill of SuLu Solutions and Peter Oakes of Fintech Ireland*.

17 July 2023 - find New Version of this Registered Virtual Asset Service Providers Map, V 2.0 HERE

[Updated on 12 April 2023 to add Kraken to the article which appear on the VASP register today]

Ireland has a small number of registered Virtual Asset Service Providers (VASPs). In Ireland it is a criminal offence to carry on the business of a VASP in the absence of registration from the Central Bank of Ireland (CBI). VASPs came within the scope of Ireland’s Anti-Money Laundering (AML)/Countering Financing of Terrorism (CFT) legislation in April 2021.  As per the CBI Anti-Money Laundering Bulletin issued on 8 July 2022 (CBI AML Bulletin), “In the intervening period, a significant number of firms have applied to the Central Bank for registration.”

If a significant number of firms have applied to be registered as VASPs – the question arises as to: “Why, 2 years later, Ireland has issued only six (6) VASPs?” This begs further questions: Is Ireland behind the curve compared to its international peers? Are the firms applying in Ireland sufficiently resourced to become VASPs? How do we, more specifically, compare to our neighbours in the UK?
​

​Of the six (6) registered VASPs –two of the registrations are held by Coinbase. The UK has 41 cryptoasset firms registered with the Financial Conduct Authority (FCA). The FCA also have a list of 82 unregistered cryptoasset businesses (as at 31 March 2023), down from close to 250 during 2022, but perhaps this is a topic that deserves an article all of its own!

The UK’s population is 13 times larger than that of Ireland (UK 67.33mn versus Ireland 5.033mn according to World Bank, Eurostat 2021 figures). Accordingly, the UK has one registered cryptoasset firm for every 1.64mn persons.  Whereas for Ireland it is one crypto firm for every 838,833 persons.  By that comparison, Ireland has more crypto firms per head of population than the UK. Based on those numbers Ireland is not only holding its own vis-à-vis the UK, it is exceeding it by a large margin.  If Ireland registered say another 9 VASPs (to get it to 15 VASPs) it would have one cryptoasset firm for every 335,500 persons. Is this something that policymakers, the government and the CBI take into account as part of their respective cryptoasset strategies? 

The CBI AML Bulletin noted the following “In its assessments of applications for registration as a VASP, the Central Bank has identified significant and widespread weaknesses in the proposed risk and control frameworks of the vast majority of applicants. These weaknesses are such that the Central Bank is not satisfied that firms will have the necessary and appropriate controls in place to effectively manage and mitigate the ML/TF risk to the firm, the sector and society.”


Widespread weaknesses in “the vast majority of applicants” does not inspire confidence in the future of VASP applicants in Ireland. However, it is relevant to note that the FCA too has, as recently as 22 March 2023, criticised the quality of cryptoasset applications received by it, particular in areas relating to business plans, comprehensive description of products and services, risk assessment, risk management, policies, systems & controls, Transaction monitoring and blockchain analysis coverage, Group structure and reliance on group policies and procedures, Outsourcing, Training, Suspicious Activity Reporting and regulatory disclosures.  The FCA reminded crypto asset firms of its concerns on 5 April 2023 (see below).

​So, what can be done to support applicants, and thereby improve applications? There is no doubt that the crypto industry is going through the growing pains of a market that needs regulation, but regulation needs to put the guard rails in place to support its users, while also ensuring it does not stifle innovation. There is a very real opportunity here to ensure that Ireland is at the forefront of positive regulatory changes – Ireland could become a hub for the crypto ecosystem.  There are already a number of very large players based in Dublin.  In the same breath, the cryptoasset firms and VASPs referred to in this article are themselves not ‘regulated’ but are merely registered for the purposes of anti-money laundering and terrorist financing laws, i.e. VASPs and cryptoasset firms in Ireland and the UK are not authorised.  However some such firms have a separate authorisation, for example Archax, which is both a registered cryptoasset firm and a UK authorised investment services firm and multi-lateral trading facility, subject to extensive conduct and prudential rule books.  As the crypto industry continues to mature, expect to see numerous ‘digital asset’ firms seek to differentiate and distance themselves from the speculative trading and exchange-driven cryptoasset firms which are falling under evermore regulatory scrutiny such as Binance, Coinbase and Kraken and the failed FTX and Genesis Trading (both of which have filed for bankruptcy protection in the US).
​

​In order to address some of the concerns noted above, the European Union’s trailblazing Markets in Crypto-Assets (MiCA) Regulation is set to come into effect across all member states in 2024, but will it be enough? Dubai’s Virtual Asset Regulatory Authority is the world’s first independent regulator for virtual assets.  Dubai is fast becoming a hub for the crypto ecosystem. Could Ireland benefit from a similar initiative? This is highly unlikely as Ireland traditionally follows the EU’s lead on new financial services regulations and there has been nothing issued by the Department of Finance to suggest that this time is different.  In April 2022 the UK Government announced its plans to make the UK “a global cryptoasset technology hub”. The UK government intends to bring stablecoins into the regulatory perimeter and has launched a consultation on the country’s proposed central bank digital currency or ‘digital pound’ as it is called.  The UK also caught many in the industry unawares when on 31 January 2023, without warning, it published a consultation on the Future financial services regulatory regime for cryptoassets.
​

​So, who are the companies that have managed to obtain the elusive Irish VASP registration and what services are they registered to provide?

