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The era of the brass plate office is over. Regulators across the EU, Singapore, and a growing number of jurisdictions beyond them have moved from accepting nominal presence as a licensing condition to actively investigating whether a firm’s management, capital, and core operations actually sit within the jurisdiction on the license.
For crypto founders building toward authorization in 2026, operational substance is not a post-licensing concern. It is an application prerequisite that national competent authorities verify before they approve, and revisit during supervision afterward.
TABLE OF CONTENTS:
The End of Shell Operations: Moving Beyond Nominal Presence
VASP licensing frameworks have moved decisively away from accepting remote-only structures, and enforcement patterns in 2024 and 2025 made that shift impossible to ignore. Multiple EU national competent authorities conducted on-site visits to verify that applicants’ physical premises were functional rather than ceremonial.
The Financial Action Task Force’s updated Recommendation 15 guidance reinforced the expectation that virtual asset service providers maintain genuine local infrastructure in the jurisdictions where they hold authorization.
The standard regulators now apply is commonly described as mind and management: where do the people with actual decision-making authority sit, and where do the core activities of the licensed business occur? A registered address with a forwarding service and a nominee director does not answer either question.
A firm whose compliance function is entirely staffed from a non-licensed jurisdiction, whose board meetings are held remotely with no members resident locally, and whose IT infrastructure is hosted entirely abroad will face challenge at application or on examination.
Substance requirements are not uniform across frameworks. The specific thresholds for staffing, physical presence, and local governance vary by jurisdiction and license type. What is consistent is the direction of travel: every major digital asset regulatory framework introduced or revised since 2022 has increased its substance expectations relative to its predecessor.
EU Requirements: Physicality and Local Decision-Making under MiCA
A CASP license under MiCA requires a registered office in an EU member state where at least part of the firm’s services are genuinely performed. The regulation goes further than an address requirement. It mandates that the management body of the authorized entity includes individuals who direct the business with sufficient authority and who are present in the EEA with the frequency required for that role.
Key function holders in compliance, risk management, and internal audit must be based within the EU.
The European Banking Authority’s guidelines on internal governance, which MiCA extends to CASPs, specify minimum requirements for management body composition, the separation of executive and oversight functions, and the documentation of decision-making processes.
A firm whose compliance officer is located in a third country and whose risk committee meetings are held virtually without any EEA-resident quorum is unlikely to satisfy these requirements as written.
Operational autonomy of the local entity matters as much as its staffing. A subsidiary that exists purely to hold a license while all commercial decisions are made by a non-EU parent runs into the substance objection directly.
National competent authorities, particularly the KNF in Poland, De Nederlandsche Bank, and the Central Bank of Ireland, have each signaled in published guidance that effective decision-making authority must reside within the authorized entity, not merely be ratified by it.
The practical implication is that EU market entry requires resource planning for genuine local operations before the application is submitted. Firms that treat substance as a structure to build after authorization is granted typically find that the application itself cannot be completed to the required standard without it.
Singapore’s Mandates: Permanent Business and Resident Leadership
Singapore’s digital payment token framework under the Payment Services Act requires firms holding a Major Payment Institution license to maintain a permanent place of business in Singapore and to appoint at least one executive director who is ordinarily resident in the country. These are not soft expectations. The Monetary Authority of Singapore treats them as conditions of licensing, not post-authorization administrative requirements.
The resident executive director obligation carries real governance weight. That individual must be actively involved in running the business, not a nominal appointment designed to satisfy the residency checkbox.
The MAS assesses whether the resident director has the authority, the knowledge, and the operational involvement to be genuinely responsible for the firm’s compliance with its licensing obligations in Singapore.
LegalBison’s licensing specialists assist founders with the practical elements of meeting Singapore’s substance requirements: identifying qualified resident director candidates, advising on local office procurement that satisfies MAS inspection standards, and structuring local employment arrangements that reflect genuine operational commitment.
This is the kind of expert crypto licensing service that is most efficiently engaged in the pre-application phase, when substance decisions can be integrated into the overall group structure rather than retrofitted after authorization.
Key Indicators: How Regulators Assess Substance in Practice
Regulators do not assess substance through a single indicator. They build a picture from the correlation between where capital is deployed, where management sits, and where the core activities of the crypto license are actually performed.
The management nexus test looks at board composition and meeting patterns. Where are board members resident? Where do meetings physically occur? Who holds signing authority over the licensed entity’s accounts, and where do they sit? Boards that never convene in the licensing jurisdiction, or that include no members with genuine local ties, present a substance profile that supervision will flag.
Resource deployment provides the operational evidence. Local bank accounts in the licensing jurisdiction, local payroll for resident staff, locally hosted or locally controlled data infrastructure, and local procurement of operational services all contribute to the substance picture. A firm with a registered office but no local payroll, no local bank account, and all technology hosted in a third-country data center has not established substance in any meaningful sense.
Contract flows matter. Where are client agreements governed? Where is revenue recorded? Where do the firm’s material outsourcing arrangements run? The direction of those flows tells a regulator whether the licensed entity is the operational center of the business or a licensing shell for a business conducted elsewhere.
LegalBison works with crypto founders and licensed operators on substance planning across more than 50 jurisdictions, from pre-application structure design through to the ongoing governance frameworks required to maintain authorization. More information is available at legalbison.com.