"In recent years, we have seen a real boom in the
establishment of cryptocurrency exchanges in Lithuania, mainly determined by
favorable regulation. We managed to become the largest center in terms of their
number in the European Union with such names operating in the market as
"Binance" or "Coingate".
Cryptocurrency exchanges in Lithuania were established at
such a speed last year that in some months 50-70 per month or even 2 were registered per
day, and at the end of last year their number reached 750. Even knowing that
not all of them are active, because registrations simply in order to be able to
operate from an EU country, Lithuania appeared on the global map of the
crypto-asset business in just a year or a half.
It's no secret that crypto currency exchange operators from
all over the world were encouraged to register in our country not only by
Lithuania's well-earned name as a regional financial technology (FinTech)
center, the success of institutions such as "Invest in Lithuania" in
attracting investments or good internet infrastructure, but also by the actions
of our neighboring countries .
And here you can point the finger at Estonia, which is
determined to deliberately reduce the number of such exchanges and to
"cleanse" its financial sector of them as a preventive measure.
Having received unwanted attention due to money laundering scandals and
warnings from international institutions, Estonia initiated several tightening
of regulations, which made Lithuania the natural second choice for these
exchanges due to the relatively easy registration of their domicile.
The latest tightening is the second
Lithuania kept the gate open for crypto exchange operators
and practically did not apply the requirements until 2020.
However, in 2020 the new obligations that entered into force
in January were not particularly strict - it was enough for the exchange to
operate as a legal entity, inform the Registry Center about its activities,
appoint a person responsible for the prevention of money laundering, store
information about transactions for 8 years and comply with other requirements
of the Law on the Prevention of Money Laundering and Terrorist Financing.
The new obligations of Lithuania did not frighten
cryptocurrency exchanges and their influx, which began in 2021. autumn,
continued until the fall of last year. November 1, 2022 the
activities of crypto-exchanges were quite strongly tightened after the new
version of the Law on the Prevention of Money Laundering and Terrorist
Financing came into force.
Although, according to the new law, the activities
of companies in this field continued to be unlicensed, requirements such as:
● it is mandatory to inform the Register of Legal Entities
within 5 working days from the start or end of the activity;
● it is necessary to appoint a senior manager who is a
permanent resident of Lithuania;
● the authorized capital must be at least 125,000 euros;
● it is mandatory to appoint leading employees who would
cooperate with the Financial Crimes Investigation Service (FNTT);
● it is not possible to carry out activities and provide
services in another country to such an extent that only non-essential functions
or services remain in Lithuania;
● a member of supervisory bodies and a beneficiary can only
be a natural person with an impeccable reputation;
● it is mandatory to provide the FNTT with information on
the performed virtual currency exchange operations, if their value is equal to
or exceeds 15,000 euros;
● It is mandatory to determine and verify the customer's
identity if a transaction worth at least 700 euros is made (this requirement
came into force on January 1, 2023);
● FNTT must report all suspicious monetary transactions or
transactions;
● all internal policies and internal control procedures that
provide for this must be established.
An obvious signal of Lithuania
The new requirements brought chaos to the activities of
crypto exchanges operating in the country and clearly showed that Lithuania no
longer wants to be an almost unregulated center of crypto exchanges.
The Bank of Lithuania also publicly expressed the
expectation that after the tightening of the activities of virtual currency
companies in Lithuania starting from November, their number, which was the
largest in the EU last year, should decrease.
"Let's hope that the sector will become more
sustainable and maybe that number of registered companies will change after
ensuring that these requirements are met," said Simonas Krėpšta, a member
of the board of the Bank of Lithuania.
It is true that it is necessary to tighten
There is no doubt that the time to tighten anti-money
laundering and terrorist financing requirements for cryptocurrency exchange
operators is long overdue.
The days of the Wild West in the world of crypto-currencies
are over and this emerging business niche must begin to meet the same
requirements as the rest of the financial sector.
And this is only once again proven by the widely publicized
collapse of the cryptocurrency exchange FTX last year or the loopholes of the
US-registered cryptocurrency exchange Coinbase that came to light in the first
days of this year, costing the company about 100 million US dollars.
Such scandals prove that exchanges must sometimes increase
their attention to money laundering prevention, the development of internal
control systems and the monitoring of business relationships and transactions.
And then everything does not have to be self-created solutions based on blockchain
technology, but in the way that the "old" representatives of the
financial world - banks, funds or investment management companies - have been
doing for years. Blockchain technologies are good for investigating and tracing
suspicious transactions, but preventive transaction monitoring and money
laundering risk management require other solutions.
A few years ago, the lessons were well understood by the
FinTech sector, and now it is the turn of cryptocurrency operators.
Overpushing would be a mistake
And yet, there is no doubt that there must be room for
cryptocurrency companies in the financial system.
The world has changed and it is unlikely that there will be
a return to a world without virtual money. Last year, the number of
cryptocurrency exchange customers reached 320 million. Even central banks,
which have been skeptical of virtual ones for a while, are now piloting them
themselves. The value of crypto assets in the world already reaches 2.2
trillion US dollars.
Lithuania, being a mature regional FinTech center, must take
advantage of this opportunity and create conditions for the sustainable
activity of crypto-currency companies, as this not only ensures the country's
uniqueness, but also means attracting new competences, jobs and investments.
Binance alone paid more than 25 million
euros to the Lithuanian budget last year in taxes and became one of the largest taxpayers in the country. It is
hard to imagine a "FinTech" center without cryptocurrency business
representatives also developing their activities there.
It is especially important both for the regulators to
encourage and for the companies themselves to properly put together operational
safeguards and pay enough attention to the prevention of money laundering and
terrorist financing, so that they don't have to whitewash their image damaged
by scandals for years and pay huge fines.
Lithuania, by regulating the crypto-currency exchange sector
before MiCA, which will unify the regulation of crypto-currency companies,
enters into force throughout the EU, has already acted with foresight, and it
is important not to lose the aspiration to be one step ahead."
Lithuania is moving one step ahead into a swamp. Requirement to duplicate the information (once everything goes into a database like in a regular bank, second time goes into a blockchain) kills efficiency and ability to compete with other regular banks.
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