Stablecoin issuer / redeemer in Andorra

Stable Digital Assets: These are explicitly addressed in the law. Article 3.m defines a "stable digital asset" as a digital asset that aims to maintain a stable value by referencing the value of another asset or a basket of assets, including fiat currencies, commodities, or other crypto-assets.

AFA Authorization: Any entity intending to issue stable digital assets to the public in Andorra, or provide services related to them (such as exchange or custody), must obtain prior authorization from the AFA.

Full Backing: The law generally requires stable digital assets to be fully backed by the underlying reserve assets they purport to reference. This backing must be sufficient to cover all issued stable digital assets.

Segregation: Reserve assets must be segregated from the issuer's operating funds and managed in a way that minimizes risk of loss.

Prudent Management: Issuers must implement robust governance and risk management frameworks for managing the reserve assets, including policies for their safekeeping, investment (if permitted), and redemption.

Transparency and Audit: Issuers are required to provide regular, transparent reports on the composition and value of their reserve assets, and these reports may be subject to independent audit.

Right to Redeem: Law 8/2023 generally mandates that holders of stable digital assets have a right to redeem their tokens at par value for the underlying reserve assets (or the fiat currency they represent) from the issuer.

Clear Redemption Policy: Issuers must establish clear, transparent, and fair redemption policies and procedures.

Liquidity: Issuers must maintain sufficient liquidity in their reserve assets to meet potential redemption demands promptly.

Capital Requirements: Issuers of stable digital assets may be subject to specific initial capital requirements, depending on the scope and nature of their activities, to ensure financial stability.

Fit and Proper Requirements: The management and shareholders of the issuing entity must meet "fit and proper" criteria.

Implicit Exclusion: Stable digital assets that rely solely on algorithms, without tangible, segregated, and prudently managed reserves, would likely struggle to meet the strict reserve and stability requirements outlined in the law.

AML/KYC (Anti-Money Laundering / Know Your Customer):

Customer Due Diligence (CDD): Implementing appropriate risk-based procedures for identifying and verifying the identity of clients (individuals and legal entities).

Ongoing Monitoring: Continuous monitoring of business relationships and transactions to detect unusual or suspicious activities.

Suspicious Activity Reporting (SAR): Reporting suspicious transactions to the Unitat d'Inteligència Financera d'Andorra (UIFAND).

Record Keeping: Maintaining records of client identification, transactions, and due diligence for a specified period.

Designation of an AML Officer: Appointing a qualified AML officer responsible for overseeing compliance.

Risk Assessment: Conducting a comprehensive risk assessment of their business, clients, products, and geographies.

Minimum initial capital:

Higher amounts may be required depending on the volume and complexity of operations, or if combined with other licensed activities.

In addition to initial capital, VASPs must maintain sufficient regulatory capital to cover operational risks and ensure continuous solvency.

Law 14/2017 of 22 June on the prevention and fight against money laundering and the financing of terrorism: This is Andorra's principal AML/CFT law, establishing the general obligations for all obliged entities. It has been subsequently amended to incorporate international recommendations.

Law 9/2023 of 23 March on digital assets: This specific law regulates virtual assets and their service providers, bringing VASPs under the scope of Law 14/2017 and defining the specific licensing and operational requirements for these entities. This law formally identifies VASPs as obliged entities for AML/CFT purposes.

Identification and Verification:

Beneficial Ownership (BO):

Conduct ongoing due diligence on the business relationship, including scrutinizing transactions undertaken throughout the course of that relationship to ensure that the transactions are consistent with the obliged entity’s knowledge of the customer, their business, and risk profile.

VASPs must apply a risk-based approach to CDD. This means the intensity of CDD measures should be proportionate to the assessed ML/TF risks.

Requirement: Any entity providing custody services for virtual assets on behalf of third parties is considered a "Virtual Asset Service Provider" (VASP) under Ley 28/2022 and must be authorized by the Autoritat Financera Andorrana (AFA).

Definition of Custody: Article 3, point 16 of Ley 28/2022 defines "custodia de activos virtuales" (custody of virtual assets) as the safekeeping or administration of virtual assets or instruments enabling control over them on behalf of third parties.

Applicants must comply with stringent requirements covering corporate governance, internal controls, risk management, financial resources (including minimum capital), anti-money laundering (AML) and counter-terrorist financing (CFT) policies, and operational integrity.

Autoritat Financera Andorrana (AFA): Regulator responsible for VASP authorization.

Tax Rate: The general corporate income tax rate in Andorra is 10%.

Exemption: There is an annual tax exemption of €3,000 for capital gains derived from the transfer of movable assets. Gains below this threshold are not taxed.

Holding Period: There is typically no distinction between short-term and long-term capital gains for movable assets in Andorra; the 10% rate applies regardless of how long the asset was held (after the exemption).