In May 2023, the Council of the European Union approved the draft regulation governing the crypto-asset market (MiCA), thereby simplifying the authorisation process for providers of crypto-asset services.
Together with AXIOMA, the developer of a white-label solution for processing crypto payments WhiteFlo, we explain what is required to launch a crypto-processing service in the EU.
The current state of crypto regulation in Europe
MiCA will come into force in 2024 and will enable crypto firms to operate across the 27 EU member states with a single licence. By that time, regulators will be able to develop detailed guidance on the application of the new regime.
“Europe is the first major region in the world to achieve regulatory clarity on the crypto industry. Users will be able to pay taxes in cryptocurrencies and include them in their statutory capital, and banks will interact with digital-asset payments just as they do with fiat,” — commented the AXIOMA team.
Thus, in July the European Securities and Markets Authority (European Securities and Markets Authority, ESMA) published a 160-page document with explanations of MiCA.
According to it, license applicants in the EU must prove that client funds and company funds are segregated, and provide a detailed description of the system’s security measures. In addition, crypto businesses must identify and manage potential conflicts of interest.
ESMA said it would conduct another round of consultations with business on client funds management in October, and early next year explain in which cases a crypto-asset is considered a security and how foreign companies should service citizens of EU member states.
Why crypto firms are expanding in Europe
The advantages of regulatory clarity in the EU became especially evident against the backdrop of regulatory uncertainty in the United States.
Dan O’Prey, Bakkt’s Chief Product Officer for the institutional platform, gave a positive assessment of MiCA and allowed expansion of business in Europe:
“Any form of clarity is generally a good thing. At least people know where they stand, how they can operate, and that they are complying with regulatory requirements.”
The USDC issuer — Circle — filed applications for registration in France, and the Société Générale conglomerate has already obtained a licence for a digital-asset service provider through its subsidiary Forge.
However, licences alone are not enough to run a business: you must build an infrastructure to securely process crypto payments. This can be done in three ways: use a third-party provider (Software as a Service, SaaS), develop your own crypto-processing service, or acquire a ready-made solution (white-label).
“Large companies looking to integrate crypto-processing into their services and stop paying third-party providers opt for ready-made solutions. Fiat payments services that have decided to enter the crypto market are also interested: they often have their own interface for interacting with their client base,” — note AXIOMA representatives.
Launching a crypto-processing service based on a ready-made solution can be divided into two parts — operational and technical. Below we examine them in more detail.
Licence, KYC and liquidity
To open a crypto-processing service you must meet a number of conditions:
- obtain a licence from the local regulator. Registration in any EU country is enough to operate across the union. The main financial condition for obtaining the licence is a registered capital of €120 000;
- open an account with a financial institution licensed as EMI to work with fiat. Banks will begin to work with crypto companies in 2024 after MiCA takes effect;
- connect the account to a payment system. Integration with Visa/Mastercard will be required if you plan to sell crypto for fiat;
- hire an AML officer. They will be responsible for organizing KYC and KYB. Regulators require them to comply with the standards of FATF.
- ensure liquidity. You can use internal liquidity or connect to a crypto exchange for asset conversions. In the latter case you will need access to the service’s business account on the exchange. You should also consider the exchange’s functional capabilities.
Alongside meeting these conditions, the company should select and configure a technical solution for crypto-processing.
Infrastructure, code and third-party integrations
We consider the option of buying a ready-made solution: developing proprietary software could take more than a year, while a SaaS model would place the company in full dependence on the provider.
Purchasing a WhiteFlo-like white-label product costs more upfront, but it allows the client to enter the market faster. In addition, they gain full access to the product’s source code and can tailor it to their business model either themselves or with AXIOMA.
The WhiteFlo ecosystem includes a B2B wallet, exchange, merchant accounts, and modules for processing crypto payments and buying digital assets with fiat. The developers deliver the solution on a on-premises model under an perpetual license with the possibility to customize all services.
Blockchain integration runs via explorer APIs and Infura. The platform currently supports Bitcoin, Ethereum, Tron, stablecoins USDC (ERC20) and USDT (ERC20 and TRC20).
“We do not charge any fees beyond a one-off setup and installation charge. However, clients should factor in costs for cloud infrastructure like Amazon Web Services ($200-1000 depending on load), a KYC provider, card processing, an email provider and domain purchase,” — explains the AXIOMA team.
To set up the solution you must:
- rent servers on Amazon Web Services;
- purchase a domain and set up an email provider;
- connect a KYC provider account;
- integrate a cryptocurrency exchange account to conduct conversions;
- connect a Mastercard/Visa account to process card payments. WhiteFlo supports operations in USD, EUR and other currencies.
The installation and customization process takes two to six weeks. It includes training for the client’s team and a basic UI setup, including changes to the logo and brand colours.
The client receives the platform code and documentation; under a separate agreement — ongoing support and updates.
Conclusions
According to AXIOMA, after MiCA comes into force in the European Union demand for infrastructural businesses that process crypto transactions will rise significantly.
Launching such a service independently is a complex process, comprising several interrelated operational and technical steps. The latter can be simplified with white-label solutions like WhiteFlo.
In this scenario a company can rapidly launch the service “out of the box” and tailor it to its needs. It also obtains full access to the product’s source code and the right to modify it.