In this article we will talk about how Crypto VASP entity can open a bank account for own operational purposes and also client funds account.
Crypto license in Europe or otherwise know as VASP license (Virtual Asset Services Provider) has become a very popular options for companies looking to provide crypto related services to end clients.
VASP companies have permission to provide exchange services for various virtual assets, such as utility tokens and coins. However, they are not permitted to trade security tokens, as this requires an additional license as an investment firm. They can facilitate the conversion of cryptocurrency to traditional fiat currency and vice versa. Often, VASP license is combined together with EMI license to have a broader addressable market by unifying both fiat and crypto offerings.
Most popular countries (as of end of 2023) for VASP licensing are:
1) Lithuania with 473 license holders
2) Estonia with 86 license holders
3) France with 73 license holders
4) Spain with 57 license holders
5) United Kingdom with 41 license holders
Opening Operational Bank Account For Crypto VASP Entity
An operational bank account owned by a VASP entity, often referred to as a "corporate bank account," serves as a crucial financial tool for various purposes. In general, financial licensed institutions, such as banks, Fintechs, Crypto VASPs, maintain these accounts for several reasons: managing liquidity, covering operational expenses, meeting regulatory requirements, holding mandatory reserves as per regulations, securities settlements and clearing, risk management, capital adequacy, financial reporting purposes, etc.
Essentially, operational bank accounts owned by financial institutions and Crypto VASPs are essential tools for managing their day-to-day operations.
Opening operational bank account or corporate bank account for any financial institution or Crypto VASP entity is as straight forward process as opening regular corporate bank account. We have covered this extensively in this article. If you would like to get an up to date list of VASP friendly banks, do not hesitate to contact us.
Opening Client Funds Account For Crypto VASP Entity
A client funds account, also known as a segregated client account, is a specialised type of bank account owned by financial institutions for the purpose of holding and managing funds that belong to their clients. These accounts are typically used by financial institutions such as brokerage firms, investment companies, Fintechs and also Crypto VASPs. There are several reasons why a crypto VASP needs client funds account:
For clients deposits and withdrawals (C2B and B2C flows): client funds accounts are essential for managing client deposits and withdrawals in both customer-to-business (C2B) and business-to-customer (B2C) financial flows. Segregated client fund accounts are obviously segregated from VASP own operational funds account, in order to protect client funds and mitigate risk. Also it is easier to track and account for client fund movements. Moreover, once the interest rates started going up, in some cases, client funds accounts may earn interest on client deposits. This interest can be accrued and paid out to clients, providing them with a return on their deposited funds.
Additionally, regulators often require financial institutions to maintain detailed records of client deposits and withdrawals. Client funds accounts help in generating the necessary reports and audit trails to demonstrate compliance with these requirements.
From the clients perspective, knowing that their deposits are held in a segregated client funds account can instill confidence. They have assurance that their money is being handled responsibly and securely.
Client Money Protection: client funds accounts provide a layer of protection for client assets. In the event of financial institution insolvency or bankruptcy, client funds are typically shielded from the institution's creditors, ensuring that clients can recover their funds.
Settlement and Transaction Processing: VASPs are the transaction based businesses and client funds accounts are essential for the settlement and processing of these transactions. They serve as a temporary holding place for funds until the transaction is completed.
Moving forward, the process of opening a client funds account can vary. However, here are the general steps typically involved in opening a client funds account:
Choosing the bank: he first step is to select a reputable banking provider that offers the type of client funds account you need. We have covered this topic extensively in this article.
Submit the application: selected banking provider will ask you to prepare application forms for opening a client funds account. You will need to fill out these forms with accurate information: company information form, Wolfsbergs Questionnaire, AML/KYC procedures forms, country risk matrix, volume forecasts, and similar.
Provide documentation: financial institutions typically require certain documentation to verify they UBOs and the entity itself . These documents may include:
For individuals: a government-issued photo ID (e.g., driver's license, passport), proof of address (e.g., utility bill), and possibly a social security number or tax identification number.
For legal entities: business registration documents, tax identification numbers, articles of incorporation, and ownership information.
Agree to Terms and Conditions: review and agree to the terms and conditions, including any specific agreements related to the client funds account, such as minimum commitment, fee schedule, annexes. Pay attention to any extra fees, withdrawal policies, and any restrictions that may apply. In addition, we recommend to double check for policies allowing the banking institution to halt any payments and request additional information, especially related to client transactions.
Receive account details and integrate via API: once your client funds account is approved, you will receive account details, which typically include an account number, routing information (for wire transfers), and any login credentials for online account access, if applicable. Do not forget to automate the banking processes using API integration by requesting API documentation and Sandbox for testing, prior the account approval, so there is plenty of time to prepare/test.
Start using the account: with your client funds account now open and funded, you can begin using it for its intended purpose, such as holding client funds, processing transactions, or managing deposits and withdrawals.
Remember that the specific requirements and processes can vary between financial institutions and regions. If you would like get our opinion on your situation or receive an up to date list of banks that can open one or another type of bank account for Crypto related business or entity with a VASP license, reach out to us by submitting contact form and we will get back to you with some useful tips!
In conclusion, opening operational and client funds accounts for Crypto VASP entities, is pivotal for effective financial management and regulatory compliance in the cryptocurrency industry. Operational bank accounts serve a range of functions, while client funds accounts protect assets and enhance transaction efficiency. Navigating the account opening process with due diligence and compliance is essential for ensuring the success and security of crypto-related activities.