Nepal -- Custody Regulations Regulatory Overview

Nepal's regulatory stance on cryptocurrencies and digital assets is highly restrictive, primarily characterized by a prohibition on their use, trade, mining, and investment. As a direct consequence of this ban, there are no specific regulations or licensing frameworks for cryptocurrency/digital asset custody in Nepal, as the underlying activity itself is deemed illegal.

The primary regulatory authority in this matter is the Nepal Rastra Bank (NRB), the central bank of Nepal.

Here's a breakdown of the situation regarding your specific questions:

1. Custodial License Requirements:

   • Non-existent. Since cryptocurrencies are prohibited, there is no legal basis or framework for issuing licenses to operate as a crypto custodian. Any entity attempting to provide such services would be operating outside the law.

2. Segregation of Client Assets Rules:

   • Not applicable. As no legal custody services are permitted, there are no rules requiring segregation of client assets.

3. Insurance/Bonding Requirements:

   • Not applicable. With no regulated custodians, there are no requirements for insurance or bonding.

4. Cold Storage Mandates:

   • Not applicable. There are no mandates for cold storage or any other form of storage for digital assets, as their possession and transaction are prohibited.

5. Qualified Custodian Definitions:

   • Non-existent. There is no definition for a "qualified custodian" within Nepal's legal framework for digital assets because the concept of legal digital asset custody does not exist.

6. Pending Custody Legislation:

   • No specific pending custody legislation. While there might be ongoing discussions within government circles regarding financial technology and digital transformation, there is currently no public information or official announcements indicating any specific pending legislation aimed at regulating cryptocurrency custody. Any future legislation would first need to address the overarching prohibition of cryptocurrencies themselves.

Regulatory References and Legal Basis for Prohibition:

The prohibition on cryptocurrencies in Nepal is primarily enforced by the Nepal Rastra Bank (NRB) through various circulars and public notices, drawing authority from existing foreign exchange regulations.

• Nepal Rastra Bank (NRB) Notices/Circulars:

  • The NRB has consistently issued circulars and public notices warning against the use and trading of cryptocurrencies like Bitcoin since as early as 2017. These notices typically cite the Foreign Exchange (Regulation) Act, 2019 (B.S. 2076) and its subsequent directives as the legal basis for prohibiting foreign exchange transactions (which cryptocurrencies are often categorized as for regulatory purposes) not authorized by the NRB.
  • Key points from NRB notices often include:
    • Cryptocurrencies are not recognized as legal tender in Nepal.
    • Engaging in buying, selling, mining, or facilitating transactions in cryptocurrencies is illegal.
    • Sending money abroad or receiving money from abroad for cryptocurrency transactions is prohibited.
    • Individuals found engaging in these activities may be prosecuted under existing laws, including the Foreign Exchange (Regulation) Act, 2019, or other relevant statutes, which can carry penalties such as fines, imprisonment, and confiscation of assets.

• Foreign Exchange (Regulation) Act, 2019 (B.S. 2076):

  • This Act empowers the NRB to regulate foreign exchange transactions. The NRB's stance is that cryptocurrencies fall under the purview of "foreign exchange" or "foreign currency" if they involve cross-border transactions or are not recognized domestic currency, thus making them subject to NRB's regulatory oversight and prohibition if not explicitly permitted.
  • Note: While a direct English translation of the 2019 Act with specific cryptocurrency mention might be hard to link publicly, the NRB's directives and public notices consistently refer to its authority under this Act. You can find information about the NRB's functions and directives on their official website:
    • Nepal Rastra Bank Official Website: https://www.nrb.org.np/ (You would typically need to search their "Notifications" or "Circulars" sections for specific pronouncements regarding virtual currencies.)

Summary:

In essence, the regulatory landscape for cryptocurrency custody in Nepal is defined by a complete prohibition. Until the fundamental legal status of cryptocurrencies changes in Nepal, there will be no specific regulations, licensing requirements, or defined standards for custody services. Any individual or entity engaging in cryptocurrency activities, including custody, does so at significant legal risk.