Crypto OTC Exchange – Legal Setup for Crypto OTC Exchanges
Do you consider starting an OTC trading platform? This article will help you understand the legal implications of OTC trading.
- Assessing the need for a crypto license
- Full AML-CFT compliance package
- Banking gateway for your OTC project
- Ongoing compliance & ad-hoc legal advice
Common services for OTC exchanges and their regulation
Over-the-counter (OTC) is a method of crypto trading that is independent of the market and is not influenced by its prices. Hence, it is popular for large-scale trading and among people who don’t trust centralized exchanges. The OTC trading process is conducted outside a crypto exchange, directly between the buyer and the seller. An OTC broker usually works as an intermediary in the transaction, navigating both parties through it, ensuring deep liquidity, matching the most fitting buyers and sellers for particular operations, and providing security guarantees and insurance against potential scams.
OTC crypto trading is often a priority whenever large sums of money are involved. This method allows parties to transact without influencing market prices or being bound by them. The price, as well as liquidity and the entire settlement process, are negotiated between the two parties of the transaction, which makes over-the-counter trading largely self-governed and private compared to trading on a traditional crypto exchange.
How to launch your own crypto OTC platform? What are the legal implications and possible pitfalls that may appear on the way? Do you need a license to run an OTC exchange? LegalBison will answer all of these questions as transparently as possible.
- Managing liquidity
- Controlling slippage
- Compliant platform
- Banking
Managing liquidity
An OTC trading platform can function either as a separate entity or as part of a cryptocurrency exchange. Such famous exchanges as, for example, Binance or Kraken, have their own inbuilt OTC trading services. Regardless of your particular project type, you will have to concern yourself with providing enough liquidity for successful trades.
Quite often, traders themselves can participate in deepening the liquidity, acting as market makers and benefitting from the price gaps between OTCs and traditional exchanges at the same time. High liquidity, which often pertains to OTC platforms, is the consequence of large trading orders being predominant in over-the-counter trading. It allows OTCs to provide trading services without altering or gravely impacting market prices.
Lower risk of slippage
One of the widely perceived benefits of OTC platforms over traditional exchanges is the reduction of potential slippage. Slippage refers to the difference between the expected price and the actual price that results from a trading deal and can commonly take place when the market price drops in the transaction process.
Controlling slippage on an OTC platform is fairly simple since they are not subject to constant market fluctuations and changes in prices. Since all the deals are executed directly between buyers and sellers, on their pre-negotiated conditions, no risk of slippage arises.
AML-CFT and reporting
OTC trading platforms are more private and less transparent than traditional exchanges, and this is exactly why they are in close focus of the regulators around the world. Such transactions, completed in full privacy and on terms negotiated between two anonymous parties, are largely viewed by the higher authorities as potentially fraudulent, money laundering, or even financing terrorism.
Henceforth, AML-CFT compliance and regular reporting are mandatory. Regardless of the need for licensing, in order to run an OTC exchange legally, you will have to apply certain AML compliance measures. The full compliance document package, as well as basic AML-CFT training for the key shareholders of your startup, can be provided by LegalBison.
Banking solutions for OTC platforms
At OTC platforms, parties trade cryptocurrencies that are not listed on crypto exchanges. When transactions are made between crypto and fiat pairs (on- and off-ramping), an appropriate banking settlement is required. Not every bank will agree to cooperate with an OTC exchange, especially the one in its startup stage, hence a lawyer’s assistance might be required. LegalBison has a long history of providing OTC exchanges with bank solutions for their trading services.
Launching a Crypto OTC Exchange — Start with a Free Consultation
Get in touch with our team to start preparing your crypto OTC project rightfully. Ensure the legality of your operations and gain the trust of customers and banks with the assistance of LegalBison.
Guiding questions to properly set up an OTC exchange
Before you launch your own OTC exchange, ensure that you can fully understand and answer the questions below. If not, you might need the help of an experienced legal partner.
Legal implications of an OTC exchange
Authorizing your OTC
Over the counter crypto trading is proven to be a stable trading solution independent from the market. High-net-worth individuals are likely to resort to OTC trading crypto for swift transactions that involve large sums. Depending on the essence of the project, you as a future owner of an OTC crypto exchange might need to license your company.
Each of the international jurisdictions overseeing the flow of crypto and crypto trading operations has a designated authority issuing licenses or registrations to applicants. While a license is not mandatory, it can highly improve the visibility of your platform on a global scale, as well as its trustability among valuable clients.
In order to properly analyze the need for a license, we recommend contacting our lawyers who have years of experience in assisting customers with opening their OTC platforms.
Integrating security protocols & AML-CFT
Security is the primary aspect of successful crypto OTC trading. Implementing security modules must be one of the primary concerns while building a crypto OTC trading platform from scratch. The most important security measure is, of course, the adherence to AML-CFT policies which will work as solid proof that your OTC platform is not involved in any potentially dangerous activities.
