Faroe Islands
Retail_Trading_Status
- Analysis ID
- #658
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- Created
- 2025-12-12 04:17
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- 93367329...
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Executive Summary
Cryptocurrency trading is legal in the Faroe Islands and is regulated under the anti-money laundering (AML) framework. As of June 2023, the specific amendments requiring Virtual Asset Service Providers (VASPs) to register with the Danish Financial Supervisory Authority (Finanstilsynet) have been extended to the Faroe Islands via Royal Decree. Retail investors can freely buy, sell, and hold digital assets, though they are subject to capital gains taxation by the local tax authority, TAKS. The regulatory environment mirrors that of Denmark, focusing on AML/KYC compliance rather than prudential regulation of the assets themselves.
Key Pillars
Finanstilsynet (Danish Financial Supervisory Authority) as the primary supervisor for AML compliance
Mandatory registration for crypto-fiat exchanges and wallet providers operating in the Faroe Islands
Application of the 'Know Your Customer' (KYC) and Customer Due Diligence (CDD) rules under the Faroese AML Act
Taxation of speculative gains as personal income by TAKS (Faroese Tax Authority)
Landmark Laws
Royal Decree No. 922 on the Entry into Force for the Faroe Islands of the Act on Measures to Prevent Money Laundering (Anordning nr. 922 af 26. juni 2023) - Enacted: 2023-06-26
- Explicitly extends Danish AML amendments to the Faroe Islands, defining 'providers of exchange between virtual currencies and fiat currencies' and 'wallet providers' as obligated entities requiring registration with Finanstilsynet.
- Source
Act on Measures to Prevent Money Laundering and Financing of Terrorism (The AML Act) (Anordning nr. 813 af 12. august 2019 (as amended)) - Enacted: 2019-08-12
- The foundational AML legislation for the Faroe Islands, which was subsequently updated in 2023 to include specific provisions for virtual asset service providers.
- Source
Considerations
The Faroe Islands are not part of the EU, so EU-wide regulations like MiCA do not automatically apply unless specifically adopted by Royal Decree.
Banking access can be difficult; local banks (e.g., BankNordik, Betri) may restrict transfers to crypto exchanges based on their own risk assessments.
Gains from cryptocurrency trading are generally treated as taxable income/speculation by TAKS, and losses may have limited deductibility.
Entities must register with Finanstilsynet to operate legally; using unregistered platforms carries potential regulatory risks.
Notes
While the Faroe Islands are not in the EU, their financial regulation is deeply integrated with Denmark. The 2023 Decree effectively closed the regulatory gap that previously existed, bringing the territory's crypto rules in line with mainland Denmark's pre-MiCA AML framework.
Remaining Uncertainties
- The exact timeline for the adoption of the EU's MiCA regulation in the Faroe Islands remains unclear, as it is not an EU member.
- Specific guidance from TAKS on the calculation of cost basis (FIFO/LIFO) for crypto assets is not widely publicized in English.
Detailed Explanation
Detailed Explanation
Cryptocurrency trading is legal and regulated in the Faroe Islands. The regulatory status is defined as 'Allowed-Regulated,' with the legal framework primarily focused on anti-money laundering (AML) and counter-terrorist financing (CFT) compliance rather than prudential oversight of the digital assets themselves. The key regulatory pillar is the Act on Measures to Prevent Money Laundering and Financing of Terrorism (The AML Act), enacted on 12 August 2019, which establishes the foundational rules for obligated entities. A landmark development occurred on 26 June 2023, with the enactment of Royal Decree No. 922, which explicitly extended Danish AML amendments to the Faroe Islands. This decree mandates that Virtual Asset Service Providers (VASPs), specifically defined as providers of exchange between virtual currencies and fiat currencies and wallet providers, must register with the Danish Financial Supervisory Authority, Finanstilsynet, to operate legally. This closed a previous regulatory gap and aligned the territory's rules with mainland Denmark's pre-MiCA framework. The primary supervisor for AML compliance is Finanstilsynet, while the Faroese Tax Authority, TAKS, handles taxation of gains. For retail investors, buying, selling, and holding digital assets is permitted, but they are subject to capital gains taxation on speculative profits by TAKS, with losses potentially having limited deductibility. The regulatory environment, therefore, establishes clear operational mandates for service providers under an AML-centric model while allowing individual participation, albeit with tax obligations. It is important to note that the Faroe Islands are not part of the European Union, meaning EU-wide regulations like the Markets in Crypto-Assets (MiCA) regulation do not automatically apply unless specifically adopted by a future Royal Decree. Furthermore, while the legal framework is established, practical challenges exist, notably in banking access, where local banks such as BankNordik and Betri may restrict or scrutinize transfers to cryptocurrency exchanges based on their own internal risk assessments, posing a potential operational hurdle for market participants.
