2023-12-12
Lithuanian authorities: requirements for crypto-asset companies must be tightened immediately
In view of a significant increase in the risk of the crypto-asset sector, Lithuanian authorities are tightening the requirements for companies providing these services in Lithuania. The heads of the Bank of Lithuania, the Ministry of the Interior, the Ministry of Finance and the Financial Crime Investigation Service (FCIS) warn that if no actions are taken, it will ruin Lithuania’s reputation as a reliable jurisdiction, which would negatively affect the country’s financial system, investment climate and international fintech companies operating in Lithuania.
“The activities of the crypto-asset sector are innovative, but crypto-assets are also often used as a tool for money laundering and fraud. The Bank of Lithuania has repeatedly warned consumers, financial market participants and institutions about these risks. It is extremely important that the crypto-asset market is properly controlled, therefore, it is necessary to strengthen the legal regulation in Lithuania, and we are actively contributing our expertise to preparing concrete measures, initiating and submitting proposals,” says Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania.
“In order to manage risks, we will ensure closer supervision of crypto-asset service providers. Financial institutions will be able to identify potential money laundering and terrorist financing and provide more detailed information to the FCIS more effectively. This will allow faster investigations and prevention of possible crimes in the future. In this respect, close cooperation between supervisory authorities – the FCIS and the Bank of Lithuania – is particularly important,” says Agnė Bilotaitė, Minister of the Interior.
“The Ministry of Finance, without waiting for the requirements of the European Regulation on markets in crypto-assets (MiCA) to enter into force in 2025, took the lead and drafted and submitted for coordination with other institutions a number of draft laws setting new operational requirements for the providers of these services and establishing their licensing process. This will create preconditions for the sustainable development of the crypto-asset sector as part of the wider fintech ecosystem of Lithuania, ensuring greater transparency and higher quality standards within the sector. In a way, it will make the market more transparent: companies which follow a sustainable business model will benefit from the new regulation and will not have a hard time adapting, while others will have to rethink their business model or exit the market altogether,” says Vaida Markevičienė, Vice-Minister of Finance.
“Enforcement measures were imposed on twelve companies following the inspections on virtual currency operators carried out last year and this year. They were fined from €2.7 thousand to €220 thousand. Warnings were issued to two companies. The total amount of fines imposed on operators carrying out these activities in 2023 for infringements of the Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing amounts to nearly €0.5 million. We have noticed that companies in this sector are playing fast and loose with the implementation of the prevention of money laundering, and it is therefore necessary to continue to take measures to ensure the stability of the sector and contain potential risks. Over the course of the year, 24 companies of virtual currency operators have been inspected. We intend to continue conducting the inspections,” says Rolandas Kiškis, Director of the FCIS.
Lithuania has seen significant growth in the number of crypto-asset companies in recent years, from 9 in 2020 to 850 at the end of 2022. In view of the risks, the Bank of Lithuania, the Ministry of Finance and the FCIS have jointly initiated amendments to the Law on the Prevention of Money Laundering and Terrorist Financing, on the basis of which the legal framework was tightened in 2022. This led to a decrease in the number of crypto-asset companies to 200 at the beginning of 2023, but it significantly rose again (to 540 companies). Lithuania ranks second in the European Union (EU) after Poland in terms of the number of registered crypto-asset companies.
Practice has shown the low maturity of the crypto-asset sector, the inability to comply with the requirements, including the avoidance of reporting suspicious monetary transactions to the FCIS.
At the end of November, the Government adopted a package of measures prepared by the Bank of Lithuania, the Ministry of the Interior, the Ministry of Finance and other ministries, which further tightens the supervision of crypto-asset service providers and gives more power to the FCIS. Tightening regulation is also envisaged in the future, and interinstitutional cooperation and information exchange are constantly strengthened.
Lithuanian authorities are actively preparing for the MiCA Regulation, which will enter into force on 30 December 2024. It should be noted that it provides for a transitional period (until 1 July 2026) for crypto-asset service providers to adapt to the new requirements. However, the emerging significant risks of money laundering, terrorist financing, circumvention of international sanctions and fraud in this sector lead to the need for the preparation and implementation of this Regulation in Lithuania to start as soon as possible. Therefore, the draft laws propose not to apply this transitional period in Lithuania and to start implementing the requirements of the MiCA Regulation earlier, from 30 December 2024, and the controlling authorities have to start preparatory work before the entry into force of this Regulation.
The fact that crypto-asset service providers, like other financial market participants, will be regulated and that there will be consumer protection requirements constitutes the fundamental change. The amendments will enter into force at the EU level. The Bank of Lithuania will be responsible for licensing crypto-asset market participants and, together with the FCIS, will share their supervision in the field of money laundering prevention and terrorist financing. The central bank stresses that only companies that will pay due attention to compliance, anti-money laundering and terrorist financing requirements and quality of services will be eligible for a licence.