On-shore VASP in San Marino

Law No. 171 of December 17, 2019, "Regulations for Distributed Ledger Technologies and Blockchain for Business" (Legge 171/2019): This law defines DLT, virtual assets, and establishes the framework for Operators in Distributed Ledger Technologies (ODLTs).

BCRA Circular No. 64 of 15 September 2020, "Disciplining the activities of Operators in Distributed Ledger Technologies": This circular provides detailed implementation rules for Law 171/2019, specifying the requirements for obtaining authorization (registration) as an ODLT.

BCRA Circular No. 67 of 11 May 2021, "Amendments and additions to Circular No. 64 of 15 September 2020": This circular introduced updates and clarifications to the initial implementing regulations.

Decree No. 120 of 21 August 2019, "Provisions against money laundering and terrorist financing": This AML/CFT law is applicable to ODLTs and virtual asset service providers (VASPs).

Exchanges (Virtual Asset Exchange Providers): Entities operating a platform for the exchange of virtual assets for fiat currencies, or between one or more forms of virtual assets. This falls squarely under the ODLT/VASP authorization requirement.

Custody Providers (Virtual Asset Custody Providers): Entities that provide services for the safekeeping or administration of virtual assets or instruments enabling control over virtual assets on behalf of natural or legal persons. This also requires ODLT/VASP authorization.

Transferring virtual assets.

Participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset.

Providing other services related to virtual assets.

Must be a joint-stock company (Società per Azioni - S.p.A.) or a limited liability company (Società a responsabilità limitata - S.r.l.) established in San Marino.

Must have its registered office and effective management in San Marino.

€300,000 for ODLTs providing services directly to the public (including VASPs like exchanges and custody providers) and holding client funds or virtual assets.

The BCRA may require a higher capital amount based on the complexity, scale, and risk profile of the proposed activities.

Capital must be fully paid up.

ODLTs are considered "financial intermediaries" under San Marino's AML/CFT legislation (Decree 120/2019) and are subject to all related obligations.

Implementing robust Customer Due Diligence (CDD) procedures for all clients (identifying and verifying identity, beneficial ownership).

Conducting risk assessments for business relationships and transactions.

Implementing comprehensive internal controls, policies, and procedures for AML/CFT.

Appointing an AML Officer and a Board-level AML Compliance Officer.

Establishing a Suspicious Transaction Reporting (STR) mechanism and reporting to the Financial Intelligence Agency (AIF).

Banca Centrale della Repubblica di San Marino (BCRSM) - The Central Bank of the Republic of San Marino. It is the primary financial regulator responsible for licensing, supervision, and ongoing oversight of virtual asset service providers.

Identification and Verification:

Natural Persons: Obtain and verify identity using reliable, independent source documents, data, or information (e.g., name, date of birth, place of birth, address, nationality, official identification number/document type).

Legal Persons/Arrangements: Obtain and verify legal name, legal form, address, proof of existence, powers that regulate and bind the legal person/arrangement, and names of individuals authorized to act on its behalf.

Beneficial Ownership (BO):

Identify the beneficial owner(s) (natural person(s) who ultimately own or control the customer and/or the natural person on whose behalf a transaction is being conducted).

For legal persons, this typically involves identifying natural persons holding more than 25% of shares or voting rights, or exercising control through other means.

Purpose and Intended Nature of Business Relationship: Obtain information on the purpose and intended nature of the business relationship or occasional transaction.

Conduct ongoing monitoring of the business relationship and transactions undertaken throughout the course of that relationship.

Ensure that the documents, data, or information collected under the CDD process are kept up-to-date.

Risk-Based Approach (RBA): VASPs must implement a risk-based approach to AML/CFT, meaning they should:

Assess their ML/TF risks, considering factors such as customer type, services offered, virtual asset types, geographic areas, and delivery channels.

Apply CDD measures proportionate to the identified risks.

Enhanced Due Diligence (EDD): Apply EDD in higher-risk situations, including but not limited to:

Relationships with Politically Exposed Persons (PEPs).

Cross-border correspondent relationships.

Complex, unusual, large transactions, and all unusual patterns of transactions that have no apparent economic or lawful purpose.

Transactions involving high-risk jurisdictions.

Use of new technologies or products that favor anonymity.

Current IGR Rate: The standard corporate income tax (IGR) rate in San Marino is 17%. Special reduced rates or incentives may apply to new businesses or specific types of activities under certain conditions.

Subject to Corporate Income Tax (Imposta Generale sul Reddito - IGR): Companies or entities whose core business involves crypto-assets (e.g., exchanges, mining operations, crypto funds, professional trading firms) will have their capital gains from crypto-asset sales taxed as part of their general business income.

Extensive Reporting: Businesses operating in the crypto space are subject to significant reporting requirements due to the regulatory framework established by Delegated Decree No. 36/2019 and general financial regulations.

Licensing and Supervision: Entities engaged in crypto-asset services (e.g., exchanges, custodians, issuers) must obtain a license from the Central Bank of San Marino (BCSM) and are subject to its ongoing supervision.

AML/CFT Compliance: Strict Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) obligations apply, requiring customer due diligence (KYC), transaction monitoring, and suspicious activity reporting to the Financial Intelligence Agency (AIF) of San Marino.

No Licensed DLT Service Providers (as of last major assessment): A key finding from the MONEYVAL (Council of Europe anti-money laundering body) "Fifth Round Mutual Evaluation Report on San Marino" published in July 2022 stated:

Focus on Regulatory Framework Development: San Marino has been more focused on building its regulatory framework. The BCSM is the primary regulator and issues circulars and regulations. Their focus in recent years has been on establishing robust AML/CFT measures for new technologies.

Discretionary Enforcement/Lack of High-Profile Cases: In smaller jurisdictions, enforcement actions, if they occur, might not always be widely publicized, especially if they are against smaller, unlicensed operations or result in administrative warnings rather than significant public penalties. It's also possible that San Marino hasn't experienced high-profile crypto-related financial crimes or major non-compliance incidents warranting significant public enforcement.

MONEYVAL Report (July 2022):