Cryptocurrencies, also known as crypto assets, have strongly impacted the global economy recently, particularly in Spain. Cryptocurrencies are digital assets or currencies that use cryptographic coding to identify individually each unit created, ensure ownership and guarantee the integrity of the transactions carried out through them. These assets do not have physical support, and there is no tangible proof of their existence; they are recorded in digital and decentralised ledgers through the technology or network called blockchain. The access and disposal of cryptocurrencies are, therefore, only possible through the corresponding computer keys of the holder.
Companies working with cryptocurrencies in Spain are currently not subject to a strongly developed regulatory framework, so the activity benefits from a certain degree of freedom. There is a legal vacuum insofar as cryptocurrencies do not have the legal status of money, financial instrument or value. For this reason, companies that handle cryptocurrencies in Spain are not subject to the general authorisation, supervision or control regime that applies to companies in the financial sector primarily enforced by the Spanish Central Bank and the National Securities Market Commission (CNMV).
That said, the Spanish authorities have recently issued some regulations for this activity to ensure a minimum level of control, as there are no basic regulations in this area.
Regulation of Cryptocurrencies in Spain
The most important and significant regulation for cryptocurrency start-ups in Spain is Law 10/2010 of 28 April on the Prevention of Money Laundering and Terrorist Financing. Its second additional provision stipulates that providers of services for the exchange of virtual currency into fiat currency and/or the custody of electronic wallets must register with the Spanish Central Bank. To this end, they must have adequate measures and procedures in place to prevent money laundering and terrorist financing and comply with the business and professional integrity requirements applicable to credit institutions (essentially, the absence of criminal records, sanctions or investigations against the heads of such entities).
Thus, crypto start-ups must establish documented mechanisms and procedures to identify their customers. They will, therefore, require identification documents: identity card, passport or deeds and identification of the beneficial owners depending on whether they are individuals or legal entities. Likewise, they must require proof of the origin of the funds they will be working with, whether to purchase or exchange cryptocurrencies.
The regulation aims to control the origin of the money used to trade cryptocurrencies in Spain and to prevent it from being used to launder money from illegal activities.
The failure to comply with this registration requirement may constitute a severe infraction sanctioned by the Spanish Central Bank.
Secondly, we highlight the recent circular of the National Securities Market Commission (CNMV) 1/2022 of 10 January According to it, and to protect potential investors, companies that carry out advertising activities offering cryptocurrencies as an investment object in Spain must comply with several requirements regarding advertising. Prior notification to the CNMV is also necessary for mass advertising campaigns.
Income Tax Law
Finally, Law 11/2021 of 9 July on measures to prevent and combat tax fraud amended the thirteenth additional provision of the Income Tax Law. This amendment introduces two new reporting obligations for companies working with cryptocurrencies in Spain and relates to the ownership and operation of virtual currencies. To strengthen tax control over the profits made with cryptocurrencies, these companies must report annually to the tax administration:
- The various cryptocurrency assets and the identity of the holders of each asset
- The addresses, tax identification number, price and date of cryptocurrency transactions.
Despite the lack of extensive legislation in Spain on cryptocurrency, companies in the crypto sector must comply with the applicable law to avoid sanctions. This is without losing sight of the fact that new regulations are on the way to give the activity more legal certainty. The European Union is working on a future European law that will be directly applicable in all member states, the Regulation on Markets in Crypto Assets, better known as the “MiCA Regulation”, which is currently in progress and expected to come into force in 2024.
If you have additional questions regarding the regulation of cryptocurrencies in Spain,
This article is not considered legal advice