​The first registered VASP in Ireland was Gemini Intergalactic Europe Limited, registered on 19 July 2022 under its then name Gemini Digital Assets Limited. Next up was Zodia Custody Ireland Limited, registered on 29 July 2022, followed by both Coinbase Custody International Limited and Coinbase Europe Limited on 20 December 2022.  Paysafe Payment Solutions Limited joined these with a registration date of 19 January 2023.  The most recent VASP to appear on the CBI’s register is Payward Europe Solutions Limited (aka Kraken) whose registration appeared on 11 April 2023.

The services these VASPs are registered to provide is summarised in the table below.

​In recent months, many similarities have been drawn between the current crypto bear market and the dot com crash.  Many wrote off the collapse of US-based Silvergate Bank and Silicon Valley Bank as being completely different from previous financial crises.  However the failure of Credit Suisse - at one point in history the eighth-biggest publicly owned bank by market capitalisation - is making people wonder whether we are seeing the start of a financial crisis like that of 2008.  Increased regulatory scrutiny in the US continues to put pressure on the entire crypto market, regulators recently closed Signature Bank. Signature Bank and Silvergate Bank were widely used by crypto companies. With so much uncertainty there has never been a greater need for carefully considered regulation that will give crypto companies (and their banks) the clarity they need to operate in a compliant regulatory environment. There are many uphill battles ahead for the crypto ecosystem, only the strongest crypto firms will emerge successfully from this bear market. It will be interesting to see which VASP will appear next on the CBI’s register- watch this space!

​There was widespread reporting in Irish and international media about comments made by Gabriel Makhlouf, the Governor of the Central Bank of Ireland during his appearance before a committee of Dail Eireann (lower house) in the Oireachtas (Irish Parliament) earlier this year.  Reuters reported that Mr Makhlouf urged lawmakers on to ban the advertising of crypto assets targeted at young adults and likened crypto not linked to any underlying assets to a Ponzi scheme saying “Unbacked crypto is essentially a Ponzi scheme... People who put their money into unbacked crypo, and most of the significant stock of crypto out there is unbacked, they are essentially gambling.”  Coindesk headlined with “the Governor Gabriel Makhlouf said crypto has ‘no social value whatsoever’”.  Whereas Bloomberg wrote “Makhlouf ‘Very Concerned’ About Crypto”.  

​What did Governor Makhlouf actually say on 25 January this year?  You can read his comments before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach here, where ‘crypto’ received 50 mentions during the exchange with members of the Oireachtas, including:

​You can make up your own mind on Governor Makhlouf thinking on crypto, and by extension the CBI’s position on same.

On 5 April 2023, the UK FCA issued a letter to cryptoasset firms that market to UK consumers, including those based overseas to be aware that they will need to comply with the new UK financial promotions regime.  Set out in bold typeface the FCA warns the crypto industry that “The new UK financial promotions regime will apply to all firms making financial promotions of qualifying cryptoassets to UK consumers regardless of whether the firm is based overseas.”.  The letter issued by the FCA’s Val Smith (Head of Payments & Digital Assets, Authorisations) also reminded readers that financial promotions not falling under one of four permitted routes is a criminal offence punishable by up to 2 years imprisonment and/or a fine.  In the letter, the FCA reminded cryptoasset applicants that prior to submitting a registration application, they must ensure that they have provided all of the information requested in the application form.  The FCA also informed that in the two weeks following the 5 April letter, it will send cryptoasset firms a short on-line survey with questions about these firms’ UK businesses and their plans in response to the UK’s new financial promotions regime.  It looks like it will remain a busy time for cryptoasset and virtual asset services firms on the continent of Europe for the rest of 2023.
​

Enjoyed the article? Then please reach out to the Authors at their contact details below.

​About the Authors:

Susan O’Neill – CEO and Co-Founder of SuLu Solutions. Susan is a qualified accountant who has a wealth of expertise having held several senior management positions. SuLu solutions specialise in providing Fintechs with innovative digital asset strategy solutions that can help them stay ahead of the curve. Email [email protected].  Susan is on the Fintech Ireland Advisory Council.