Summary Points
I. Regulatory Status
* Cryptocurrency trading is legal and regulated in the Faroe Islands.
* The status is Allowed-Regulated, with a focus on AML/CFT compliance rather than asset prudential regulation.
* Retail investors can freely buy, sell, and hold digital assets.
II. Key Regulatory Bodies
* Finanstilsynet (Danish Financial Supervisory Authority): The primary supervisor for AML compliance; VASPs must register with this authority.
* TAKS (Faroese Tax Authority): Responsible for taxing gains from cryptocurrency trading as personal income/speculation.
III. Important Legislation
* Royal Decree No. 922 (Enacted: 2023-06-26): The landmark decree that extended Danish AML amendments to the Faroe Islands. It explicitly defines crypto-fiat exchanges and wallet providers as obligated entities requiring registration with Finanstilsynet.
* Act on Measures to Prevent Money Laundering and Financing of Terrorism (The AML Act) (Enacted: 2019-08-12): The foundational AML legislation for the Faroe Islands, which was updated in 2023 via Royal Decree No. 922 to include specific provisions for Virtual Asset Service Providers (VASPs).
IV. Compliance Requirements
* Mandatory registration with Finanstilsynet for all Virtual Asset Service Providers (VASPs), specifically crypto-fiat exchanges and wallet providers.
* Application of standard Know Your Customer (KYC) and Customer Due Diligence (CDD) rules under the Faroese AML Act.
* Entities must operate within the AML framework to be considered legal; using unregistered platforms carries regulatory risks.
* Individuals must declare and pay tax on capital gains from trading to TAKS.
V. Notable Restrictions or Limitations
* Banking Access: Local banks (e.g., BankNordik, Betri) may restrict or scrutinize transfers to cryptocurrency exchanges based on their own risk assessments, creating a practical barrier.
* Taxation of Losses: Losses from cryptocurrency trading may have limited deductibility under the tax rules administered by TAKS.
* EU Regulations: The Faroe Islands are not part of the EU, so regulations like MiCA do not automatically apply unless specifically adopted by Royal Decree.
VI. Recent Developments or Notes
* The 2023 Royal Decree effectively closed a previous regulatory gap, bringing the Faroe Islands' cryptocurrency rules in line with mainland Denmark's pre-MiCA AML framework.
* The regulatory environment is deeply integrated with Denmark's, despite the Faroe Islands not being an EU member.
Full Analysis Report
Full Analysis Report
The regulatory status of cryptocurrency in the Faroe Islands is 'Allowed-Regulated,' characterized by a legal environment that permits retail trading while enforcing strict Anti-Money Laundering (AML) controls on service providers. As a self-governing territory within the Kingdom of Denmark, the Faroe Islands generally adopts Danish financial legislation through Royal Decrees. For several years, the status was ambiguous as the specific Danish amendments regulating crypto had not been formally extended to the Faroes. This changed decisively with the enactment of Royal Decree No. 922 on June 26, 2023.
This 2023 Decree explicitly updated the Faroese AML Act to align with the Danish implementation of the EU's 5th Anti-Money Laundering Directive (AMLD5). It introduced specific definitions for 'providers of exchange between virtual currencies and fiat currencies' and 'custodian wallet providers,' mandating that these entities register with the Danish Financial Supervisory Authority (Finanstilsynet) to operate legally in the Faroe Islands. This registration requirement ensures that crypto intermediaries perform Know Your Customer (KYC) checks and monitor transactions for suspicious activity, mirroring the regime in Denmark.
For retail investors, there are no prohibitions on buying, selling, or holding cryptocurrencies. However, the practical environment is shaped by the banking sector's cautious approach. Major Faroese banks, such as Føroya Banki (formerly BankNordik) and Betri Bank, apply strict risk-based policies which may result in blocked transactions to or from crypto exchanges, particularly those perceived as high-risk or unregulated. Investors should be prepared to provide documentation of funds if requested by their bank.
