Crypto Exchange License – How to start a Crypto Exchange legally?
Launching a crypto exchange can be daunting considering the increasing amount of regulations. Multiple entrepreneurs are looking for the best crypto exchange license available.
LegalBison, the favourite legal partner of crypto companies since 2020, can help you navigate and start your project safely.
- Corporate structuring of a crypto exchange
- Assistance with obtaining a crypto exchange license
- Drafting of the AML-CFT compliance documents
- Ongoing legal support and regular touchpoints
Common services of crypto exchanges and their regulation
Before launching a crypto exchange, its future owner must consider a number of crucial factors. A newly launched crypto exchange must be, above anything else, trustworthy. Here is where the first possible pitfall lies: the crypto market is now more competitive than ever before, hence the brand-new regulations coming into force on a regular basis.
The requirements for launching a crypto exchange vary from country to country; the most notable distinction lies between onshore and offshore jurisdictions licensing crypto exchanges. As experience shows, offshore jurisdictions tend to grant crypto licenses to such platforms faster and within moderate budget limits. Nevertheless, they sometimes take a backseat to the classic “onshore” regulators in terms of overall trustability.
Apart from licensing a crypto exchange within an authorized jurisdiction, a future CEO must take into account all the properties of a newly created platform, including such indispensable factors as setting up the liquidity for crypto assets, client identification, and full regulatory compliance at every stage of the existing business. As one of the leading crypto exchange legal solution providers, LegalBison has mapped out the itinerary in all detail.
- Managing liquidity
- Segregation of accounts
- Compliant platform
- Client identification and KYC/KYB
- AML-CFT and Reporting
- Banking
- DEX (Decentralized Exchanges)
Providing liquidity to the crypto exchange
High liquidity stabilizes prices and increases the speed of token trading without a significant change in their cost. As such, higher liquidity accounts for a steady and flourishing crypto exchange, which means that holding liquidity must be one of the primary concerns of its owner. Multiple factors contribute to a successful liquidity set-up: among them are market making, ensuring acceptance and support of multiple cryptocurrencies, as well as a multitude of trading pairs, and fiat-to-crypto on-ramping.
Another factor of major importance is solvency. While liquidity is the heart of the matter, solvency provides an essential backup in case of possible losses on the platform. As long as a crypto exchange is solvent, it is able to provide compensation for the unforeseen expenses of its clients, thus saving its reputation and trustability in the face of challenges.
Segregation of clients' account (custodial exchanges)
Most licensing authorities require crypto exchange platforms to segregate customer accounts from their own. Another crucial insight is that most customers will want their accounts to be separate, ensuring extra layers of transparency and security. As a result, the majority of users will prefer an exchange platform that guarantees to segregate their accounts from all others and account for their full protection against theft, fraud, unauthorized use, and any other malpractice.
As opposed to omnibus accounts, which combine assets of numerous users into a single account, segregated accounts are individual for every user of the exchange. They are characterized by a clearly defined ownership, thus reducing or eliminating the risk of potential fraudulent activities. Furthermore, account segregation facilitates the platform’s compliance with AML and KYC regulations.
Regulation of crypto exchange platforms
A future CEO of a crypto exchange platform must consider the project’s full compliance from a technical point of view. Since all business models associated with crypto exchanges are predominantly computer-based, proper IT functioning and cybersecurity are crucial for the protection of user data.
This stepping stone in the process of setting up a crypto exchange should not be ignored: both onshore and offshore regulators pay close attention to the technical compliance of every applicant, thus making it an obligatory requirement for most crypto licenses. A remarkable example of this is the VASP license in France. The AMF, an independent French regulator, requires all licensees to conduct a technical audit by a licensed French professional hacker registered with the local cybersecurity agency ANSSI. This idea was then conserved in the design of the newly enforced MiCA Regulation, applicable to all crypto asset services providers since 2025.
Multiple licensers around the world are adopting the tendency of meticulous technical compliance checks, which is why a credible crypto exchange cannot exist without a strong, spotless, and double-tested layer of cybersecurity.
