Summary:

This article will approach the current legal framework for companies which deal with cryptocurrency in Portugal, specifically, those transacting with such virtual currencies. Existing legislation is favorable to the incorporation of these type of companies, subject to the supervision and prior registration with Banco de Portugal.

    I . Introduction

Portugal is now the first European country to regulate cryptocurrencies. As a matter of fact, Law no. 58/2020, of 31 August (that implements Directive (EU) 2018/843 of 30 May 2018, amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and Directive (EU) 2018/1673 of 23 October 2018, on combating money laundering by means of criminal law), introduces amendments to several legal diplomas, including Law no. 83/2017, of 18 August, which extends its application to entities that carry out activities with virtual assets.

First and foremost, it is important to realize the role of “Banco de Portugal” to really understand the legal changes operated. Banco de Portugal is the central bank of the Portuguese Republic. It is a public-law legal person, with administrative and financial autonomy, being part of the Eurosystem, the European System of Central Banks, the Single Supervisory Mechanism, and the Single Resolution Mechanism. The Bank has two core missions: to maintain price stability and to promote the stability of the financial system.

On 23 April 2021, Banco de Portugal published Notice no. 3/2021 (the “Notice”), which regulates (i) applications for registration and (ii) applications for changes to registration of entities that carry on, or intend to carry on, activities with virtual assets.

    II . Scope of the Law

Law no. 58/2020 is intended to regulate activities involving virtual assets, which can be defined as digital representations of value that are not necessarily linked to a legally established currency and that do not have the legal status of fiat currency, but which are accepted by natural or legal persons as a means of exchange or investment and which can be transferred, stored, and traded electronically.

These activities comprise any of the following economic activities, carried out in the name of or on behalf of a client: (i) exchange services between virtual assets and fiat currencies; (ii) exchange services between one or more virtual assets; (iii) services whereby a virtual asset is moved or transferred from one address or wallet to another (transfer of virtual assets); or (iv) custody or safekeeping services and administration of virtual assets or of instruments that enable these assets to be controlled, held, stored or transferred, including private cryptographic keys. 

    III . Registration with Banco de Portugal

In accordance with paragraph j) of Article 89(1) of Law No. 83/2017, Banco de Portugal is responsible for supervising such entities.

Thereby, pursuant to the referred Law No. 83/2017, the exercise of activities regarding virtual assets depends on prior registration with Banco de Portugal, whom on 23 April 2021 published the Notice, regulating the terms for submitting applications for registration and alteration of the registration of entities which carry on, or intend to carry on, activities with virtual assets.

The requests for registration and/or modification of elements subject to registration must be submitted through the electronic form available on the website of Banco de Portugal. The supporting documents must be filed in digital format and uploaded electronically in the places duly identified on the forms or on the Internet site, except in the event of unavailability or technical inoperability of the form of submission, as well as in situations of force majeure.

In these cases, the applicant entity must submit the following by post:

• The form presented in Annex I of the Notice, in which the applicant describes its organizational details,
• Annex IA regarding the relevant elements of the entity’s manual of policies and procedures on prevention of Money Laundering and Financing of Terrorism,
• The declaration in Annex II of the Notice, duly completed by the members of the management and supervisory bodies and any other person occupying senior management positions in the entity, and
• All the additional documents required as evidence of the stated in the said Annexes.

If (i) the application for registration is not accompanied by all the necessary elements and documents, or (ii) it is evident that the fact to be registered is not supported by the documents submitted, or (iii) the application contains inaccuracies or falsities, the registration may be refused.

Therefore, it is essential that the entities applying support their application with sufficient elements that certify the suitability and competence of the people who hold management positions, that allow the complete identification of the respective beneficial owners, and that demonstrate that they have the technical and human resources and internal procedures to mitigate the risks of money laundering.

Moreover, the registration may be refused based on the lack of requisites on which the access to activities with virtual assets depend and on the existence of a risk of serious non-compliance with laws and regulations aimed at preventing money laundering and financing of terrorism.

The decision about the registration should be notified by Banco de Portugal within three to six months from the date of the respective application or submission of the additional information requested, but in practice the process may take up to nine months.

    IV . Supervision of Banco de Portugal

The entities that carry out activities with virtual assets are subject to the supervision of Banco de Portugal, which, since the entry into force of Law no. 53/2020, is the competent authority for the registration and verification of compliance according to Anti-Money laundering and Terrorism financing criteria.

Non-compliance with the rules covered by Law no. 58/2020 constitutes an administrative offence punishable with fines of up to one million euros or twice the economic benefit resulting from the offence committed, whichever is greater.

The competence of Banco de Portugal in relation to these entities is limited to the prevention of Money Laundering and Terrorist Financing, not extending to other areas, prudential, behavioral, or otherwise, which are yet to be regulated.

    V . Concluding Remarks

Law no. 58/2020 enshrines in the Portuguese legal system a first approach to regulating entities that develop activities with virtual assets. These assets are characterized by the trust and ease of their transferability and storage by electronic means, as well as the security they bring through the encryption system.

Banco de Portugal Notice is a further step in the right direction by providing a set of rules that simplify and accelerate the process of implementing the activities with virtual assets. But at the same time, it implies that entities undertake a prior assessment and evaluation within this scope and compare their respective internal governance structures and mechanisms with the new regulatory framework.

It is certain that the recognition and regulation of said activities represent a positive step and a unique opportunity towards the crystallization of the digital ecosystem in Portugal, reinforcing our jurisdiction as a crypto-friendly one.

 

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