Peter Oakes – Founder of Fintech Ireland and Fintech UK.  Peter is a board director of regulated MiFID, Emoney and Payments companies, and is an advisor to fintech and digital asset firms through international law firm Armstrong Teasdale and his specialist advisory business, CompliReg.  Email [email protected]

Sinn Féin MEP Chris MacManus

By Peter Oakes, Founder of Fintech Ireland
Don't forget to subscribe to our Newsletter and visit our Crypto & Digital Asset page for information.
 
Background:

• MiCA is part of the larger digital finance package, which contains a digital finance strategy, a Digital Operational Resilience Act (DORA) – that will cover CASPs - and a proposal on distributed ledger technology (DLT) pilot regime for wholesale uses.
• MiCA is intended to bridge a gap in existing EU legislation:
  • ensuring that the current legal framework does not pose obstacles to the use of new digital financial instruments.
  • ensuring that such new technologies and products fall within the scope of financial regulation and operational risk management arrangements of firms active in the EU.
  • ensuring the supporting of innovation and uptake of new financial technologies.
  • providing an appropriate level of consumer and investor protection.

Key provisions agreed by European Union Parliament negotiators for those issuing and trading crypto-assets (including asset-reference tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions. Consumers would be better informed about risks, costs and charges. In addition, the new legal framework will support market integrity and financial stability by regulating public offers of crypto-assets. Finally, the agreed text includes measures against market manipulation and preventing money laundering, terrorist financing and other criminal activities.

Timeline:

• 24 September 2020: European Commission came forward with the MiCA proposal
• 24 November 2021: The Council adopted its negotiating mandate on MiCA
• 31 March 2022: Trilogues between the co-legislators commenced
• 30 June 2022: Provisional agreement reached.
• Next Steps: The Provisional agreement must now be approved first by the Economic and Monetary Affairs Committee  followed by a plenary vote of the European Union Parliament and the Council of the European Union Council also has to approve the deal, before the MiCA Regulation can come into force.
• Early 2024: It is expected that MiCA should be implemented by early 2024.

 
What:

• The EU brings crypto-assets, crypto-assets issuers and crypto-asset service providers to come under a single EU regulatory framework for the first time.
• On Thursday, 30 June 2022, the Economic and Monetary Affairs Committee negotiators for the European Parliament struck a provisional political agreement with the European Union Council on new rules on crypto-assets. 

Scope:

• issuers of unbacked crypto-assets (this means that Central Bank Digital Currencies are not in scope),
• stablecoins
• trading venues where crypto-assets are held
• wallets where crypto-assets are held.
• non-fungible tokens (NFTs) i. e. digital assets representing real objects like art, music and videos, are excluded from MiCA except if they fall under existing crypto-asset categories.

Why:

• Regulatory Framework: MiCA designed to protect investors and preserve financial stability.
• Legal Certainty: Pan-EU wide definitions, legal provisions and authorisation standards not only serve the Regulatory Framework, but provide enhanced legal certainty for issuers, holders, users, regulators and government agencies.
• Innovation: MiCA designed to provide for innovation and fostering attractiveness of the EU crypto-asset sector.
• Uniformity: MiCA designed to bring more clarity (and hopefully remove any possible regulatory arbitrage going forward) and uniformity of approach to crypto assets in the EU.  Particularly important as some member states have national legislation for crypto-assets but without a specific regulatory framework at EU level, the EU risk fragmentation and arbitrage.
• Consumer & Investor Protection: An urgent need for an EU-wide regulation has arisen because of recent developments (such as the crypto-crash / ‘crypto winter’).  MiCA aims to better protect Europeans who have invested in crypto-assets and prevent their misuse. Like all regulations, MiCA will protect consumers against some, but not all, of the risks associated with investing and help them avoid fraudulent schemes.
• Reputation: MiCA aims at putting to an end to the crypto wild west.
• Standard Setting: MiCA will confirm the EU’s role as a standard-setter for digital asset innovation in a pan-EU regulatory environment.

Consumer Protection:

• Currently, consumers have very limited rights to protection or redress, especially if the transactions take place outside the EU. With the new rules, crypto-asset service providers will have to respect strong requirements to protect consumers wallets and become liable in case they lose investors’ crypto-assets. MiCA will also cover any type of market abuse related to any type of transaction or service, notably for market manipulation and insider dealing.

ESG:

• Actors in the crypto-assets market will be required to declare information on their environmental and climate footprint. The European Securities and Markets Authority (ESMA) will develop draft regulatory technical standards on the content, methodologies and presentation of information related to principal adverse environmental and climate-related impact. Within two years, the European Commission will have to provide a report on the environmental impact of crypto-assets and the introduction of mandatory minimum sustainability standards for consensus mechanisms, including the proof-of-work.