Due diligence processes (KYC, KYB) of a crypto exchange
The next structural component of a crypto exchange is compliance with the KYC/KYB policies. In order to obtain a green light from the licenser, a crypto exchange platform must clearly identify its customers. Know Your Customer (KYC) and Know Your Business (KYB) procedures are indispensable parts of the due diligence process.
All reliable crypto exchanges must oblige their customers to pass a necessary KYC procedure before interacting with the crypto assets in any possible way. The KYC procedure involves verifying the identity and address of every customer, sometimes along with a personal video confirmation. Implementing the KYC/KYB procedures is a mandatory requirement of every credible licensing authority, especially in light of newly created regulations against money laundering on crypto exchanges.
Anti Money Laundering and Countering the Financement of Terrorism measures and policies applicable to crypto exchanges
AML-CFT policies are integral parts of every legal framework, hence the absolute necessity of implementing them before registering under any existing regulation. A surefire way to comply with the AML-CFT regulations is to embed technical mechanisms that will overview and study all user transactions on the platform, instantly detecting any suspicious activity and reporting it to a regulatory body.
The reporting process itself requires some degree of preparation. In essence, it is necessary to draft internal guidelines that will clearly outline which transactions are considered suspicious and thus subject to reporting, as well as map out the reporting procedure itself. In addition, it is advisable to provide training material for employees, such as, for example, an AML course taught by a certified legal professional.
In addition, there is a common requirement in many jurisdictions to appoint an individual responsible for AML-CFT compliance. The official title of the position is the AML officer. Most of the time, it must be a hired certified professional but in some instances, licensers allow one of the directors to fulfill the role.
Banking solutions for a crypto exchange
Despite its rapid development, the crypto market is still considered risky on a global scale. Banks are no exception: in order to protect customers and ensure full transparency of transactions made at crypto exchange platforms, banks only have dealings with trustworthy actors. The only right way to ensure watertight trustability is to obtain a crypto exchange license from a regulatory authority.
In addition, opening a bank account is indispensable if a company intends to provide on/off-ramping services. A crypto exchange must be able to accept a variety of payment methods that are usually sought by their clients, including the most common and popular options like bank cards and bank wire payments.
Legal setup of a Decentralized Exchange
While there is a strict division between CEX and DEX, there are active and operational platforms that combine both within the same website. At a DEX platform, clients are trading tokens either with each other (peer-to-peer) or with a liquidity pool. If you intend to launch a DEX platform segregated from a CEX, the subtleties of structuring and licensing such a project will differ in many regards. We invite you to contact LegalBison’s experts for more detailed information on starting a DEX.
Launching a Crypto Exchange — Start with a Free Consultation
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Guiding questions to properly setup a crypto exchange licensed platform
Before going live, a crypto exchange project’s team should carefully prepare its operations legality. The questionaire below can guide you toward critical questions that are of importance for authorities and for an increasing number of cautious customers.
Legal implications of a crypto exchange
Anti-Money Laundering measures on a Crypto Exchange
Setting up a legally compliant crypto exchange begins with understanding and implementing Anti-Money Laundering measures. All the crypto exchange licensing frameworks in Europe are built based on AML-CFT laws of the European Union. Licensers follow the EU’s AML directives, mainly 5AMLD, which legally defines the notion of a virtual currency and provides a broader range of regulations against money laundering and financial terrorism.
The FATF guidelines and the OECD also have a direct influence on the regulators. The FATF recommendations list requirements for virtual asset service providers to be regulated for AML-CFT purposes and have effective measures for monitoring and ensuring compliance. The OECD guidelines, in turn, instruct multinational enterprises on responsible business conduct, taking into account such key factors as human rights, labor rights, consumer interests, and technology among others.
In such a risky and volatile environment as cryptocurrency, full legal compliance with the AML-CFT is the main indicator of the trustworthiness of any business. The lawyers of LegalBison have the experience and know-how to take over the paperwork and provide mandatory AML-CFT training to the key shareholders of a crypto company.
