Antsy Lithuania Latest to Anticipate EU Crypto Law With One of Its Own
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Lithuania is the latest impatient member of the European Union seeking to jump the gun by creating its own crypto licensing regime, because EU laws might come too late to safeguard the sectorâs reputation, local ministers told CoinDesk.
With Brusselsâ landmark law â the Markets in Crypto Assets Regulation (MiCA) â potentially not in force until 2025, the Baltic nation wants to do its âhomeworkâ in advance, the countryâs deputy finance minister told CoinDesk. But the plans for the law, which is set to be debated in the countryâs parliament, are making some companies based in Lithuania fear for their future.
The EU is in the final stages of negotiating MiCA. The single authorization regime for the bloc of 27 nations has been years coming and could transform the sector by allowing businesses to tap a market of hundreds of millions. Some countries, however, canât wait to grab their slice of the burgeoning sector.
The European Commission, the EU's governing body, first asked for advice on how existing regulations apply to crypto in March 2018. Since then, crypto uptake has ballooned, and entire initiatives such as the Facebook-backed Libra, then renamed Diem, were born and died.
Even once lawmakers iron out their final wrinkles in the law, like how to treat Libra-like stablecoins, non-fungible tokens and decentralized finance, there will be a transition period for as long as two years before MiCA takes effect.
Read more: EU Commission Favors Ban on Large-Scale Stablecoins, Document Shows
âMiCA is kind of the biggest thing that's upcoming, it's a good decision; we support it,â Mindaugas Liutvinskas, vice minister in the Lithuanian ministry of finance, told CoinDesk in an interview. âBut before we get there, it's, what? 2025, end of 2024; we still have quite a lot of time.
âWhat we decided to do is take practice steps, do all our homework, to strengthen our regulatory framework,â he said, calling his proposed law a âquick fixâ that MiCA can then take âto the next level.â
Image problem
Liutvinskas is worried that unless he acts fast, less upstanding companies might bring down the sectorâs image.
âFor both the government and market participants, the worst-case scenario would be to have some sort of a bad situation, some sort of scandal in terms of money laundering or circumventing sanctions,â he said. âReputation is an essential resource in this line of business.â
Read more: In Estonia, the Partyâs Over for 'Hippie' Crypto Firms
Like regulators in Estonia, Liutvinskas says he welcomes sound companies, but not empty shells that merely register in the country but operate from elsewhere.
The main provisions of the proposed law have already been published in draft and will be presented to parliament in early summer. They include a MiCA-style requirement to hold 125,000 euros ($133,000) in capital and to have anti-money-laundering staff physically based in the country. The industry, meanwhile, is hoping that measures will be brought in on a slower timeline.
Capital
Liutvinskas has already agreed not to implement money-laundering identity checks right away, not least because itâs not clear what the EU will expect. Negotiations were thrown up in the air by what he calls âout-of-the-box thinkingâ from the European Parliament, which wants a tighter grip on transactions with crypto wallets not hosted by a regulated exchange.
And itâs in this area where his proposals appear to have drawn criticism from the crypto sector, which complains Lithuania is going it alone in a global market, given that in practice many jurisdictions worldwide haven't yet implemented norms set by the Financial Action Task Force, a global anti-money-laundering watchdog.
Requirements on virtual asset service providers (VASPs) to identify their customers, even for the smallest of transactions, âdo not make sense,â with administrative burdens out of proportion to the risk, said AgnÄ SmagurauskaitÄ, legal counsel at CoinGate, a Lithuania-based payment and trading company.
âVASPs in other jurisdictions will not have the same obligation for data sharing which makes it close to impossible to transact with them,â she told CoinDesk in an email. And the lack of an equivalent to the banking-sector messaging service SWIFT means information may not be secure, she said.
See also: Cyprus Deputy Minister on Drafting Crypto Bill Ahead of EU Regulatory Framework
She says she supports measures to make markets more transparent and trustworthy, but not those that kill innovation or the ability to compete.
In the draft bill, âthere are some points that completely destroy Lithuania's VASP market,â she said.
Tweaks
There may yet be more tweaks in the offing for a law that Liutvinskas admits isn't yet âfully cut into stone.â But other industry representatives reckon the new legislation, which could be in force by later this year, wonât do any damage to the countryâs status as a crypto hub.
Companies âusually don't likeâ stricter rules being introduced, KÄstutis Kvainauskas, a lawyer based at consultancy Ecovis ProventusLaw, told CoinDesk, but he said that âLithuanian requirements actually are still considered as quite liberal.â
Read more: EU Parliament Passes Privacy-Busting Crypto Rules Despite Industry Criticism
The direction of travel, toward MiCA-style rules, is inevitable, Kvainauskas believes, and maybe smaller jurisdictions are just trying to get ahead of the game.
âAt the moment, I do not see other jurisdictions able to offer something similar [to what] Lithuania can offer,â with authorization offering wide access to markets across Europe, he said.
U.K. emigrants
The country might even prove an attractive home to companies fleeing places like Estonia or the U.K., where, Kvainauskas notes, the Financial Conduct Authority, the U.K.'s financial regulator, has seemed to be unwilling to extend its current temporary registration regime.
Liutvinskas might balk at the idea that companies are merely seeking the jurisdiction with the lightest rules, saying that the practice known as regulatory arbitrage âis not something that we want to have.â
But, Liutvinskas added, Lithuania is âan innovation-friendly fintech friendly jurisdictionâŠ. We welcome all innovative businesses that have sound business models.â