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FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Introduction
Attitude of the country towards financial services using crypto currencies
Blockchain technology and digital assets will be transformational over the coming years, not only for finance but for wider society. In Portugal, the market is constantly developing and growing. Contrary to what has happened in other sectors, the pandemic has not slowed it down but created more opportunities with the increase in digital transactions.
One of the most promising markets for 2022 is the market for NFTs. New markets for NFTs are expected to emerge in collectables and digital artworks, with new and innovative specific features.
The major crypto exchanges are operating in Portugal, either under a cross-border activity or with physical presence. Moreover, an increasing number of merchants are accepting payments with crypto assets.
Legal affairs
Obligations and requirements to provide financial services using crypto currencies described above
FinTechs rendering services in crypto assets will be required in most cases to apply for the VASP registration. The term arises under the legislation on the prevention of money laundering and terrorist financing (AML), which is designed to confer greater certainty about the identity, origin, and destination of funds where deregulation is one (1) of the features of the sector.
Under Law 83/2017, resulting from its amendment by Law 58/2020 that transposed in Portugal the 5th AML Directive, entities that perform activities on virtual assets on behalf of clients, broadly defined as exchange, transfer, custody and management activities on virtual assets, must now make a prior registration with the Portuguese banking regulator (Banco de Portugal). It is expected that 2022 will be a year of exponential increase in applications for the registration and regulation of these entities.
Virtual assets are defined as a digital representation of value that is not necessarily connected to a currency with legal course and does not qualify as a fiduciary currency, security, or other financial instrument, but that is accepted by natural or legal persons as an exchange mean or investment and that may be transferred, stored, and traded electronically, thus including in the definition most cryptocurrencies. Following the FATF guidelines, the Bank of Portugal tends not to consider NFTs as virtual assets due to their non-fungible nature, but a case-by-case analysis is required.
Besides this, registration requirements applicable to services in virtual assets, the Portuguese legislator has not issued any specific legislation on cryptocurrencies.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Activities in crypto assets qualifying as security tokens or e-money tokens (for the qualification, see our answer below on ICOs) will not require the VASP registration, but the services providers will qualify as financial intermediaries, thus are required to get a financial intermediation license.
Economic conditions
Market size for financial services using crypto currencies and biggest companies in this business area
We were not able to find relevant data, however these are growing in the market practice.