Security of Clients Data on a Crypto Exchange platform
A Privacy Policy is an indispensable part of any legally compliant crypto exchange platform. The companies registered in the EU comply with the GDPR in Europe but even if the business is licensed offshore it still might adhere to certain provisions of the GDPR depending on the nature of the collected data.
In a Privacy Policy drafted in accordance with the GDPR, a crypto exchange communicates how exactly it collects user data and which means it uses to protect the personal information of the customers and transaction details. By having a well-structured Privacy Policy, a company proves its transparency and demonstrates a professional approach to data protection, mitigating any possible risks not only for itself but also for its partners and investors.
Furthermore, a Privacy Policy is a surefire way to gain the trust of clients. The contents of the document should include the types of information collected, data use and processing, data security measures, user rights, and, if applicable, a cookie policy. Being informed of which exact types of information are collected by the platform and of measures that the platform applies to ensure their security, a client can rest assured that any of their personal or transaction data is fully confidential.
Drafting a legally compliant Privacy Policy requires the assistance of a professional who knows all the intricacies of such a document well. LegalBison has a strong team of lawyers experienced in drafting legal documents for various kinds of crypto companies.
Security of Clients Funds for Crypto Exchange licensed companies
Cybersecurity assessment is now an indispensable part of every licensing framework. Ensuring multiple layers of security for client funds is one of the primary tasks for anyone planning to launch a crypto exchange platform. Furthermore, some regulators, like the crypto license in France, impose more stringent rules than others, such as the obligation to hire a specialist who will conduct a technical audit of the company before its launch.
The surest way to implement strong cybersecurity on a crypto exchange platform is to study the technical infrastructure requirements of your chosen licensing authority and form the company in accordance with them. This is yet another mandatory requirement for registering a crypto exchange business.
Enhancing security measures requires diligence and knowledge of all legal subtleties of the matter. LegalBison regularly assists crypto companies with finding certified cybersecurity specialists to protect their clients’ transaction data.
Legality of transactions on Crypto Exchanges
The legality of user transactions is an indispensable prerequisite for full AML-CFT compliance. Crypto exchange platforms should be able to monitor all transactions, check and report them if required, and hold as much information about the sending and receiving parties as possible.
Since any crypto-related activity is still considered a major risk from the legal point of view, holding control over the reception and sending of crypto from the platform and ensuring the transparency of these transactions should be the company’s primary concern.
Apart from the regular reporting on the AML-CFT compliance measures to the licensing authority, a crypto exchange must be on standby to report any suspicious activity on the platform as swiftly as possible and thus prevent any undesirable consequences.
The experts at LegalBison can precisely define a legally compliant approach to monitoring user activity on any crypto exchange, as well as provide advice on all the necessary legal requirements of the regulator.
Regulations of services offered by Crypto Exchange licensed platforms
Exchange platforms often tend to diversify their activities and solutions by providing additional services to attract more clients and hold an advantage over competitors. However, the idea of providing multiple services within one platform comes with increased obligations, such as, for instance, additional licensing depending on the service.
Such activities as leveraged trading, issuing derivatives, automated portfolio management, launching trading bots, and other investment services fall under the umbrella of a Forex license. Neither a crypto license nor a VASP authorization fully covers these business models.
In some cases, a project might need to obtain a gambling license: for example, for developing and launching blockchain-based real money games. The opportunities associated with running a crypto exchange are endless but each of the services must be fully compliant with law before being offered to clients.
Tackling the licensing of multiple business models at once is one of LegalBison’s strong points. The lawyers draft a carefully prepared Legal Opinion that outlines the most suitable regulator and license type for each of the suggested services.
Token Listing on your Crypto Exchange platform
The regulation of token listing and the requirements for listing a token on an exchange platform have multiple facets. Many jurisdictions have a say on the tokens listed on a crypto exchange, imposing strict rules as to how to classify and differentiate between the types of tokens. It is true that some aspects of a token, such as a drop in value, are not the responsibility of the exchange but in some cases, a regulating country does not allow crypto exchanges to offer security tokens for trading.
