While the invention of cryptocurrency may have preached decentralization or no intermediary involvement, it may have become necessary to include regulation in the ecosystem.
For some, this ‘necessity of regulation’ defeats the whole purpose of crypto being decentralized — without a central authority to control proceedings — and the gateway to financial freedom. For others, it is a necessary evil due to the numerous hacks and exploitation that the blockchain system has been unable to curtail. Despite all being said and done, different countries have created different cryptocurrency regulations.
While some have been friendly, like El-Salvador, others have chosen to put out strict guidelines. For example, the Financial Conduct Authority (FCA) of the UK places strict bans on some (not all) crypto products. However, this article would not focus on the UK or El Salvador.
In contrast, you will learn about the cryptocurrency regulations in faraway Norway. So, if you reside or plan to move to Norway, you should fix your gaze here and learn all there is to know about the crypto regulation in Norway.
Read on.
Crypto in Norway
Unlike some other countries in Europe and around the world, it took Norway some time to warm up to the idea of crypto. However, when they did, they really did.
Since the COVID pandemic which raged in 2020, Norwegians increasingly explored new savings and investment options — the major one being crypto. According to a poll executed by Arcane Research (a division of Norwegian investment company Arcane Crypto) in 2021, it was seen that 300,000 Norwegians own crypto. While that might seem like a minute number, it isn’t, as it represents about 7% of their population.
For residents in Norway, there is no law restricting them from buying crypto. However, the Norwegian government does not recognize these digital assets as fiat replacements — still, regulations guide users and virtual asset providers in the country.
Prior to now, the country has made laws regarding trading cryptocurrencies, running a business around them, and taxing the parties involved. Hence, there is no prohibition of crypto platforms like eToro, Bitcoin Profit, or Crypto.com operating in Norway.
In 2018, Norway declared that cryptocurrencies were not financial instruments. However, in October of the same year, the country noted that these assets needed to be regulated and follow the Anti-Money Laundering (AML) laws of the country. Despite the necessity, only registered crypto companies are allowed to follow the rules. Individual traders and retail investors are not subject to these rules.
Since 2018, when Norway implemented the Anti Money Laundering Act and other legislations relating to exchange service providers and custodian wallet providers, it ceased introducing other direct or new legislation until 2021. In 2021, the legislation became necessary in respect of new events and happenings in the cryptocurrency ecosystem — not within Norway alone but across the global crypto market.
It is on this premise that Norway took a step forward on the 1st of July 2021 to amend the (existing) Anti Money Laundering Regulation of 2018. This amendment is clear with no ambiguities. It relates to customer due diligence measures when such a customer is established in a high-risk country. Extensively, the amendment covers discontinuation and blocking customer relationships, among other minimum requirements relating to electronic monitoring systems.
It is interesting to know that since the Norwegian Financial Supervisory Authority (FSA) emphasized the importance of general regulation and legal framework for crypto stakeholders, they eventually walked the talk. The statement released in June 2021 hints at the associated risk and the potential losses in cryptocurrency if there are no regulations.
FSA said, “ ….Until such regulations are in place, anyone considering trading in cryptocurrency should think carefully and understand the significant risk such investments entail. Consumers who want to try this with open eyes should not invest more than they can afford to lose”
It is, therefore, expedient to examine the latest regulations and legal frameworks guiding the crypto market and all related activities in Norway.
What has changed in crypto regulations from the Law in 2018 to the amendment in 2021 till date?
The Anti-Money Laundering Legislation
The most important legal framework in Norway that directly covers the crypto market and activities in Norway is the Anti-Money Laundering Act. In Norway, Anti Money Laundering dates back to 2009; it was referred to as the European Union’s third Anti Money Laundering Directive.
The fourth AML Directive (EU 2018/843) was implemented in October 2018. It replaced the Anti-Money Laundering Act of 2009 and introduced certain provisions in the new European Union directive.
