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Lithuania to Regulate Cryptocurrency Exchange Sector With Obligatory ID Checks

The Baltic nation’s finance ministry will prepare new rules in line with EU directives on anti-money laundering.

Lithuania is preparing new rules to govern cryptocurrency transactions, requiring businesses to prove the identity of clients, local daily news outlet Delfi reported on June 12.

As part of its obligations to impose European Union anti-money laundering (AML) regulations, Lithuania’s finance ministry will seek to completely formalize crypto-based exchange operations.

Parliament approved the move during a sitting on Wednesday, Delfi says, while a time frame remains uncertain for implementation.

Once the rules come into effect, any transactions worth over €1,000 ($1,127) involving cryptocurrency — be it into or out of fiat or from one cryptocurrency to another — will face stringent reporting requirements.

Exchanges or similar businesses will have to gather identity information about the buyer, while large operations over €15,000 ($16,919) will oblige them to inform Lithuania’s Financial Crime Investigation Service.

Slightly different rules will apply to issuers of tokens — i.e. initial coin offerings — for which ID requirements will kick in once a sale passes €3,000 ($3,383).

At present, Lithuania does not formally regulate its crypto exchange sphere at all, Delfi notes.

The changes come as jurisdictions worldwide prepare to implement controversial recommendations from the intergovernmental Financial Action Task Force.

As Cointelegraph reported, the guidelines, which all G20 nations have agreed to, will be published on June 21 and impose similar ID demands on crypto-based transactions.

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Lithuanian Gov’t Releases ICO Guidelines That Aim to Create ‘Certainty and Transparency’

Lithuania has released comprehensive new “guidelines” on Initial Coin Offerings (ICOs) in a document published June 8.  Officials are heralding the move as a “step towards certainty and transparency” in the country.

Coming two months after the government set up a roundtable to establish dialogue between banks, ICO operators and other entities, the guidelines see confirmation from Minister of Finance Vilius Šapoka that ICOs “should be regulated.”

“Lithuania already has an exceptional regulatory advantage. We are one of the first ones in Europe who prepared comprehensive Guidelines on legal framework for ICO projects covering regulatory as well as taxation and accounting,” he said in introductory remarks, continuing:

“We acknowledge that the brave new crypto economy world is here to stay, this is why we encourage and invite its participants to innovate and create in Lithuania.”

Covering a wide range of regulatory aspects including taxation, accounting and anti-money laundering (AML), lawmakers appear to single out an ICO token’s “granting profits or governance rights” as the key determining factor as to whether it constitutes a security.

Lithuania’s approach seeks to smooth over the gaps in legislative understanding for both consumers and businesses involving themselves in ICO token handling.

“These Guidelines are another step towards more certainty and transparency in the regulatory, taxation, accounting and other requirements as well as better cooperation between different stakeholders,” the introduction continues.

The issue of whether or not crypto tokens should be classified as securities currently forms the focus of a major probe by U.S. and Canadian regulators. In the U.S. the Securities and Exchange Commission (SEC) last week admitted it was “underwhelmed” by the lack of cryptocurrency entities registering as securities operators.

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Lithuania Issues Guidelines for When ICO Tokens Are Securities

Lithuania’s Ministry of Finance has issued guidelines on initial coin offerings (ICOs), outlining when cryptographic tokens would be viewed as securities and how each aspect of a token sale should be regulated by different laws in the country.

According to the document published Friday, a defining feature in the recommended framework is whether a token “grants profits or governance rights” to investors who obtain the token through an ICO.

While existing civil code should apply to all projects with tokens that can only be used as a payment tool or the right to access certain products, a variety of financial regulations should apply if a token grants profits or governance rights.

The finance ministry further dissects an ICO into several areas, including tokens that are issued, the entity that organizes the sale, whether it participates in secondary market exchanges and whether the ICO itself is a crowdfunding activity, etc.

It goes on to say that these aspects should be regulated by corresponding laws already in place in Lithuania, such as those governing securities, crowdfunding and financial instruments markets.