With or without a license, any OTC crypto exchange that wants to be visible and trustworthy on the market must construct its own AML-CFT compliance protocols, assign a responsible AML officer, and educate the key members and shareholders of the company on the main AML policies. For those who don’t know where to start, LegalBison provides in-depth assistance with AML-CFT protocol integration and uninterrupted compliance.
Ensuring cybersecurity
Apart from AML-CFT compliance, it is vital to ensure a high level of cybersecurity for an OTC cryptocurrency exchange. Since OTC deals crypto involve the circulation of large money sums, potential traders want to be sure that their assets are safeguarded and under control. Besides, in case of a licensing requirement, some regulators demand regular cybersecurity checks and reports from applicants, often conducted by an IT specialist.
No matter what your goal is, LegalBison can assist you with the technical side of maintaining your cryptocurrency OTC. We can assign a responsible technical specialist to conduct a cybersecurity audit of your platform and assist your project with regular reporting (if required).
Developing trading APIs
Crypto OTC desks can serve multiple purposes apart from straight-up cryptocurrency trading. One of the most prominent features an OTC platform can have is a native OTC stock data API. Thanks to API integration, individuals who use your OTC for trading can integrate OTC desks into their systems and trade assets seamlessly across multiple networks at once.
API integration requires some extent of technical know-how, which can be too sophisticated and obscure for the beginner owners of OTC trading platforms. If you want to build your own API solution and offer it to clients, contact the tech team of LegalBison for professional assistance.
Obtaining a banking solution
OTC cryptocurrency trading often requires an all-encompassing banking solution. It can be either a bank gateway for traders who wish to exchange fiat for crypto and vice versa (on-ramping and off-ramping) or a corporate bank account for the company’s needs. Either way, crypto-related platforms, including OTCs, are rather notorious in the eyes of most banks and their reputation remains questionable.
Henceforth, obtaining a banking gateway can be challenging and take a long time since you will have to prove that your OTC platform is transparent and secure. LegalBison assists newcomer OTC brokers with establishing unwavering compliance from multiple legal standpoints.
- License & registration
- AML-CFT
- IT & Security
- Trading APIs
- Banking
Authorizing your OTC
Over the counter crypto trading is proven to be a stable trading solution independent from the market. High-net-worth individuals are likely to resort to OTC trading crypto for swift transactions that involve large sums. Depending on the essence of the project, you as a future owner of an OTC crypto exchange might need to license your company.
Each of the international jurisdictions overseeing the flow of crypto and crypto trading operations has a designated authority issuing licenses or registrations to applicants. While a license is not mandatory, it can highly improve the visibility of your platform on a global scale, as well as its trustability among valuable clients.
In order to properly analyze the need for a license, we recommend contacting our lawyers who have years of experience in assisting customers with opening their OTC platforms.
Integrating security protocols & AML-CFT
Security is the primary aspect of successful crypto OTC trading. Implementing security modules must be one of the primary concerns while building a crypto OTC trading platform from scratch. The most important security measure is, of course, the adherence to AML-CFT policies which will work as solid proof that your OTC platform is not involved in any potentially dangerous activities.
With or without a license, any OTC crypto exchange that wants to be visible and trustworthy on the market must construct its own AML-CFT compliance protocols, assign a responsible AML officer, and educate the key members and shareholders of the company on the main AML policies. For those who don’t know where to start, LegalBison provides in-depth assistance with AML-CFT protocol integration and uninterrupted compliance.
Ensuring cybersecurity
Apart from AML-CFT compliance, it is vital to ensure a high level of cybersecurity for an OTC cryptocurrency exchange. Since OTC deals crypto involve the circulation of large money sums, potential traders want to be sure that their assets are safeguarded and under control. Besides, in case of a licensing requirement, some regulators demand regular cybersecurity checks and reports from applicants, often conducted by an IT specialist.
No matter what your goal is, LegalBison can assist you with the technical side of maintaining your cryptocurrency OTC. We can assign a responsible technical specialist to conduct a cybersecurity audit of your platform and assist your project with regular reporting (if required).
Developing trading APIs
Crypto OTC desks can serve multiple purposes apart from straight-up cryptocurrency trading. One of the most prominent features an OTC platform can have is a native OTC stock data API. Thanks to API integration, individuals who use your OTC for trading can integrate OTC desks into their systems and trade assets seamlessly across multiple networks at once.
API integration requires some extent of technical know-how, which can be too sophisticated and obscure for the beginner owners of OTC trading platforms. If you want to build your own API solution and offer it to clients, contact the tech team of LegalBison for professional assistance.
Obtaining a banking solution
OTC cryptocurrency trading often requires an all-encompassing banking solution. It can be either a bank gateway for traders who wish to exchange fiat for crypto and vice versa (on-ramping and off-ramping) or a corporate bank account for the company’s needs. Either way, crypto-related platforms, including OTCs, are rather notorious in the eyes of most banks and their reputation remains questionable.
