How to Get a License to Start a Cryptocurrency Exchange?

As crypto adoption has increased globally, regulators are introducing stricter rules to govern crypto trading platforms. If you plan to build and launch a crypto exchange, getting the right license is a must. It is essential for legal operation, trust-building, and long-term scalability. 

This blog explains how to get a crypto exchange license, the best jurisdictions, timelines, and ongoing compliance requirements.

Why You Need a License to Start a Crypto Exchange?

Legal Compliance

Without a legal operating license, a business may face substantial penalties due to regulatory actions taken against it or even be required to cease operations. Licenses also enable regulatory authorities to monitor and determine compliance with both domestic and global financial legislation (including AML and counter-terrorism legislation) that applies to cryptocurrency exchanges.

Regulatory Approval to Operate

Licensed crypto exchanges gain formal approval from the regulators, which reduces legal uncertainty and protects the businesses from policy changes. 

Trust & Credibility

Additionally, licensing creates a level of comfort for users as it implies the business is more likely to be a secure, transparent, and accountable venue for trading cryptocurrencies. Licensing allows businesses to grow user bases through the increased ability to acquire new users.

Banking & Payment Access

Financial institutions such as banks, payment processors and an increasing number of online and offline exchanges require a valid license to offer services to cryptocurrency traders. Because of this, access to financial infrastructure is severely limited for businesses without a licence.

Investor & Partner Confidence

Institutional traders, investors, and strategic partners are more likely to conduct business with licensed platforms because of the decreased risk of legal and operational issues.

Top Jurisdictions for Crypto Exchange Licensing

United States

At United States, Crypto exchanges must register as Money Services Businesses (MSBs) with FinCEN and comply with federal AML regulations. Most states here also require additional licensing, such as New York’s BitLicense, making the US a highly regulated but trusted market.

European Union

Currently, the European Union is continuing to work on the development, implementation and enforcement of a single regulatory framework for Cryptocurrency businesses in Europe through the Market in Crypto-Assets (MiCA) legislation. Upon obtaining a MiCA Licence, Cryptocurrency exchanges will also be allowed to utilise the European Union's Passport system to conduct their business across Europe.

United Kingdom

The Financial Conduct Authority (FCA) has very strict compliance requirements for Cryptocurrency exchanges operating within the United Kingdom, but obtaining FCA Approval will strengthen the exchange's credibility and access to the European Markets.

Singapore

The Monetary Authority of Singapore (MAS) administers the Payment Services Act's Licensing Framework, which regulates all Payment Services, including Cryptocurrency Exchanges. Singapore's straightforward licensing framework is well-respected and has positioned the country as a leading Cryptocurrency Hub

UAE

The United Arab Emirates (UAE) has established a successful cryptocurrency industry, primarily due to its Crypto-Friendly Locations of Dubai via the VarA and Abu Dhabi via Abu Dhabi Global Market (ADGM). The innovative regulatory environment has fostered a steady increase in international cryptocurrency exchanges choosing to locate in the UAE.

Estonia

To enable cryptocurrency exchanges targeting European markets, the Estonian government offers virtual asset service provider (VASP) licenses to exchange operators. VASPs must adhere to the highest levels of operational compliance in addition to high standards for operating their businesses.

Offshore Jurisdictions

Offshore jurisdictions like Seychelles, Cayman Islands and the British Virgin Islands (BVI) often have more efficient application processes, lower application fees, and much fewer regulatory requirements than domestic applicants; however, these offshore jurisdictions may also present challenges in securing banking services, and/or recognizability by federal regulatory agencies.

Step-by-Step Process to Obtain a Crypto Exchange License

Step 1: Choose the Licensing Jurisdiction

Choosing the right jurisdiction to open your cryptocurrency exchange will involve an assessment of the following aspects:

• Your intended customer base.

• The obligations imposed upon you by financial regulators (e.g., Anti-Money Laundering (AML)).

• The amount of application fees you will incur.

• The level of access you will have to banking services.

Each jurisdiction may impose varying levels of compliance obligations on an exchange operator, i.e., the level of expected compliance will depend on the jurisdiction in which the exchange is licensed to operate.

Step 2: Define the Crypto Exchange Business Model

Next, you should determine the structure of your planned cryptocurrency exchange, e.g., whether it will operate as either a centralized exchange, decentralized exchange (DEX), a peer-to-peer (P2P) exchange, and/or whether the exchange will only facilitate spot trades or include futures and/or custody services for its customers.

Step 3: Register the Legal Entity

In order to legally form a business in your chosen jurisdiction, you must first appoint your directors and shareholders and create a sound governance framework.

Step 4: Establish KYC and AML Compliance Frameworks

You will need to create systems for verifying customer identities, monitoring transactions, assessing the risks associated with each of your customers, and reporting any suspicious transactions, as well as other systems necessary to comply with applicable regulations.

Step 5: Prepare Required Documentation

Establishing a business plan, compliance manual, technical architecture documentation, cyber security policy, and financial projections.

Step 6: Submit the Crypto Exchange License Application

Applying with the necessary documents and government fees to the responsible regulatory agency for your cryptocurrency exchange.

Step 7: Regulatory Review and Due Diligence

Regulatory agencies will conduct operational assessment, financial auditing, and compliance review on applicants before issuing a license to operate a cryptocurrency exchange. Leaving it open.

Step 8: License Approval and Exchange Launch

After receiving a license to operate, a cryptocurrency exchange can legally operate by downloading customer information to create accounts and access banking and payment services.

Cost of Getting a Crypto Exchange License

The costs you will incur to operate a cryptocurrency exchange consist of legal fees, application fees, compliance setup, and minimum capital.

Offshore jurisdictions: $15,000 - $50,000.

EU / Estonia: $50,000 - $150,000.

UK, Singapore, UAE, USA: $100,000 - $300,000+.

How Long Does It Take to Get a Crypto Exchange License?

The licensing time-frame varies depending on your jurisdiction, document readiness, and complexity of the regulations; the longer the complexity, the longer it will take to obtain a license.

• Offshore jurisdictions: 1-3 months.

• Estonia and EU countries: 3-6 months.

• UK, Singapore, UAE: 6-12 months.

• United States (state + federal): 9-18 months.

Delays often occur due to incomplete documentation or weak compliance frameworks.

Ongoing Compliance and License Maintenance Requirements

Some applicants may experience delays due to insufficient documentation or ineffective compliance frameworks. The licensing process is the first step in establishing a licensed cryptocurrency exchange. In addition to obtaining a license, cryptocurrency exchanges must continue to be compliant in terms of:

• Ongoing KYC-AML monitoring and reporting.

• Auditing internal and external compliance regularly.

• Yearly filing of financial reports and regulatory filings.

• Updating and performing penetration tests on Cyber Security.

• Licensing renewal and adapting to changes in the law.

Failure to comply with continuing requirements may result in fines, suspension or removal of a license.

Final Thoughts

Building a licensed cryptocurrency exchange with a reputable crypto exchange development company is essential for creating a trustworthy, scalable, and globally compliant trading platform. Building this type of exchange will take considerable time, upfront costs, and continuous regulatory compliance. However, it also creates banking relationships, fosters investor confidence, and facilitates future growth opportunities.

The selection of the correct jurisdiction and experienced advisors will ensure that establishing a cryptocurrency exchange is a definite possibility.