Crypto Exchange Offices and Act on CE

Currently, virtual currencies attract considerable attention of the general public. Many questions related to that matter and need of regulation are linked to the attention. One of them is whether the exchange of fiat money for virtual currency is subject to the Act No. 277/2013 Coll., on Currency Exchange (hereinafter referred to as the “Act on CE”).

It results from the statutory regulation that during the exchange a crypto exchange office acts as one of the parties of the exchange, which transfers property right to units of virtual currency, for the transfer of the property right to the units of fiat money. General provisions of the Act No. 89/201 Coll., Civil Code, as amended (hereinafter referred to as the “CC”) to be specific the provision of Section 2184 – 2188 of the CC, regulating the exchange, shall be applied on the exchange.

In case the exchange agreements are being concluded by one of the contracting parties systematically, in their own name and on their sole responsibility in order to realize a profit which lies in the performance of exchange business (i.e. as business activity), doubts may arise whether the Act on CE relates also to the crypto exchange offices.

Concluding exchange agreements within business activity does not fulfill without prejudice characteristics of exchange activity. The Act on CE in its provision of Section 2 paragraph 1 establishes that: “Exchange transaction is a transaction consisting of the exchange of banknotes, coins or cheques denominated in certain currency for banknotes, coins or cheques denominated in another currency.”

The question is whether the entrepreneur with cryptocurrencies who conclude exchange agreements (hereinafter referred to as the “Cryptocurrency Exchange”), falls with his activity under the term exchange business. 

To assess the matter it is necessary to carry out an analysis of the above mentioned provision of the Act on CE. Exchange business is defined by the Act on CE (cumulatively) as business:  

a.    Consisting of the exchange
b.    Of Banknotes, coins and cheques
c.    Denominated in certain currency
d.    For banknotes, coins or cheques denominated in another currency

As I stated above, the first characteristic is fulfilled for sure, because during such business the exchange of a unit of virtual currency for units of fiat money happens. Virtual currencies do not fulfill the last three, respectively two requirements, for now. Czech National Bank commented on that in its opinion  of 10 February 2014 as follows: „In case of exchange (respectively purchase) of bitcoins for Czech crowns or other currency, the characteristics of exchange business are not fulfilled as well. The exchange business is defined as “exchange of notes, coins or cheques denominated in certain currency for banknotes, coins and cheques in another currency” (Section 2, paragraph 1 of the Act on CE), i.e. neither the characteristic of a material form of the subject of the exchange, nor the characteristic of “denominated in certain currency” is not fulfilled”.  

The main obstacle for the Cryptocurrency Exchange to be subject to the exchange business is not in the fact that virtual currencies could not be in the material form, but in the fact they do not have the characteristic of denominated in certain currency.  

To date, the legislator defined the virtual currency in the Act No. 253/2008, Coll., on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism, as amended (hereinafter referred to as the “AML Act”) to be specific the provision of Section 2(1)l) of the AML Act, which states the virtual currency is electronically stored  in a unit regardless it has or does not have an issuer, and which is not a pecuniary mean under the Act on Payments, but it is received as payment for goods or services also by other person different from its issuer.

It is necessary the virtual currency becomes currency in order for the crypto exchange offices to be subject to the Act on CE, which means virtual currency must acquire the attribute of currency through the state authority, respectively in case of cryptocurrencies the agreement in international law is more likely needed, it will set the conditions of the existence of cryptocurrencies, their manner of usage and necessary requirements.

It is obvious from the above mentioned that currently the crypto exchange offices and their exchange of cryptocurrency for fiat money does not fall under the Act on CE, yet it is not impossible it will happen in the future.

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[1] Currency without intrinsic value that has been established as money, often by government regulation.
[2] Act No. 277/2013 Sb., on Currency Exchange, provision of Section 2 of the Act.
[3] Id.
[4] CZECH NATIONAL BANK. Bitcoin trading. 10 February 2014. Available [online] at:
http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/cs/faq/obchodovani_s_bitcoiny.pdf [cit.: 2018-05-20].