From financemagnates by Ivan Herasymenko

As crypto banking gains momentum, prospective entrants must prepare for the realization that licensing in this sector is not as straightforward as in traditional banking. How can one navigate these pitfalls in crypto licensing?

Since even traditional banking institutions like Deutsche Bank and Bank of America’s Merrill are stepping up their efforts to offer crypto services, the question of how to obtain a crypto license becomes more important. This is especially true in the UAE, where crypto adoption outpaces regional trends, with 72% of local investors flocking to Bitcoin.

In the traditional banking realm, an IT firm seeking to offer customer banking services can forge a white-label agreement with an existing bank, operating under the bank's license, albeit with some limitations. However, for banks intent on providing crypto services, such intermediary arrangements are non-starters.

First MVP, Then License, or Vice Versa?

Some enterprises prefer to launch minimum viable products (MVPs) to test their crypto service capabilities before rolling out the final product in an effort to mitigate risks. However, is this approach viable within the UAE context?

Regrettably, no. Essentially, any institution engaging with crypto assets must obtain a crypto license. Regardless of the regulatory framework or jurisdiction, be it within a free zone or elsewhere, a crypto license is imperative.

Even if a company delegates certain functions to subcontractors, such as custody or exchange services, it remains engaged in crypto operations, mandating compliance with licensing requirements. Otherwise, it may face severe consequences, including hefty fines and even potential imprisonment.

Thus, the sequence dictates: first, secure the crypto license, then proceed with establishing the bank.

Timing and Budget

The licensing process can usually take 4 to 12 months and can be costly. For example, on the UAE mainland, the registration fee for crypto custody or exchange activities is around $30,000, with an annual fee of around $60,000. If the bank is willing to process money transfers, then the registration fee stands at around $10,000, with an annual fee of roughly $25,000.

The licensing process is segmented into three levels: initial permission for crypto activities, operational licensing, and obtaining a full-market product license. Only the latest one allows companies to work with individuals. Given that newly established banks often target individual clients, securing all three milestones is typically imperative.