The Danish Financial Supervisory Authority has set the record straight on the status of non-custodial wallets.
There have been a few reports on social media recently claiming that Denmark is planning to "ban" Bitcoin wallets. However, the Danish regulatory authorities haven't suggested banning self-custody cryptocurrency wallets. The Danish Financial Supervisory Authority (DFSA) has denied reports that it plans to ban self-custody wallets, also known as non-custodial wallets. “We’ve seen some misleading info on social media suggesting that the DFSA wants to ban hardware wallets and other non-custodial wallets,” said Tobias Thygesen, DFSA’s Director for Fintech, Payment Services, and Governance, in an interview with Cointelegraph. He went on to say: “That’s not true.” The DFSA hasn’t suggested that there should be a ban.
Self-Custody Wallets Are Not Subject to MiCA Regulation
The DFSA's clarification follows its regulatory assessment of decentralisation concerning the Markets in Crypto-Assets (MiCA) regulation, which came into effect on 30 June. The DFSA's assessment, published on 25 June, set out some principles for dealing with the challenges of regulating decentralised crypto-asset services. According to Thygesen, MiCA explicitly excludes crypto-asset services that are "fully decentralised and provided without intermediaries." If a service wants to be regulated under MiCA, it can't be fully decentralised and it has to include one of the activities listed in Article 3, paragraph 16 of MiCA, like crypto custody, trading, and other crypto services. “The only regulated activity that directly affects wallets is the custody and administration of crypto-assets on behalf of clients,” Thygesen told Cointelegraph. He also said: “Hardware wallets don't put private keys in the hands of the wallet provider, so they're not regulated by MiCA.” “Non-custodial wallets aren’t subject to the MiCA regulation.” Mikko Ohtamaa, who co-founded the algorithmic investment protocol Trading Strategy, got it wrong in a social media post on 26 June. He thought that the DFSA's exemption for self-custody wallets effectively meant that such wallets couldn't be provided in Denmark, but that's not the case.
What are non-custodial wallets?
Self-custody is a way of storing cryptocurrencies like Bitcoin without going through an intermediary. This means that the user has direct control over the stored cryptocurrency. With a self-custody wallet, users can essentially be their own bank. The downside is that the owner is responsible for keeping their wallet secure and their private key safe. With self-custody wallets, you don't need to verify your identity like you do with custodial wallets, like the ones offered by services like Telegram. This means that the private key is the only way to prove that you own the cryptocurrency.
DFSA assessment: It's important to be aware of any potential regulatory requirements.
While not subject to MiCA, some software wallets offer integrated interfaces to fully decentralised services in addition to their wallet services. According to Thygesen, these kinds of integrations could potentially be regulated separately from MiCA if they aren't provided in a fully decentralised way. For example, if a software wallet runs orders on a decentralised exchange for clients, it might need authorisation if a legal entity is behind it and is offering this as a service to clients. That's what the DFSA official explained. He added, “These cases are often pretty complex, so we’d have to look at them on a case-by-case basis.” The idea is to make people aware of the potential regulatory requirements and to show that the DFSA is open to discussing whether certain offerings in Denmark fall under the MiCA regulation.
