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Exchange between virtual assets and fiat currencies

First service in the list of VASP services (“Limb (i)”). It refers to any service provided by a person in which a Virtual asset is given in exchange for fiat currency (VA-to-Euros), or in which fiat currency is given in exchange for a Virtual asset (Euros-to-VA). If, in using the services, parties can use fiat currency to obtain Virtual assets or can use Virtual assets to obtain fiat currency, the provider of this service is a Virtual asset service provider (VASP) when acting as a business. However, in those cases where parties use a certain kind of Virtual assets as a means of exchange for another Virtual asset, the provider of this service may rather qualify for the second type of listed VASP services (“Limb (ii)”) (FATF Virtual asset Guidance, §63).

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Limb (i) includes the above activities regardless of the role played by the service provider vis-à-vis its users – e.g. as a principal, as a central counterparty for clearing or settling transactions, as an executing facility, or as another intermediary facilitating the transaction. Indeed, a VASP does not have to provide every element of the exchange in order to qualify as a VASP, as long as it conducts the exchange activity as a business on behalf of another natural or legal person (customer) (FATF Virtual asset Guidance, §63).

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Furthermore, Limb (i) exchange services may also be provided through technology that is commonly referred to as decentralized exchange platform/application. These platforms/applications run usually on a decentralized ledger technology (“DLT”) – e.g., a blockchain or similar technology – but where a central party has often some degree of involvement or control: to create and launch a Virtual asset, develop the functions of the decentralized exchange platform/application, develop the user interfaces, or collect fees. A decentralized exchange platform/application is not itself a VASP, as VASPs provisions only apply to ‘persons’ and not to the underlying software or technology. However, the persons who maintain, control or wield some level of influence over the arrangements taking place on that platform (i.e. creators, owners and operators of that platform/application) may fall under the VASP definition. This may be the case, even if the arrangements seem decentralized or if processes of the service are automated (FATF Virtual asset Guidance, §66 and 67).

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Examples of Limb (i) VASPs:

  • Providers of Virtual assets escrow services if Virtual assets buyers use those services to send, receive or transfer fiat currency in exchange for Virtual assets; and if the entity providing those services has custody over the funds. Such provider may qualify as a VASP even if the service involves smart contract technology (FATF Virtual asset Guidance, §70);

  • Providers of brokerage services if the services facilitate the issuance and trading of Virtual assets on behalf of a natural or legal person’s user (FATF Virtual asset Guidance, §70);

  • Providers of order-book exchange services, which actively bring together orders for buyers and sellers, typically by enabling users to find counterparties, discover prices, and trade, potentially through the use of a matching engine that matches the buy and sell orders from users.  However, a platform which only allows buyers and sellers of Virtual assets to advertise their trading interest, buyers and sellers find each other, and that does not undertake any of the services in the definition of a VASP, would not be a VASP (FATF Virtual asset Guidance, §70);

  • Providers of advanced trading services, which may allow users to access more sophisticated trading techniques, such as trading on margin or algorithm-based trading (FATF Virtual asset Guidance, §70);

  • Providers of Virtual asset kiosks - often called “ATMs”, “bitcoin ATMs” or “vending machines” - that provide or actively facilitate covered Virtual asset activities via physical electronic terminals (the kiosks) that enable the owner/operator to facilitate the exchange of Virtual assets for fiat currency and/or the exchange of fiat currency for Virtual assets (FATF Virtual asset Guidance, §71).

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