Apart from listing other tokens on the platform, the owner of a crypto exchange might want to issue the company’s native token for trading. In that case, an additional layer of licensing is required, as explained in detail on our ICO Legal Assistance page. Whether your platform intends to list already existing tokens, issue its own token, or both, it is crucial to establish transparency and put all these activities in line with the regulatory requirements to avoid legal risks or even blacklisting in some countries.
LegalBison has assisted clients with issuing native crypto tokens multiple times, taking into account the subtleties of each token and the applicable provisions of the regulator.
- Anti-Money Laundering
- Data Security
- Funds Security
- Transactions
- Applicable Regulations
- Token Listing
Anti-Money Laundering measures on a Crypto Exchange
Setting up a legally compliant crypto exchange begins with understanding and implementing Anti-Money Laundering measures. All the crypto exchange licensing frameworks in Europe are built based on AML-CFT laws of the European Union. Licensers follow the EU’s AML directives, mainly 5AMLD, which legally defines the notion of a virtual currency and provides a broader range of regulations against money laundering and financial terrorism.
The FATF guidelines and the OECD also have a direct influence on the regulators. The FATF recommendations list requirements for virtual asset service providers to be regulated for AML-CFT purposes and have effective measures for monitoring and ensuring compliance. The OECD guidelines, in turn, instruct multinational enterprises on responsible business conduct, taking into account such key factors as human rights, labor rights, consumer interests, and technology among others.
In such a risky and volatile environment as cryptocurrency, full legal compliance with the AML-CFT is the main indicator of the trustworthiness of any business. The lawyers of LegalBison have the experience and know-how to take over the paperwork and provide mandatory AML-CFT training to the key shareholders of a crypto company.
Security of Clients Data on a Crypto Exchange platform
A Privacy Policy is an indispensable part of any legally compliant crypto exchange platform. The companies registered in the EU comply with the GDPR in Europe but even if the business is licensed offshore it still might adhere to certain provisions of the GDPR depending on the nature of the collected data.
In a Privacy Policy drafted in accordance with the GDPR, a crypto exchange communicates how exactly it collects user data and which means it uses to protect the personal information of the customers and transaction details. By having a well-structured Privacy Policy, a company proves its transparency and demonstrates a professional approach to data protection, mitigating any possible risks not only for itself but also for its partners and investors.
Furthermore, a Privacy Policy is a surefire way to gain the trust of clients. The contents of the document should include the types of information collected, data use and processing, data security measures, user rights, and, if applicable, a cookie policy. Being informed of which exact types of information are collected by the platform and of measures that the platform applies to ensure their security, a client can rest assured that any of their personal or transaction data is fully confidential.
Drafting a legally compliant Privacy Policy requires the assistance of a professional who knows all the intricacies of such a document well. LegalBison has a strong team of lawyers experienced in drafting legal documents for various kinds of crypto companies.
Security of Clients Funds for Crypto Exchange licensed companies
Cybersecurity assessment is now an indispensable part of every licensing framework. Ensuring multiple layers of security for client funds is one of the primary tasks for anyone planning to launch a crypto exchange platform. Furthermore, some regulators, like the crypto license in France, impose more stringent rules than others, such as the obligation to hire a specialist who will conduct a technical audit of the company before its launch.
The surest way to implement strong cybersecurity on a crypto exchange platform is to study the technical infrastructure requirements of your chosen licensing authority and form the company in accordance with them. This is yet another mandatory requirement for registering a crypto exchange business.
Enhancing security measures requires diligence and knowledge of all legal subtleties of the matter. LegalBison regularly assists crypto companies with finding certified cybersecurity specialists to protect their clients’ transaction data.
