What is Licensing?

Licensing is government permission required to operate certain financial services. Running a cryptocurrency exchange, providing custody, or acting as a money transmitter typically requires a license from a financial regulator.

How does Licensing work?

Company applies to the relevant regulator with details on operations and compliance.
Regulators run background checks and may audit systems and processes.
If approved, the company must follow ongoing rules KYC, AML, fund protection, and regular reporting.
Licenses can be revoked for violations.

Why does Licensing matter?

Licensing protects consumers. A licensed exchange has met minimum standards, holds customer assets safely, and is subject to regulatory oversight.

Key features of Licensing

Required for exchanges, custodians, and money transmitters
Varies by jurisdiction and activity type
Includes ongoing KYC/AML obligations
Can be revoked for violations

Examples of Licensing

Coinbase holds multiple US state money transmitter licenses plus federal FinCEN oversight. The EU's MiCA framework lets licensed exchanges passport across all 27 member states with one approval.

Fully decentralized protocols generally fall outside licensing requirements.