While the ministry states that the framework is not a formal piece of legislation, the effort aims to bring transparency to the industry so that ICOs can grow in a regulated environment.

“ICO market has not been regulated yet. It has huge potential but there are risks that we must manage. We should make our efforts for Lithuania to become the main headquarters for those ICO project promoters who are willing to operate in a transparent and orderly legal environment”, Vilius Šapoka, Minister of Finance said in a statement.

In addition to financial regulations, the guideline also outlines thoughts from the country’s auditing, taxation and financial crime investigation agencies regarding how tax and anti-money laundering rules should apply.

For instance, the guidelines suggest, investors’ “income received from individual purchases and sales of virtual currencies will be taxed standard 15% fixed income tax rate.”

Lithuanian government building image via Shutterstock

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Money20/20: Central Bank Execs Conclude Crypto Is No Threat to Fiat, Yet

Representatives from multiple central banks discussed whether or not cryptocurrency could spell the end of fiat currencies during the Money20/20 conference in Amsterdam today, June 5.

During a panel talk titled “Cryptocurrency, the Central (Bank) Question”, representatives from the Swiss National Bank, the Bank of Lithuania, the Bank of England, and the Bank of Canada took turns responding to the question “Can cryptocurrencies spell the end of fiat currencies?”.

Bank of Canada executive James Chapman stated that cryptocurrencies are only a threat to fiat currencies in a “situation of hyperinflation”. Thomas Moser, an alternate member of the governing board at the Swiss National Bank, agreed with Chapman, adding that they are also a threat when a currency “is not performing well.” Moser also noted:

“As long as central banks do a good job, there is no real for central banks to disappear.”

Moser mentioned during the panel that “cryptocurrency is very well tolerated in Switzerland so far.” The country, and in particular its Zug “Crypto Valley,” has been touted by some as an attractive place for crypto companies, due to its balanced approach to Initial Coin Offerings (ICO) and its status as a crypto tax haven.

Martin Etheridge, Head of Division at the Bank of England, called the question of what a currency is and how important cryptocurrencies will be in society “totally relevant.” Addressing the question at hand, Etheridge said he doesn’t “see much prospect of the current iteration of crypto assets in replacing fiat currencies,” though he added “who knows what the future will hold.” He concluded:

“[But] I think the odds are stacked very much in favor of fiat currencies. I think it would take a pretty fundamental shift of public perception or the existing market system for it to happen.”

At the end of June, Bank of England governor Mark Carney said the bank was open to the idea of a central bank-issued digital currency, but added that the adoption of digital currency won’t happen soon and that cryptocurrencies are not currently considered money.

Dr. Marius Jurgilis of the Bank of Lithuania clarified that a central bank-issued cryptocurrency and a cryptocurrency are two separate things, adding that the main product of central bank is “a matter of trust”:

“If our product is good, we don’t need to talk about the cryptocurrencies. It’s a matter of trust […] but if the society starts questioning, or it if it thinks that the things we are selling could be got in a cheaper, more convenient way, other things will appear.”

However, Jurgilis did mention that the bank is not “sitting entrenched in our positions,” but that they are hesitant to let something in that “could lead to a major collapse of trust.”

In mid-April, Lithuania’s central bank reportedly began looking into cryptocurrencies, initiating a roundtable with members from commercial banks, government regulators, as well as crypto traders.

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Lithuanian Central Bank Initiates Dialogue On Crypto Between Banks, Regulators, Traders

The Bank of Lithuania has reportedly begun looking into cryptocurrencies, initiating a dialogue between commercial banks, government regulators, and crypto traders, local news outlet The Baltic Times reports today, April 15.

The central bank had invited representatives from the Financial Ministry, the Financial Crime Investigation Service (FNTT), the banking sector, and the Initial Coin Offering (ICO) sector to a recent crypto roundtable, according to Jekaterina Govina, the fintech strategy coordinator at the Bank of Lithuania.