Legality of transactions on Crypto Exchanges
The legality of user transactions is an indispensable prerequisite for full AML-CFT compliance. Crypto exchange platforms should be able to monitor all transactions, check and report them if required, and hold as much information about the sending and receiving parties as possible.
Since any crypto-related activity is still considered a major risk from the legal point of view, holding control over the reception and sending of crypto from the platform and ensuring the transparency of these transactions should be the company’s primary concern.
Apart from the regular reporting on the AML-CFT compliance measures to the licensing authority, a crypto exchange must be on standby to report any suspicious activity on the platform as swiftly as possible and thus prevent any undesirable consequences.
The experts at LegalBison can precisely define a legally compliant approach to monitoring user activity on any crypto exchange, as well as provide advice on all the necessary legal requirements of the regulator.
Regulations of services offered by Crypto Exchange licensed platforms
Exchange platforms often tend to diversify their activities and solutions by providing additional services to attract more clients and hold an advantage over competitors. However, the idea of providing multiple services within one platform comes with increased obligations, such as, for instance, additional licensing depending on the service.
Such activities as leveraged trading, issuing derivatives, automated portfolio management, launching trading bots, and other investment services fall under the umbrella of a Forex license. Neither a crypto license nor a VASP authorization fully covers these business models.
In some cases, a project might need to obtain a gambling license: for example, for developing and launching blockchain-based real money games. The opportunities associated with running a crypto exchange are endless but each of the services must be fully compliant with law before being offered to clients.
Tackling the licensing of multiple business models at once is one of LegalBison’s strong points. The lawyers draft a carefully prepared Legal Opinion that outlines the most suitable regulator and license type for each of the suggested services.
Token Listing on your Crypto Exchange platform
The regulation of token listing and the requirements for listing a token on an exchange platform have multiple facets. Many jurisdictions have a say on the tokens listed on a crypto exchange, imposing strict rules as to how to classify and differentiate between the types of tokens. It is true that some aspects of a token, such as a drop in value, are not the responsibility of the exchange but in some cases, a regulating country does not allow crypto exchanges to offer security tokens for trading.
Apart from listing other tokens on the platform, the owner of a crypto exchange might want to issue the company’s native token for trading. In that case, an additional layer of licensing is required, as explained in detail on our ICO Legal Assistance page. Whether your platform intends to list already existing tokens, issue its own token, or both, it is crucial to establish transparency and put all these activities in line with the regulatory requirements to avoid legal risks or even blacklisting in some countries.
LegalBison has assisted clients with issuing native crypto tokens multiple times, taking into account the subtleties of each token and the applicable provisions of the regulator.
Best jurisdictions for a crypto exchange license
Crypto License in Georgia
on request-
Fast crypto licensing
-
Simple framework
-
Free Zone advantages
Crypto License in El Salvador
on request-
Bitcoin is legal tender
-
Pro-crypto regulations
-
High reputation
-
Fastest crypto license in Asia
-
Free Zone setup with no taxes
-
Very simple requirements
Crypto License in Anjouan
on request-
Very fast licensing process
-
Low requirements
-
Recognized by banking institutions
Crypto License in British Virgin Islands
on request-
0% Taxes
-
Fast set-up
-
Easy to start
Examples of LegalBison's assistance with crypto exchanges
It is time to put the theoretical knowledge into practice. The lawyers at LegalBison have assisted multiple entrepreneurs with effectively launching their crypto exchange platforms. The crypto exchange legal solutions below demonstrate LegalBison’s most general approaches to structuring and licensing crypto exchanges.
Building a traditional crypto exchange
One of the most popular and stable crypto licenses before the enforcement of the MiCA regulation was the Polish VASP authorization. It was a superior choice due to its flexibility which allowed the regulator to cover multiple activities within one platform. Once LegalBison undertook the licensing of a crypto exchange in Poland, it worked through multiple regulatory requirements while basing the procedure on the client’s business models and services the platform plans to offer.