The latest AML Directive is the 2021 Anti Money Laundering Act. This AML Directive of 2021 has been expanded to include service providers who engage in exchange services between virtual currencies, fiat currencies, and Custodian wallet providers (CWPs).
The latest AML legislation recognizes all these providers and considers them obligated entities. It is interesting to know that previous AML directives in Norway do not recognize activities relating to virtual currencies, including activities relating to exchanges, mining, and storage services for virtual currencies. These activities are now under the scope of AML Directive 2021.
Therefore, all crypto exchange service providers whose platforms offer virtual currencies and fiat currencies exchange, and CWPs, will henceforth comply with mandatory anti-money laundering obligations, including conducting customer due diligence measures.
Similarly, every provider conducting activity of this kind in Norway is now obligated to register with the Financial Supervisory Authority (FSA). They are expected to register their full details, such as information about their name, organizational structure, registration number, and offered service.
Additionally, information about the general manager or person in a similar position, members of the board of directors, and any contact persons will also be submitted. The FSA emphasizes that providers must be registered in Norway’s Register of Business Enterprises and that every operation should take place through a separate company account.
The latest AML Directive only extended the requirements to operate as a service provider in the crypto ecosystem, especially those firms running an exchange platform. Also, it expands its scope to exercise oversight functions on Custodian Wallet Providers (CWPs).
The Markets in Financial Instruments Directive (MiFID)
It is important to know that there is an existing MiFID law, and recently, it was amended, named MiFID II, and implemented into the Norwegian laws and regulations. The amended MiFID II aims to create a single market for investment services and activities. Similarly, there will be a high degree of harmonized protection for investors in financial instruments
This amended MiFID II is an extension of the European Securities and Markets Authority’s (ESMA) rules and regulations applicable to firms that engage in Initial Coin Offerings (ICOs). The Markets in Financial Instruments Directive backs the ESMA legal framework that compels investment firms offering investment services in relation to financial instruments to comply with applicable requirements.
Similarly, all coins and tokens that qualify as a financial instrument whereby such a coin is created, distributed, or traded through an Initial Coin Offering will be subject to the MiFID II rules.
Tax Laws
The Norwegian Tax Authorities consider Virtual currencies and Digital tokens as financial assets subject to general tax rules. It is considered under tax rules for wealth and sales taxes. However, virtual asset transactions such as buying and selling or exchanging crypto are not subject to Value added taxes.
According to the Norwegian Tax Authorities, private individuals are expected to declare their capital gains from virtual currencies. These capital gains fall under taxable income, while the losses are deductible. The same tax condition applies to mining and crypto transactions.
Similarly, virtual currencies and digital assets fall under assets of economic value and are calculated as part of base amounts to determine personal taxpayers’ net wealth. It is calculated as part of the total value on the first day (January 1) of the tax assessment year.
It is important to know that not all cryptocurrency trading will be considered a business activity. That is, not all crypto trading is taxable. However, according to Norwegian tax law, if the crypto transaction is conducted regularly and a significant number of transactions are carried out, it will fall under corporate tax.
Conclusively, the tax authority, in its 2018 guideline, stated that mining digital currencies fall under Value added tax (VAT) exemption for financial services. However, if you operate a business that converts data power for miners, and then these miners engage in cryptocurrency mining, their income is subject to tax.
Final Verdict
Cryptocurrency activities are booming in Norway. According to a report by Arcane Research, about 420,000 people living in Norway own cryptocurrencies. The research also shows that 10% of Norway’s adult population owns one or more digital assets, an increase of 120,000 people or 7% since 2021.
In light of this increase in crypto transactions, usage, and investment in Norway, there is a need to have robust legislation that covers the cryptocurrency ecosystem and stakeholders. That is, the Norwegian law with its scope covering crypto activities, exchange platforms, and service providers.
It is therefore expected that instead of making frequent amendments, the Norwegian financial regulation will enact robust legislation and legal framework that cuts across the digital asset and cryptocurrency ecosystem.
