CMS Expert Guide to Crypto Regulation in Czech Republic

Disclaimer: This chapter was last updated on 29 July 2024 and does not reflect any subsequent developments. The information provided is intended for general informational purposes and should not be construed as legal advice.

1. How is crypto regulated?

AML RegulationAny other regulation

 

The Fifth Money Laundering Directive (5MLD) was transposed into Czech Law by way of an amendment to the Czech AML Act (Act No. 253/2008 Coll., as amended) and covers persons providing services related to virtual assets.

 

At present no financial services regulation has been made in respect of crypto-assets.

 

Virtual assets service providers are currently regulated through the Czech Trade License Act, under which such providers need to obtain a trade license to provide these services in the territory of the Czech Republic. The current practice of issuing the trade licenses is proposed to be terminated as of the end of 2024 to the extent the virtual asset activities are taken over by MiCAR.

 

There are also a number of initiatives relating to crypto in the adopting process that relate to e.g. proper local implementation of MiCAR and local supervision of the regulation (Act on Digital Finance), facilitating virtual asset service providers to open a bank account, or tax information exchange rules. 

2.What are the steps taken by the regulator to adopt MiCAR? 

The regulator launched a survey among the market players on their interest in obtaining a MiCA licence to better assess the needs for the supervisory organisation and coordination once MiCA becomes effective. No further official steps have been taken, but we recommend watching the situation closely as the situation may evolve rapidly. If you wish to obtain the most recent information on the current situation, please contact your legal experts on Markets in Crypto-Assets (MiCA) regulation.

3. Are the following activities regulated or unregulated in your jurisdiction? ― Direct sales of tokens by issuers Exchange (buy/sell) ― Custody (hold) ― Borrowing/lending ― Yield/staking services — Staking on proof of stake consensus mechanisms(please indicate if NFTs are treated differently from fungible cryptoassets for each activity)

AML RegulationAny other regulation

 

Yes, currently the only financial services regulation in respect of cryptoassets is under the Czech AML Act, i.e. in connection with anti-money laundering (AML) and counter-terrorist financing (CTF).

 

A provider of any services related to virtual assets in the Czech Republic is considered an AML obliged entity and therefore regulated as such. All cryptoasset related service providers need to follow the rules on identification and due diligence of their clients, establish internal policies, report suspicious activities and other AML/CTF requirements.

 

We are not aware of any virtual assets service providers in the Czech Republic that currently hold a financial license (i.e. a license other than the general trade license).

 

According to the Czech National Bank (CNB) guidelines, the purchase, sale, or exchange of exchange tokens, such as cryptocurrencies, do not currently require any license or registration from the CNB. This is because exchange tokens are not considered money in the economic or legal sense, and these do not represent non-cash money nor electronic money.

 

The same should also apply to custody of cryptocurrencies, provided that no portfolio management services are provided.

 

No CNB license is required for borrowing/lending services, although it is currently unclear whether lending services provided to consumers would not require a specific consumer credit license.

 

Providing services related to virtual assets in the Czech Republic on a continuous basis for profit would in any case require a general trade license issued by a Czech Trade Authority.

 

Mining, staking or validating transactions do not require a financial service license, but may require a trade license for software services if carried out as a business activity.

 

NFTs are currently not treated differently from fungible crypto-assets, and it is expected that services related to NFTs will remain subject to the Trade License Act once MiCA becomes effective.

 

Certain other services, like trading with exchange tokens, derivatives or management of assets containing virtual assets would require a MiFID 2 or AIFM license.

 

The situation is currently less clear with respect to stablecoins, as these may be considered as e-money regulated under the EU Directive EMD2 as implemented into Czech law. The Czech National Bank has not issued guidance or other regulatory standards assessing the nature of stablecoins linked to a Fiat currency, such as USDC or USDT, but admitted (without further explanation) that certain stablecoins may meet the criteria for e-money (in which case a license of a payment institution or a e-money institution may be required for payment related services).

 

We are not aware of any virtual assets service providers in the Czech Republic that currently hold a financial license (i.e. a license other than the general trade license).

4. Can offshore business provide services to local customers on either active solicitation or reverse solicitation basis?

AML RegulationAny other regulation

 

N/A

 

Providing services to local customer on the active solicitation basis is interpreted by the local regulator as providing services in the territory of the Czech Republic. This activity would require local license, such as a trade license.

 

Unlike active solicitation, services provided to local customers on the basis of reverse solicitation are not considered as provided in the territory of the Czech Republic and therefore no local authorisation is currently required. 

5. How long would establishing a cryptoasset business/obtaining a license in your jurisdiction take?

AML RegulationAny other regulation

 

No need to establish a license under AML regulations. A provider of virtual assets related services needs to follow the local AML rules with respect to services carried out in the Czech Republic. Such provider will be considered an obliged entity under local AML regulations requiring, among others, to do the identification and due diligence of its customers, check the transactions, report the suspicious transactions to the local AML Authority and implement relevant internal AML policies. 

 

Obtaining a simple trade license is a relatively easy and straightforward process. Once the standard corporate documents are gathered, it may be obtained within five to ten business days.

 

Obtaining a consumer credit license, payment institution/EMI license or another financial license (under MiFID II or AIFM) would take approx. 6 to 18 months. It is expected that similar time will be required for the MiCA license. 

6. What would be the approximate overall cost of obtaining a licence?

AML RegulationAny other regulation

 

N/A

 

Obtaining the trade license usually costs between EUR 2,000-3,000. The highest costs relate to obtaining and translating the corporate documents, if needed. The above estimate does not include the cost of establishment of a branch or a subsidiary that will likely be required. Establishment of a branch or subsidiary would usually cost up to EUR 10,000. The cost of obtaining a financial license (consumer credit license, payment institution/EMI license or other financial license (under MiFID II or AIFM)) if needed, will be considerably higher.

7. What is the probability (%) of success in obtaining a licence?

AML RegulationAny other regulation

 

N/A

 

Obtaining a trade license is a straightforward exercise, however the Trade Authority will require that the service provider has a branch or subsidiary established in the Czech Republic, unless the trade license is sought by an EU entity.

 

Obtaining a financial license is relatively difficult and complicated, however if all conditions for issuing the license are met, the CNB must issue the license.

8. What other limitations are there in your jurisdiction when looking to set up a cryptoasset business? E.g., Compliance requirements and physical presence

AML RegulationAny other regulation

 

Some requirements are set out below, however this is not an exhaustive list. It is necessary to:

 

  • take appropriate steps to identify and assess the risks of money laundering and terrorist financing which the business is subject to;
  • assess the ML/TF risks related to any new technologies prior to launch and take appropriate measures to manage and mitigate those risks;
  • undertake customer identification and due diligence (CDD) when entering into a business relationship or occasional transactions;
  • apply more intrusive due diligence, known as enhanced due diligence (EDD), when dealing with customers who may present a higher; and
  • create, update and implement internal AML/TF policies;
  • ML/TF risk. This includes customers who meet the definition of a politically exposed person (PEP).

 

There are currently no specific Czech regulations in relation to virtual assets and the CNB mostly follows the views of the EBA and other EU authorities in respect of crypto-assets regulations.

 

As a general rule in the Czech Republic, a business activity provided in the territory of the Czech Republic on continuous basis requires a local license (at least a trade license) and an establishment (by way of a branch or subsidiary), unless the license is sought by an EU entity.

 

There are no clear rules or guidelines to define activities as continuous in the Czech Republic. However, a business activity provided for six months or more in the Czech Republic is generally deemed a continuous activity.

Portrait ofLukas Valusek
Lukas Valusek
Counsel
Prague