Currently, the Anti-Money Laundering and Countering the Financing of Terrorism (“AML/CTF”) rules are in force to prevent money laundering, terrorist financing, circumvention of international sanctions and fraud, but the new regime will further promote transparency, financial markets stability and protect consumers against the speculatory nature of the crypto-assets market. Therefore, the country is taking active steps to ensure compliance and clarity of its regulatory landscape.
Under the existing framework, companies willing to operate a crypto-asset business have to register the company in a special register of cryptocurrency companies in accordance with the requirements set out in the AML and CTF rules.
AML Changes
In April 2024, the government legislated some changes to the AML rules, targeting the activities of virtual currency exchange operators and virtual currency wallet depository operators. The introduced changes are to enter into force on 1 August 2024.
Now, to conduct these business activities the company should be incorporated either as a public limited company or a private limited company with a registered capital of at least EUR 125,000 and should maintain its equity at the level of at least EUR 125,000 at all times. Furthermore, during the establishment and increase of the share capital, the funds forming the share capital shall be deposited to an account in a credit institution of the Republic of Lithuania or a credit institution of a member state of the European Union with a branch in the Republic of Lithuania.
In the case, a company is incorporated in other legal forms or a branch of a legal entity of a Member State of the European Union or a foreign state intends to operate as a virtual currency exchange operator and/or a virtual currency wallet operator shall have a performance guarantee issued by an insurance company or a guarantee of a financial institution or a guarantee document in the amount of at least EUR 100,000 for a customer’s claim for damages and EUR 500,000 for all customer’s claims for damages.
In addition, all businesses operating as virtual currency exchange operators or virtual currency wallet depository operators shall inform by 31 August 2024 the Financial Crimes Investigation Service of compliance with the new requirements to maintain, starting from 1 August 2024, equity capital of at least EUR 125,000 and provide evidence of compliance. Failure to comply with the introduced changes and reporting obligation will result in a temporary or permanent prohibition (restriction) of the activities of a virtual currency exchange operator and/or a virtual currency depository wallet operator.
MiCA Implementation
With the aim to implement provisions of the MiCA Regulation, the government has introduced a draft Law on the cryptocurrency markets (“Law”) which also includes some amendments to the existing financial legislation.
Following a round of discussions, the government has decided on a shortened transitional period, until 1 June 2025.
According to the draft Law, the Bank of Lithuania, designated as a supervisory authority of cryptocurrency service providers (“CASPs”), would be issuing two types of licences, a cryptocurrency service provider licence and an asset-linked token issuer licence. To obtain a licence, a company should comply with all the requirements set out in Part 5 of the MiCA Regulation. Other licensed financial market participants will not be required to obtain an additional licence, but will have to inform the supervisor of their intention to engage in the activities referred to in the MiCA Regulation in accordance with the procedure laid down in the MiCA Regulation.
Among the changes, the draft law introduces the requirements for managers and directors of a licensed cryptocurrency service provider and a licensed issuer of asset-linked tokens, highlighting their impeccable reputation, qualifications and experience.
With respect to market integrity and financial stability, the proposed law also outlines the liquidation and insolvency procedures for CASPs, annual audit requirements and obligations for financial accounting and financial reporting.
Concerning cross-border relationships within the crypto-assets market, the government is considering the provisions which would require CASPs in another Member State and providing services in the Republic of Lithuania through intermediaries, natural or legal persons, to establish or appoint a main contact person.
Additionally, the draft law also proposes to impose an obligation for CASPs, when entering into an international business relationship with a respondent involving the provision of cryptocurrency services in the European Union, to gather sufficient information about the respondent entity and to assess the respondent entity’s AML/CFT control measures.
It is also proposed to require CASPs when deciding to terminate international correspondent relationships for reasons related to anti-money laundering and anti-terrorist financing policies, to document and record their decision.
As a supervisory authority, the Bank of Lithuania would have a wide range of powers, from complaints handling procedures to imposing fines for breaches of the MiCA provisions. In addition, it would be entitled to organise and carry out inspections to determine compliance with the MiCA Regulation and appoint independent provisional administrators to the licensed cryptocurrency service provider or the licensed issuer of asset-linked tokens with the aim to assess the financial situation of the company.
Taking into account the expected potential and scale of activities of the financial market participants operating in the crypto-assets market, as well as the risks to be assumed, the law proposes to introduce the specific annual premium amounts: a maximum annual premium of 0.7 percent of the annual revenue of the undertaking, together with a minimum annual premium of EUR 3 000, if the amount of the calculated percentage is less.
Overall, the above-mentioned amendments to the laws will increase regulatory clarity, create the conditions for the sustainable development of the cryptocurrency sector, ensure greater transparency and higher quality standards.
Is it Reasonable to Register a VASP in Lithuania in the Run-up to MiCA?
Lithuania is actively taking steps to align its national provisions with the requirements applicable at the EU level. There are a couple of aspects that help Lithuania retain its popularity among crypto-assets businesses even in times of regulatory turbulence.
First of all, the transitional period until 1 June 2025 gives operating VASPs some time to adjust to the new regulatory landscape.
Furthermore, the government’s approach to introducing legal clarity will ensure a smooth transition for the companies that carry on their business activities in Lithuania’s jurisdiction.
That is why the country is considered to be an attractive place to set up a crypto-assets company, even in the run-up to MiCA.
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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
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