Taxation is another critical component of the local framework. The Faroese tax authority, TAKS, treats cryptocurrency gains as taxable income, typically under rules for speculation. Unlike some jurisdictions with specific capital gains tax rates for crypto, the Faroese system generally aggregates these gains with other personal income, potentially leading to high marginal tax rates. Furthermore, starting in 2027, TAKS is expected to receive automatic reports on crypto assets held by Faroese residents via international tax transparency agreements (CARF), increasing the importance of accurate reporting.
The regulatory status of cryptocurrency in the Faroe Islands is 'Allowed-Regulated,' characterized by a legal environment that permits retail trading while enforcing strict Anti-Money Laundering (AML) controls on service providers. As a self-governing territory within the Kingdom of Denmark, the Faroe Islands generally adopts Danish financial legislation through Royal Decrees. For several years, the status was ambiguous as the specific Danish amendments regulating crypto had not been formally extended to the Faroes. This changed decisively with the enactment of Royal Decree No. 922 on June 26, 2023. This 2023 Decree explicitly updated the Faroese AML Act to align with the Danish implementation of the EU's 5th Anti-Money Laundering Directive (AMLD5). It introduced specific definitions for 'providers of exchange between virtual currencies and fiat currencies' and 'custodian wallet providers,' mandating that these entities register with the Danish Financial Supervisory Authority (Finanstilsynet) to operate legally in the Faroe Islands. This registration requirement ensures that crypto intermediaries perform Know Your Customer (KYC) checks and monitor transactions for suspicious activity, mirroring the regime in Denmark. For retail investors, there are no prohibitions on buying, selling, or holding cryptocurrencies. However, the practical environment is shaped by the banking sector's cautious approach. Major Faroese banks, such as Føroya Banki (formerly BankNordik) and Betri Bank, apply strict risk-based policies which may result in blocked transactions to or from crypto exchanges, particularly those perceived as high-risk or unregulated. Investors should be prepared to provide documentation of funds if requested by their bank. Taxation is another critical component of the local framework. The Faroese tax authority, TAKS, treats cryptocurrency gains as taxable income, typically under rules for speculation. Unlike some jurisdictions with specific capital gains tax rates for crypto, the Faroese system generally aggregates these gains with other personal income, potentially leading to high marginal tax rates. Furthermore, starting in 2027, TAKS is expected to receive automatic reports on crypto assets held by Faroese residents via international tax transparency agreements (CARF), increasing the importance of accurate reporting.
Source Evidence
Primary and secondary sources cited in this analysis
"I § 1, stk. 1, indsættes som nr. 22-24: ... 23) Udbydere af veksling mellem virtuelle valutaer og fiatvalutaer. 24) Udbydere af virtuelle tegnebøger."
"The register contains data on the companies under supervision by the Danish FSA... Crypto area encompasses a range of different types of entities regulated under the Regulation on Markets in Crypto-Assets (MiCA)."
"Vinningur skal upplýsast í sjálvuppgávuni á vanligan hátt. (Winnings must be declared in the tax return in the usual way.)"
"The Bank is subject to the supervision of the Danish Financial Supervisory Authority."
Web Sources (4)
Sources discovered via web search grounding
Search queries used (15)
- Faroe Islands crypto trading legality
- Faroe Islands cryptocurrency regulation
- TAKS Faroe Islands cryptocurrency tax
- Is the Danish AML Act regarding crypto in force in Faroe Islands?
- Finanstilsynet Faroe Islands crypto regulation
- BankNordik Faroe Islands cryptocurrency policy
- Royal Decree extending Danish AML Act crypto amendment to Faroe Islands
- "Anordning om ikrafttræden for Færøerne af lov om forebyggende foranstaltninger mod hvidvask" crypto
- "Hvidvaskloven" Faroe Islands crypto amendment
- Finanstilsynet register Faroe Islands crypto service providers
- Betri Bank cryptocurrency policy
- "Anordning nr" hvidvaskloven Færøerne 2020 2021 2022 2023
- Is MiCA applicable in Faroe Islands?
- "Lagting" crypto regulation Faroe Islands
- Færøerne hvidvasklov kryptovaluta ændring
https://landsstyri.cdn.fo/savn/smyd4xoz/1-samleanordning-om-ikrafttraeden-for-faeroeerne-af-visse-bestemmelser-i-hvidvaskloven.docx?s=zT_SgNs1Kumrm0ddGXpcFLujvU8
https://logir.fo/Anordning/922-af-26-06-2023-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende-foranstaltninger-mod-hvidvask
https://www.lovtidende.dk/api/pdf/249692
https://logir.fo/Anordning/813-af-12-08-2019-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende-foranstaltninger-mod-hvidvask