In streamlining the registering process in Poland, LegalBison made sure that the client’s project fulfills the following requirements:
- Full compliance with the AML-CFT
- Client identification and KYC/KYB policies
- Full technical compliance and established cybersecurity
- Fitness and property of the company
LegalBison drafted and compiled all the necessary documentation in accordance with the current AML-CFT policies, suggests a Risk Matrix, and assists with assigning an individual for the role of an AML officer. The legal team also has an assigned specialist who assists crypto exchanges with the IT infrastructure and cybersecurity of the platform.
Read more about this story: LegalBison advises BoomFi on joining the EU market with a VASP license
It all boils down to the fit and proper check, which is a compulsory test taken by all applying projects to provide their competence and full legal compliance to the regulator. LegalBison’s assistance involves full preparation of the client for the fit and proper assessment, promptly bridging any existing compliance gaps.
Providing on-ramping and off-ramping solutions
On-ramping and off-ramping activities are at the core of most crypto exchange platforms. If you intend to include them in your project, then your platform must allow for various payment methods for clients. On the one hand, it contributes to the general flexibility of the platform, enabling traders to choose from a multitude of fiat payment options. On the other hand, a crypto exchange that supports multiple banking solutions for on-/off-ramping establishes higher trustability on a global scale.
The importance of providing card payments to customers is impossible to overestimate. Their availability greatly facilitates the process of purchasing crypto and, consequently, the usability of the entire crypto exchange.
LegalBison actively assists crypto exchange platforms with the technical and legal sides of providing on-ramping and off-ramping solutions. The assistance includes ensuring the acceptance of a multitude of payment methods within one website.
Adding unique features to the platform
Adding extra features to a crypto exchange platform is a great opportunity that shouldn’t be overlooked. LegalBison undertakes the administrative aspect of licensing the following unique activities:
- Staking
- Buying/renting mining equipment
- Cloud mining
- Crypto derivatives
- Portfolio management
- Trading bots
- Leveraged trading
In case your crypto exchange intends to provide one or several extra activities, LegalBison shall analyze each of the business models from the regulatory perspective and outline the best licensing itinerary for each of them in the form of a Legal Opinion or Memorandum, which will be tailored individually for your project.
Full legal package for a crypto company
Entrust LegalBison with all the legal structure and licensing process of your crypto exchange project.
Contact us for more details and a free consultation.
FAQ about our legal assistance for the set up of crypto exchange platforms
Yes, and LegalBison is here to assist you with every step of the process.
The requirements for registering and launching a crypto exchange include but are not limited to a set of proper legal documentation outlining the project’s full regulatory compliance, a properly established technical infrastructure, and a starting capital.
The price of setting up a crypto exchange depends on many factors, including the chosen regulator and the services that will be provided by the platform. For more detailed information, you can contact LegalBison and schedule a free primary consultation.
The process can be facilitated tenfold with the assistance of an experienced legal partner. LegalBison is ready to undertake the administrative side of the project while you can fully concentrate on business activities.
The timeframe between forming an initial project idea and obtaining a license depends on the chosen regulator and its licensing requirements.
It is possible to become a crypto vendor by setting up a legally compliant crypto company, which is one of the primary services provided by LegalBison.
The process depends on your particular project case. For an individual consultation, contact LegalBison and schedule a free call with the legal team.
Depends on your business model and the type of services you want to provide. There is no defined “best” crypto license, each one is unique in its own way, serving some startups better than others. To know for sure which one to pick, contact LegalBison for a free first consultation with an expert lawyer.
By forming your company in a particular jurisdiction and obtaining a license there. In order to coordinate both processes and streamline the authorization, get in touch with LegalBison for professional assistance in opening your crypto trading platform.
Contact an expert about crypto exchange licenses
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Our expert will guide you on the legal implications of setting up such a crypto company and help you draw a roadmap.
At the end of the conversation, you will understand the core elements of regulations and receive options of suitable solutions, with their pricing.
Legal experts in designing solutions for crypto licensing worldwide.
Blockchain enthusiast and expert on cryptocurrency and FinTech related laws.