Govina notes that regardless of the risks associated with cryptocurrencies, “blind denial, reluctance to understand and to work with the cryptocurrency world leads nowhere,” continuing:

“It’s necessary that banks speak to those who have carried out an ICO or those who convert cryptocurrencies into conventional money. A dialog has been established and it remains to be seen where it will lead us.”

Lithuania’s central bank issued a document on Oct. 10 of last year detailing its position towards ICOs and cryptocurrencies. In the doc they state that financial market participants (FMP) should separate their financial services activities from those associated with virtual currency. It also states that FMP should In providing financial services to customers who are engaged in activities associated with manage the risks of money laundering and terrorism financing when providing financial services to customers who are dealing in crypto.

According to The Baltic Times, although Lithuania’s central bank requires a “clear separation” between traditional financial services and crypto-related activities, the bank will “issue licenses cheaply and quickly” – evidently for ICOs – as well as accept license applications in English, as part of its goal to become a “European fintech hub”.

Reportedly, one problem for crypto-related business in Lithuania is the difficulty of working with banks, according to Vytautas Kaseta, a board member at Blockchain Center Vilnius:

“Commercial banks don’t understand the nature of the crypto-business and the business model. Therefore, they regard it as a high-risk business and require additional proofs of the origin of money and investment, and often refuse to open accounts for companies.”

In response, the Lithuanian Banks’ Association (LBA) has said that while a dialogue is needed, the potential for crypto to play a role in illegal activities means that there is a necessity for proof of a client’s source of funds:

“We are interested in speaking to everyone to better understand each other’s business models, but consumer protection, money laundering and terrorist financing prevention is a priority that must be ensured. We understand from the meeting that some of cryptocurrency market participants cannot say where the money comes from. This is a serious problem, and they didn’t realize it was a problem.”

In November of last year, the finance ministers in Lithuania, Estonia, and Latvia signed a Memorandum of Understanding for fintech cooperation, including supporting Blockchain innovation across the Baltics.

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Lithuanian Central Bank Seeks Developers for Blockchain Sandbox

Bank of Lithuania, the country’s central bank, announced on Friday that it is soliciting proposals from software developers to kick off its LBChain initiative – a “service-based blockchain platform” aimed to serve as a regulatory sandbox for startups working with blockchain technology.

Introduced in January, LBChain is intended to assist both Lithuanian and international companies in acquiring knowledge of the blockchain and in conducting blockchain-focused research.

Bank of Lithuania said at that time that the project would “provide a technical platform and consultations on applicable regulations” to selected companies. The institution also indicated that the project would be financed by EU funds.

“Software developers have already shown considerable interest in LBChain,” said Marius Jurgilas, a member of the Bank of Lithuania board, in an announcement.

He further commented:

“Created by a financial regulator, it is one of the first platforms of its kind, offering a unique chance for businesses to trial and implement their state-of-the-art fintech innovations to bring benefits to both customers and the financial system.”

The project is part of a broader attempt to create a “fintech-conducive regulatory and supervisory ecosystem, as well as innovation fostering in the financial sector,” according to the announcement.

Although the central bank said in January that it expected the platform to launch in 2019, it now indicates that that the implementation stage of the project is expected to be underway this summer.

Lithuania’s central bank has involved itself in the blockchain space since the autumn of 2017, when it first issued initial coin offering (ICO) guidance. It subsequently revealed in February that it was probing a domestic ICO, which claimed to have raised 100 million euros, after concluding that the company’s tokens qualified as securities.

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Lithuanian Banking Group Warns Over Crypto Investments

A self-governing banking organization in Lithuania has issued a warning to domestic investors regarding the risks associated with cryptocurrencies.

In a statement put out on Tuesday, the Lithuania Banking Association stated that, while cryptocurrency has recently gained significant attention, it still remains obscure to domestic investors. As such Lithuanian investors were advised to be cautious in dealing with digital assets.