Financial Crime:

• Crypto-assets will be covered by EU updated anti-money laundering (AML), legislation.  MiCA will not duplicate the anti-money laundering provisions as set out in the newly updated transfer of funds rules agreed on 29 June 2022. 
• This means that the ‘travel rule’.i.e. the rules on information accompanying the transfers of funds will be extended to transfers of crypto assets.  The EU is adamant about meeting the international standards on the exchange of crypto-assets, in particular recommendations 15 and 16 of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.  Read the FATF’s release on 29 June 2022 ‘Targeted Update on Implementation of FATF’s Standards on VAs and VASPs.’ For further information.
• The European Banking Authority (EBA) will be tasked with maintaining a public register of non-compliant crypto-asset service providers.
• Crypto-asset service providers (CASPs), whose parent company is located in countries listed on the EU list of third countries considered at high risk for anti-money laundering activities, as well as on the EU list of non-cooperative jurisdictions for tax purposes, will be required to implement enhanced checks in line with the EU AML framework.
• Tougher requirements may also be applied to shareholders and to the management of the CASPs), notably with regard to their localisation.

StableCoins:

• A strong regulatory framework will apply to stablecoins to protect consumers.  The EU feels that this should be self-evident given the recent crystallising of risks incurred by holders in the absence of regulation, as well as the contagion impact stablecoins have on other crypto-assets.
• Stablecoins issuers must:

1. build up a sufficiently liquid reserve
2. apply a 1/1 ratio and partly in the form of deposits. 
3. provide every “stablecoin” holder with a claim at any time and free of charge by the issuer
4. ensure that the rules governing the operation of the reserve provides provide for an adequate minimum liquidity.

• Stablecoins will be supervised by the EBA, with a presence of the issuer in the EU being a precondition for any issuance.

Asset-Referenced Tokens:

• Asset-referenced tokens (ARTs) based on a non-European currency used as a means of payment will be constrained to preserve the EU’s monetary sovereignty. Issuers of ARTs will need to have a registered office in the EU to ensure the proper supervision and monitoring of offers to the public of asset-referenced tokens.

Non-Fungible Tokens:

• Non-fungible tokens (NFTs), i. e. digital assets representing real objects like art, music and videos, are excluded from the scope except if they fall under existing crypto-asset categories. Within 18 months the European Commission will be tasked to prepare a comprehensive assessment and, if deemed necessary, a specific, proportionate and horizontal legislative proposal to create a regime for NFTs and address the emerging risks of such new market.

Regulatory Framework:

• CASPs will require an authorisation to operate within the EU.
• Regulators (i.e. national authorities) required to issue authorisations within three months.
• Regarding the largest CASPs, national authorities will transmit relevant information regularly to the European Securities and Markets Authority (ESMA).

Next steps:

• The Provisional agreement must now be approved first by the Economic and Monetary Affairs Committee  followed by a plenary vote of the European Union Parliament and the Council of the European Union Council also has to approve the deal, before the MiCA Regulation can come into force. See more here. 
• It is expected that MiCA should be implemented by early 2024.

Quotes from some of the EU MEPs negotiating the Regulation for the EU Parliament:

Stefan Berger (EPP, DE), the lead MEP for the negotiating team,

• "MiCA is a European success. We are the first continent to have a crypto-asset regulation. In the Wild West of the crypto-world, MiCA will be a global standard setter. MiCA will ensure a harmonised market, provide legal certainty for crypto-asset issuers, guarantee a level playing field for service providers and ensure high standards for costumer protection. Tokenisation will be as ground breaking for the financial world as the introduction of the joint market was in the 17th century. With the MiCA regulation, reliable authorisation and supervisory structures for new tokens are now being created for the first time."

Chris MacManus (Sinn Féin, IE) MEP on the negotiating team:

•  “I am pleased to see this deal hammered out. The way is now clear for this regulation of the crypto world, or the “wild west” as Fabio Panetta of the ECB described it, to be subject to a level of transparency and regulation. This has been sorely lacking and has left consumers vulnerable when dabbling in crypto-assets especially in the trading of crypto currencies.”
• “MiCA also compels companies trading in crypto-assets to disclose the environmental impact of the processes behind the creation of that crypto-asset. As we know, some of these use very environmentally wasteful processes. The deal hammered out here is unfortunately weaker than what I sought and weaker than what was originally agreed by the EU Parliament in this important area but it still represents progress in making sure crypto-assets are monitored to check their environmental impact.”

Further reading:

• 30 June 2022: Cryptocurrencies in the EU: deal struck between Parliament and Council  
• 30 June 2022 Digital finance: agreement reached on European crypto-assets regulation (MiCA)
• 29 June 2022 Anti-money laundering: Provisional agreement reached on transparency of crypto asset transfers
• 29 June 2022 Targeted Update on Implementation of FATF’s Standards on VAs and VASPs
• 24 November 2021 Digital finance package: Council reaches agreement on MiCA and DORA
• 24 November 2020 Commission proposal for a Regulation on Markets in Crypto-assets
• Digital finance (background information)