The Isle of Man Financial Services Authority (“IOMFSA”) has recently updated its registration policy in relation to businesses operating in the cryptocurrency sector.
The updated registration policy explains that with effect from 5 October 2018, the IOMFSA will refuse to register any Isle of Man-based cryptocurrency businesses under the Designated Businesses (Registration and Oversight) Act 2015 unless two criteria are met:
- the business must have at least 2 Isle of Man resident directors; and
- the business must be managed and controlled in the Island.
The introduction of these criteria is designed to help the IOMFSA exercise oversight over designated businesses whose operations involve cryptocurrency in some way. The IOMFSA’s rationale is that if the business is managed and controlled outside the Isle of Man and/or does not have sufficient local presence, from the IOMFSA’s perspective there is an unacceptably high risk of money laundering or terrorist financing. The updated registration policy states:
“In order for the IOMFSA to be able to successfully undertake its statutory duty of overseeing compliance of designated businesses with the AML/CFT legislation, designated businesses must have sufficient real presence to facilitate oversight”.
Cryptocurrency tokens must have some utility from the outset
In addition to the updated registration requirements, the IOMFSA has clarified that it will refuse to register those businesses which issue digital tokens unless those tokens confer a ‘benefit’ on the purchaser other than the token itself.
The questions as to what constitutes a ‘benefit’ and at what point the benefit is required to be applied to the token are very much subjective tests, and will be applied by the IOMFSA on a case-by-case basis.
If you require any legal or regulatory assistance in respect of cryptocurrencies; designated business applications or financial services licence applications, please contact Hazel Dawson or Adam Killip in DQ’s regulatory team.