Henceforth, obtaining a banking gateway can be challenging and take a long time since you will have to prove that your OTC platform is transparent and secure. LegalBison assists newcomer OTC brokers with establishing unwavering compliance from multiple legal standpoints.
Best jurisdictions for an OTC exchange
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Fastest licensing process
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Lowest price in 2024
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Available ready-made companies
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
Crypto License in Argentina
on request-
Simple framework
-
Low price
-
Fast VASP set-up
Crypto License in Anjouan
on request-
Very fast licensing process
-
Low requirements
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Recognized by banking institutions
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Fastest crypto license in Asia
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Free Zone setup with no taxes
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Very simple requirements
Examples of LegalBison's assistance with OTC exchanges
LegalBison deals with OTC platform trading by helping clients ensure regulatory compliance and cybersecurity of their OTC projects. Here are the main services we can provide for your over the counter crypto exchange.
Assessing the need for a license
The preparation of any crypto OTC platform for launch starts with assessing the need for a license. Depending on the nature of the project, the services included, and the general aspirations of the owner of a crypto OTC desk, our specialists define whether a company requires a license or not.
Despite the fact that a license is not necessary, it is advisable in many cases to improve the reputation, security, and general trustability of an OTC cryptocurrency broker. If the license is required, our lawyers undertake the procedure and prepare all the mandatory documents as requested by the regulator.
Forming and registering an OTC exchange
The need for a license is defined, and a team of lawyers starts preparing your OTC trading platform for launch. The procedure usually comprises the following steps:
- Choosing a fitting regulator;
- Shaping up a ready-made company or building one from scratch;
- Preparing the whole package of required documentation;
- Aligning the project with AML-CFT and other compliance requirements;
- Drafting a detailed business plan;
- Arranging the IT infrastructure of the platform;
- Drafting and submitting a licensing application on the client’s behalf.
LegalBison always oversees the process from the very first step until the company is ready to step into the big market.
Ensuring AML-CFT compliance
All OTC crypto brokers, whether licensed or not, must comply with the local AML-CFT policies of the country of their registration. The compliance procedure includes drafting all the necessary compliance documentation, assigning a responsible AML officer, and educating the key shareholders on the AML-CFT guidelines. The best OTC crypto exchange always adheres to the AML-CFT stipulations.
This is an intricate legal process that requires intervention from a professional lawyer. At LegalBison, we fully undertake the implementation of all compliance procedures, making sure that your OTC exchange is good to go before its official launch.
Providing access to banking gateways
A stable banking gateway is crucial in many regards. Often, it is needed to streamline on-ramping and off-ramping solutions, allowing clients to trade crypto for fiat and back. At the same time, your company will always need a corporate bank account for its in-house expenses, which might sound like an easy job to get but whenever crypto is involved, most banks get cautious.
Establishing connections between crypto companies and banks is one of the pillars of LegalBison’s experience. We commit to finding an appropriate banking solution within the timeframe requested by our clients.
Ensuring ongoing compliance
Regular regulatory reports, technical audits, compliance documentation, and other administrative aspects of running a crypto company can pose a real-time challenge. Ongoing legal support and advice upon request come along with every package. LegalBison will assist your OTC exchange company even after its launch and tackle any arising legal issues.
Complete legal package for OTC exchanges
Build your own OTC trading platform from scratch with the assistance of LegalBison. Book a free consultation today.
FAQ about our legal assistance for the set up of OTC exchange platforms
An OTC (over-the-counter) crypto exchange is a trading platform on which individuals can trade cryptocurrencies privately and on previously negotiated terms. Such a form of trading is flexible and independent from traditional exchanges, not influencing market prices.
Yes, definitely. You can take the first step today by contacting LegalBison for a free primary consultation: our expert lawyers will study the project at hand and navigate you through the needed course of action.
It depends. Based on your project structure, business plan, and goals, the price of launching an OTC exchange can fluctuate slightly. If you want to know for sure, contact us today and have a team of lawyers assess your company plan.
Yes, of course, there are multiple EU and EEA jurisdictions issuing licenses and registrations to OTC trading platforms. In order to define which one fits your project, budget, and timeframe best, get in touch with LegalBison for a consultation.
With enough technical expertise and diligence, yes. Trading APIs are among the innovative features that can elevate your OTC exchange and make it more visible and competitive on the market. The implementation process requires the assistance of a tech specialist, though, and LegalBison will gladly assign one for you.
Get in touch with our legal and compliance experts
Receive a free consultation on your crypto OTC platform project. Our expert will guide you on the legal implications of setting up such a crypto company and help you draw a roadmap.
Legal experts in designing solutions for crypto licensing worldwide.
Blockchain enthusiast and expert on cryptocurrency and FinTech related laws.
