New obligation to hold a cryptocurrency licence

Cryptocurrencies have been arousing huge interest among enthusiasts of new technologies and finance and among laypeople for a few years now. There are at least several reasons why the cryptocurrency business is blossoming.

In the Polish legal system, cryptocurrencies are referred to as virtual currencies – as defined in the Act on Anti-money Laundering and Countering the Financing of Terrorism (AML/CFT), of 2018 (the “AML Act”). Pursuant to the AML Act, a virtual currency is a digital representation of value that is not:

• a legal tender issued by the National Bank of Poland, a foreign central bank or other public authority;
• an international clearing unit established by an international organisation and accepted by individual countries belonging to or
• cooperating with such an organisation;
• electronic money within the meaning of the Act on Payment Services of 19 August 2011;
• a financial instrument within the meaning of the Act on Trading in Financial Instruments of 29 July 2005;
• a bill of exchange, promissory note or cheque;

A virtual currency is convertible in business dealings for legal tender and accepted as a medium of exchange; it may be electronically stored or transferred or may be the object of electronic trade.

Are cryptocurrencies recognised as a legal tender?

No, cryptocurrencies are not recognised as a legal tender, but are means of exchange, and can be converted into fiat money.

What is driving the cryptocurrency phenomenon?

Primarily, cryptocurrencies have become an alternative to fiduciary money forming the basis of the monetary system almost all over the world. Fiat money is issued and controlled by national central banks, meaning that its value largely depends on the policy of central authorities. Fiat money exists in electronic and physical form (as banknotes and coins). Unlike national currencies, cryptocurrencies, are, by definition, not reliant on any central bank and only have an electronic form operating on blockchain technology. Most countries do not allow payments by cryptocurrencies in their legal systems.

The other issue that contributes to the growing popularity of cryptocurrencies is their anonymity, which simply means that there is no personal data of the users disclosed in the available information on the transaction (unlike, for example, in the case of a traditional bank transfer). A user’s cryptocurrency “wallet”, in which cryptocurrencies are stored, is represented as a unique series of random numbers and letters.

This issue was recently addressed by the European Commission, which, at the end of March 2022,   voted on a proposal that would put an end to the anonymity of cryptocurrency transactions by introducing a requirement to collect information on the owners of cryptocurrency wallets. Under the new updates to the EU AML rules, providers of cryptocurrency services, such as cryptocurrency exchanges and bureaux de change, would be required to conduct due diligence on their customers. The details of this requirement are not known yet, but there are also plans to introduce an obligation to notify any transfers worth EUR 1,000 or more to the authorities. The proposed measures are the next steps taken to undermine the independence and freedom of cryptocurrencies.

On 31 October 2021, a very important amendment to Poland’s AML Act entered into force.

In accordance with the amendment, any activity involving:

1. an exchange of virtual currencies for fiat money;
2. exchange services between virtual currencies;
3. intermediation (brokerage) for the exchange of virtual currencies; and
4. the provision and maintenance of accounts for virtual currencies (wallets), being a collection of identification data allowing eligible entities to use virtual currencies, including to make exchange transactions;

is considered a regulated business within the meaning of the Entrepreneurs Law of 6 March 2018 and may be conducted after registration in the Register of Companies Engaged in Cryptocurrency Activities, which is maintained by the Minister of Finance. A failure to register is punishable by a fine of up to PLN 100,000. This means it is necessary to seek a cryptocurrency licence. The legislator has also introduced a requirement to have a set of special qualifications for anyone wishing to engage in virtual currency services.

Until recently, crypto has had a reputation for being independent from central banks, government policies or legislation. Over the years, and being aware of inherent risks associated with cryptocurrency use, the need has arisen to gradually regulate this business. Therefore, it seems evident that the freedom of crypto will be restricted by governments in many countries.