Getting ready for MiCA Compliance

2023-05-05

Lithuania has a comprehensive and clear crypto-related business regulatory environment. There are official written positions on crypto-related services and applicable requirements issued from such national authorities like the Bank of Lithuania, the Financial Crime Investigation Service, the Tax Authority, etc.

Lithuania, a country with a strong focus to crypto, has taken proactive measures to address legislative gaps and provide regulatory clarity to the crypto market. Even before the approval of the EU Markets in Crypto Assets regulation (MiCA), Lithuania had already implemented measures to ensure that the crypto industry was compliant with regulations. With the recent adoption of the unified EU regulation MiCA upcoming changes to the regulatory framework will enable crypto operations to be structured in a compliant, efficient, and sustainable manner, allowing for long-term growth in the industry.

Noewe Legal & Tax team prepared an overview of the main upcoming regulatory changes of Lithuanian crypto market, which shall come into force once the MiCA will be fully implemented (in the second half of 2024). The list of requirements outlined by MiCA is more comprehensive than the examples provided in the table below. Nevertheless, the selected examples will provide a useful overview of the organizational measures that need to be put in place to ensure your business is ready to operate under the new regulatory framework.

Overview of Regulatory Changes

NOW

AFTER MiCA COMES INTO FORCE
(second half of the 2024)

Virtual currency exchange or depository wallet operator must have an authorized capital of at least EUR 125 000.

Minimum capital requirements
for crypto-asset service providers
varies from EUR 50 000 – 150 000, depending on the Class of services
(there are Class 1-3). For instance,
crypto assets wallet operator (Class 2) shall have an authorized capital of at
least EUR 125 000, respectively crypto asset exchange platform operator
(Class 3) – EUR 150 000.

Virtual currency exchange or depository wallet operator must have an authorized capital of at least EUR 125 000.

Impeccable reputation for all natural persons involved in the management body of the applicant crypto-asset
service provider, and for all natural persons who, directly or indirectly, hold 20% or more of the share capital or voting rights (i.e., no violations of criminal or other laws, etc.). Proof that the natural persons involved in the management body of the applicant crypto-asset service provider collectively possess sufficient knowledge, skills and experience to manage that provider and that those natural persons are required to commit sufficient time to the performance of their duties.

All virtual currency exchange and depository wallet operators will be included in the public list maintained by the Register of Legal Entities.

The European Securities and Markets Authority (ESMA) shall establish a register of all EU crypto-asset service providers. That register shall be publicly available on its website and shall be updated on a regular basis.

Legal persons with other legal form than private limited company or public limited company (or branches) will be required to have a surety bond issued by insurance company or a surety or guarantee document issued by a financial institution for an amount of at least EUR 100 000 for a single customer claim and EUR 500 000 for overall customers’ claims per year.

No changes will be applied.

All or at least some of the operations must be carried out in Lithuania to ensure that no situation under which only non-essential functions are performed within Lithuania.

No changes will be applied.

Money Laundering Reporting Officer (MLRO), who is a permanent resident of Lithuania, must be employed. Such person can only perform functions within one company (unless another company is a part of the same group of companies).

No changes will be applied.

Customer identification shall be performed for transactions amounting to or exceeding EUR 700.

No changes will be applied.

The Lithuanian Anti-Money Laundering (AML) regulation implies travel rule, which has to be performed and complied with at all times.

The crypto-assets service provider must comply with the Financial Action Task Force (FATF) recommendation No 16 and EU Transfer of Funds Regulation (2015/847), which implies travel rule and enters into the force from 2025.

Additional requirements for crypto-asset service providers after MiCA

Crypto-asset service providers shall, at all times, have in place prudential safeguards equal to an amount of at least the higher of the following:

  • the amount of permanent minimum capital requirements indicated;
  • one quarter of the fixed overheads of the preceding year, reviewed annually.

Crypto-asset service providers shall, promptly place any client’s funds, with a central bank or a credit institution. Crypto-asset service providers shall take all necessary steps to ensure that the clients’ funds held with a central bank or a credit institution are held in an account or accounts separately identifiable from any accounts used to hold funds belonging to the crypto-asset service provider.

Crypto-asset service providers shall establish and maintain effective and transparent procedures for the prompt, fair and consistent handling of complaints received from clients.

Crypto-asset service providers shall arrange for records to be kept of all crypto-asset services, orders and transactions undertaken by them.

Crypto-asset service provider must provide to a competent authority a programme of operations setting out the types of crypto-asset services that the applicant crypto-asset service provider wishes to provide, including where and how these services are to be marketed and the website operated by that provider.

Crypto-assets service provider must prepare additional policies such as: a description both in technical and non-technical language of applicant crypto-asset service provider’s IT systems and security arrangements, a description of the procedure and system to detect market abuse, a description of the procedure for the segregation of client’s crypto-assets and funds etc.

Where the applicant crypto-asset service provider intends to provide additional services, depending on the service additional policies should be prepared such as: custody policy, a description of the operating rules of the trading platform, execution policy etc.

Crypto-asset service providers shall comply with outsourcing requirements, including on contingency plans, policies and exit strategies, which ensure business continuity.

Crypto-asset service providers shall provide their clients with fair, clear and not misleading information, in particular, in marketing communications, which shall be identified as such. Crypto-asset service providers shall not, deliberately or negligently, mislead a client in relation to the real or perceived advantages of any crypto-assets. The pricing policies should be made publicly available, by online posting with a prominent place on the website.

Some firms subject to Union legislation on financial services should be allowed to provide crypto-asset services without prior authorisation. Credit institutions authorised under Directive 2013/36/EU should not need another authorisation to provide crypto-asset services. Investment firms authorised under Directive 2014/65/EU to provide one or several investment services as defined under that Directive similar to the crypto-asset services they intend to provide should also be allowed to provide crypto-asset services across the Union without another authorisation.

Next steps

As the date of application of MiCA is rapidly approaching, it is imperative that all concerned parties take the necessary steps to ensure compliance with the new regulatory framework. This involves obtaining the required licenses or providing necessary notifications, preparing white papers, creating new policies, and revising the existing ones in accordance with the new regulations and procedures. As well as revising contracts and arrangements with external providers.

Failure to comply with these obligations may result in regulatory action, which could have severe consequences for your business operations. Therefore, we strongly recommend that you take proactive measures to ensure compliance with the new regulatory regime.

We would be glad to help prepare your business operations for full compliance with new regulatory standards established by MiCA.

Please do not hesitate to contact us for further information. We are committed to ensuring your business smooth transition to the new regulatory reality.

Noewe Legal & Tax team:

Gediminas Laucius, Managing Partner, Legal & Tax Services

Sandra Pavlova, Associate Partner, Corporate Tax Services

Vytautas Vičius, Partner, Legal Services

Rita Tamulytė, Associate Partner, Compliance Services

Einoras Vaičiūnas, Senior Associate, Finance & Banking

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