Faroe Islands

{
  "analysis_text": "The regulatory status of cryptocurrency in the Faroe Islands is \u0027Allowed-Regulated,\u0027 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.\n\nThis 2023 Decree explicitly updated the Faroese AML Act to align with the Danish implementation of the EU\u0027s 5th Anti-Money Laundering Directive (AMLD5). It introduced specific definitions for \u0027providers of exchange between virtual currencies and fiat currencies\u0027 and \u0027custodian wallet providers,\u0027 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.\n\nFor retail investors, there are no prohibitions on buying, selling, or holding cryptocurrencies. However, the practical environment is shaped by the banking sector\u0027s cautious approach. Major Faroese banks, such as F\u00f8roya 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.\n\nTaxation 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.",
  "confidence_level": "High",
  "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.",
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    },
    {
      "resolved_url": "https://logir.fo/Anordning/922-af-26-06-2023-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende-foranstaltninger-mod-hvidvask",
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    },
    {
      "resolved_url": "https://www.lovtidende.dk/api/pdf/249692",
      "title": "lovtidende.dk",
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      "resolved_url": "https://logir.fo/Anordning/813-af-12-08-2019-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende-foranstaltninger-mod-hvidvask",
      "title": "logir.fo",
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    }
  ],
  "status": "Allowed-Regulated",
  "structured_data": {
    "confidence_level": "High",
    "detailed_analysis": "The regulatory status of cryptocurrency in the Faroe Islands is \u0027Allowed-Regulated,\u0027 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.\n\nThis 2023 Decree explicitly updated the Faroese AML Act to align with the Danish implementation of the EU\u0027s 5th Anti-Money Laundering Directive (AMLD5). It introduced specific definitions for \u0027providers of exchange between virtual currencies and fiat currencies\u0027 and \u0027custodian wallet providers,\u0027 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.\n\nFor retail investors, there are no prohibitions on buying, selling, or holding cryptocurrencies. However, the practical environment is shaped by the banking sector\u0027s cautious approach. Major Faroese banks, such as F\u00f8roya 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.\n\nTaxation 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.",
    "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.",
    "important_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."
    ],
    "key_regulatory_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 \u0027Know Your Customer\u0027 (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_legislation": [
      {
        "date_enacted": "2023-06-26",
        "identifier": "Anordning nr. 922 af 26. juni 2023",
        "name": "Royal Decree No. 922 on the Entry into Force for the Faroe Islands of the Act on Measures to Prevent Money Laundering",
        "summary": "Explicitly extends Danish AML amendments to the Faroe Islands, defining \u0027providers of exchange between virtual currencies and fiat currencies\u0027 and \u0027wallet providers\u0027 as obligated entities requiring registration with Finanstilsynet.",
        "url": "https://logir.fo/Anordning/922-af-26-juni-2023-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende"
      },
      {
        "date_enacted": "2019-08-12",
        "identifier": "Anordning nr. 813 af 12. august 2019 (as amended)",
        "name": "Act on Measures to Prevent Money Laundering and Financing of Terrorism (The AML Act)",
        "summary": "The foundational AML legislation for the Faroe Islands, which was subsequently updated in 2023 to include specific provisions for virtual asset service providers.",
        "url": "https://logir.fo/Anordning/813-af-12-august-2019-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende"
      }
    ],
    "notes_and_comments": "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\u0027s crypto rules in line with mainland Denmark\u0027s pre-MiCA AML framework.",
    "primary_sources": [
      {
        "date": "2023-06-26",
        "key_quote": "I \u00a7 1, stk. 1, inds\u00e6ttes som nr. 22-24: ... 23) Udbydere af veksling mellem virtuelle valutaer og fiatvalutaer. 24) Udbydere af virtuelle tegneb\u00f8ger.",
        "source_type": "law_text",
        "title": "Royal Decree No. 922 of 26 June 2023 (Logir.fo)",
        "url": "https://logir.fo/Anordning/922-af-26-juni-2023-om-ikrafttraeden-for-Faeroerne-af-lov-om-forebyggende"
      },
      {
        "date": "2024-01-01",
        "key_quote": "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).",
        "source_type": "regulator",
        "title": "Finanstilsynet Company Register (Denmark/Faroe Islands Supervisor)",
        "url": "https://virksomhedsregister.finanstilsynet.dk/"
      },
      {
        "date": "2024-11-26",
        "key_quote": "Vinningur skal uppl\u00fdsast \u00ed sj\u00e1lvuppg\u00e1vuni \u00e1 vanligan h\u00e1tt. (Winnings must be declared in the tax return in the usual way.)",
        "source_type": "official_government",
        "title": "TAKS - Tax Authority of the Faroe Islands",
        "url": "https://www.taks.fo/"
      }
    ],
    "remaining_uncertainties": [
      "The exact timeline for the adoption of the EU\u0027s 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."
    ],
    "secondary_sources": [
      {
        "date": "2024-03-15",
        "key_quote": "The Bank is subject to the supervision of the Danish Financial Supervisory Authority.",
        "source_type": "news",
        "title": "BankNordik (F\u00f8roya Banki) Corporate Governance \u0026 Strategy",
        "url": "https://www.banknordik.com/"
      }
    ],
    "status": "Allowed-Regulated"
  }
}