Bank of Lithuania announces its position on virtual currencies and ICO
Financial services must be clearly dissociated from activities related with virtual currencies. Banks, payment institutions and other financial market participants should not provide services associated with virtual currencies or participate in their release: this is the approved position of the Board of the Bank of Lithuania.
‘Virtual currency is an instrument involving high risk, while profiteering on it may lead to significant losses of funds. Therefore, in order to protect the customers of financial institutions, financial institutions legally operating in our country and supervised by the Bank of Lithuania must strictly dissociate themselves from this product type in their activities. An illusion that virtual currencies are supervised or safe can in no way be created,’ says Marius Jurgilas, Member of the Board of the Bank of Lithuania.
According to the Bank of Lithuania’s approved position, financial market participants should not engage in the sale of virtual currencies, provide conditions for customers to pay in payment instruments issued by them (e.g. debit or credit cards, etc.), execute any operations in virtual currencies, and also engage in their exchange or similar activities. Moreover, in their means of communication (website, mobile application, platform, ATM, customer’s electronic account, etc.), they should not link their services to virtual currencies and create an impression that such services are supervised and subject to the same security standards as those applicable to financial services are.
Financial market participants that will provide financial services to customers who offer virtual currencies or are otherwise related to them will have to ensure strict compliance with the requirements for the prevention of money laundering and terrorist financing.
In addition to its position, the Bank of Lithuania provided an explanation to the recently increasingly popular method for attracting capital – initial coin offering (ICO).
‘Notwithstanding the fact that such activities are not regulated, in their essence, they are the raising of funds from investors, often unprofessional, to finance some activity. Since the risk of losing investors’ funds and other risks are particularly high, our position is that such offering, in certain cases, should be subject to investment related legislative requirements and restrictions,’ says Mr Jurgilas.
For example, when coins have features of securities, a prospectus, approved by the regulator, should be drawn up and they should be subject to other requirements of the Law on Securities. Depending on the nature of offering, legal acts regulating crowdfunding, collective investment, and provision of investment services, the secondary market or the formation of a financial market participant’s capital would similarly be applied.
Where at least one of the listed features of legal regulation is applicable to a specific model of virtual coin offering, supervised financial market participants should not engage in activities or provide services associated with virtual currencies, and should stick to the above-named dissociation policy.
Financial services – acceptance of deposits and other repayable funds; lending, leasing, financial mediation; investment, payment, insurance and other services.
Virtual currency – ungoverned and unregulated digital money, which may be used as a means of payment, but is issued into circulation and guaranteed by an institution other than the central bank. Virtual currency may exist in a variety of forms: from virtual currency used in online computer games and social networks to a means of payment. In addition, virtual currency may also comprise means of accumulation for saving or investment purposes, for example, derivatives, commodities or securities.