As Regulation 2023/1114 of the European Parliament and of the Council on Cryptocurrency Markets (“MiCA Regulation”) has not entered into force yet, EU Member States have different rules on the regulation of virtual currency exchanges and depositary virtual currency wallet operators. In Lithuania, While these types of activities are not subject to harsh regulations in Lithuania, undertakings willing to provide such services in Estonia have to go through a rather complex licensing process.
The main differences in the regulation of virtual currency exchanges and depositary virtual currency wallet operators (“Operators”) in Lithuania and Estonia are presented below.
In Lithuania, the activities of Operators are not licensed, but such entity must inform the Registrar of Legal Entities of the commencement of such activities within five working days of the commencement of the activity. By submitting this information, an Operator shall confirm that it or the members and beneficiaries of its management or supervisory bodies are aware of and comply with the legislation on money laundering and the prevention of terrorist financing.
Scale of operations in Lithuania. An Operator must not carry out activities or provide services in another jurisdiction to such an extent that only functions or services which are not essential by the nature of their activity remain in Lithuania and are carried out or provided exclusively to customers of the other country or, in principle, cease to operate in Lithuania.
Capital. A company established in Lithuania intending to carry out the activities of the Operator must have a registered share capital of at least EUR 125’000.
Managers and other senior staff. The Law on the Prevention of Money Laundering and Terrorist Financing (AML/CFT Law) lays down certain requirements for the management and supervisory bodies and beneficiaries of virtual currency exchange operators or depositary virtual currency wallet operators:
- The manager, the members of the board of directors or the supervisory board, and the beneficiaries must be of impeccable repute. This means that such persons cannot be natural persons who are:
- found guilty of a serious or very serious offence;
- convicted of a petty or petty offence against property, property rights and property interests, economic and business order, the financial system, the civil service and public interests, public security, or an offence corresponding to any of these offences under the criminal laws of other countries, and where no more than 5 years have elapsed since the expiration or revocation of the person’s criminal record;
- convicted of any other criminal offence and convicted within 3 years of the date of completion of the sentence, suspension of sentence or release from serving the sentence.
- Must have a senior manager who is a permanent resident of Lithuania.
Compliance with prevention of money laundering and terrorist financing requirements. The Operator of must comply with the requirements of the AML/CFT Law, including:
- identify and verify the identity of the client and the beneficiary before entering into a business relationship;
- establish and verify the identity of the customer before carrying out virtual currency exchange operations or transactions in virtual currency with funds equal to or exceeding EUR 700 (or the equivalent amount in another currency), or before depositing or withdrawing virtual currency into or from a virtual currency wallet, in an amount equal to or exceeding EUR 700 (or the equivalent amount in another currency), whether the transaction is effected by one or more interrelated transactions (the value of the virtual currency being determined at the time of the monetary transaction or at the time of the conclusion of the transaction), unless the identity of the customer and the beneficiary has already been established;
- appoint senior staff to organise the implementation of the measures provided for in the AML/CFT Law and to cooperate with the Financial Crime Investigation Service (“FNTT”). If a management board (board of directors) is formed, it is mandatory to appoint a board member to organise the implementation of the measures provided for in the AML/CFT Law and senior staff to cooperate with the FNTT. The appointment of such persons must be communicated to the FNTT within seven working days;
- managers shall represent only one Operator at the same time, unless those operators belong to the same group of undertakings.
In Estonia, the activities of the Operators. The licence shall be issued within 60 working days from the date of application. The deadline may be extended for a further 120 days.
Together with the application, the applicant must submit the following documents and information to the Estonian Financial Intelligence Unit:
- a 2-year business plan detailing the planned activities, financial projections, general risk management principles and risk management strategy, etc;
- a description of IT systems;
- information on the integrity of the reputation of the applicant’s management beneficiaries;
- information on the education and experience of the managers required for the planned activities;
- internal procedures for the implementation of measures to prevent money laundering and terrorist financing;
- documents certifying the appointment of the member of the Board and the staff member responsible for the implementation of the prevention of money laundering and terrorist financing. As in Lithuania, the employee must be resident in Estonia;
- documents certifying the appointment of the official responsible for implementing international sanctions.
The licence fee is EUR 10’000.
Capital requirements. A company established in Estonia intending to carry on the business of a virtual currency exchange operator and/or a depository virtual currency wallet operator must have a registered share capital of at least EUR 100 000.
Managers. Managers of the Operator shall have a university degree and at least 2 years of experience in the field of activity envisaged. The same person may be a member of the board of directors of no more than 2 companies providing virtual currency services.
Compliance with prevention of money laundering and terrorist financing requirements. The Operator is obliged to implement the requirements for the prevention of money laundering and terrorist financing set out in the Estonian Act on the Prevention of Money Laundering and Terrorist Financing. A person may only be responsible for the implementation of AML/CFT or hold other managerial positions in one company providing virtual currency services.
Before choosing the jurisdiction in which you plan to set up a company to operate as a virtual currency exchange operator and/or a depository virtual currency wallet operator (e.g. between Lithuania and Estonia), we recommend that you assess the extent to which you realistically intend to operate in that particular jurisdiction. Despite the different regulation of virtual services, EU Member States are united by the fact that a significant part of the activity must take place in the country where the entity is established. And while these entities are currently licensed in Estonia, this licence is not a licence under MiCA – the licensing process will have to be repeated once this regulation comes into force.