According to the statement:

“Those who decide to invest in cryptocurrency must realize that they do so only at their own risk. Virtual currencies are unattended and unregulated. Today’s value of cryptocurrencies is based on speculations and transactions of such currencies are usually irrevocable and anonymous.”

Created as a self-governing body to inform the public about financial technologies and relevant regulations, the association consists of major financial institutions in the country including Swedbank, SEB Group, Danske Bank and the LKU Credit Union Group.

The association further said it plans to stay aligned with the country’s central bank, Bank of Lithuania, in keeping a distance from activities related to cryptocurrencies.

“LBA members strictly adhere to the position of the Bank of Lithuania to clearly disconnect their activities from virtual currencies and not to provide related services,” the association said.

The comments also arrive as the central bank is stepping up its effort in monitoring the development of cryptocurrency-related business, such as initial coin offerings (ICOs), within its territory.

Just weeks ago, Bank of Lithuania initiated a probe over a domestic ICO, which reportedly raised around €80 million ($97.8 million), that was determined by the regulator to be offering securities. The action followed earlier ICO guidance released by the central bank.

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Lithuania's Central Bank Probes 100 Million Euro ICO

Lithuania’s central bank announced last week that it is probing a domestic initial coin offering (ICO) after determining that the token offered counts as a security.

In a Feb. 15 statement, the Lietuvos Bankas said it had made contact with blockchain banking firm Bankera regarding its token sale, which was advertised on two websites and had already raised over 80 million euros. The ICO’s official website now claims it has raised more than 100 million euros in a sale that is scheduled to end next week.

Yet, based on information received, the central bank considers that the token sale constitutes an offering of securities under state law.

Lietuvos Bankas said:

“In addition, [the ICO] distributes its authorized [cryptocurrency] and has already attracted more than 80 million [euros]. Taking into account the features set out in the heading and based on the information provided by Bankera’s business plan, it is concluded that this ICO falls within the scope of the Law on Securities, i.e. is considered a public offer, and therefore must be executed in accordance with the established requirements.”

The institution suggested that it could take further action as a result of the probe, and concluded with a warning for those advertising token sales.

“The Bank of Lithuania also draws attention of other media to the requirements of legal acts regarding the dissemination and promotion of instruments possessing the features of securities, and recalls that the Law on Advertising prohibits the advertising of activities that violate the requirements of legal acts,” the central bank said.

The move comes months after Lithuania released guidance for the blockchain use case, being one of a number of institutions to do so last fall. That wave of statements followed a determination by the U.S. Securities and Exchange Commission (SEC) in July, at which time the regulator said that its securities rules would apply to some tokens sales.

Most recently, Switzerland’s financial regulator, the Financial Market Supervisory Authority, released new guidelines last week, indicating it will also treat some ICO tokens as securities.

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Lithuania's Central Bank Unveils Blockchain Startup Sandbox

The central bank of Lithuania has launched a new regulatory “sandbox” for startups working with blockchain.

Announced last week, the “LBChain” initiative will see the Bank of Lithuania set up a dedicated platform around the tech, through which companies can develop services (though these would be subject to some gatekeeping by central bank officials). It’s a notable spin on the sandbox model, which sees institutions enabling firms to test financial products in a limited setting and under the auspices of regulators.

Marius Jurgilas, a member of the central bank’s board, said in a statement:

“Blockchain technology has a tremendous adaptation potential for innovations conducive to consumers in both the financial and public sectors. Giving room to regulated development of this technology would provide our country with particularly favorable opportunities for investment and attraction of talents as well as acceleration of advanced innovations.”

Those hoping to join the sandbox soon will have to wait, as the Bank of Lithuania is eyeing a 2019 launch of the platform. Support for it will include funding from the European Union, according to the central bank’s statement, though it’s unclear how much funding from the economic bloc will go toward funding the blockchain effort.

The move comes months after the Bank of Lithuania positioned its policy on initial coin offerings in October.

“It should be noted that, when deciding on the application and scope of specific legislation of the Republic of Lithuania for specific ICO, the conditions of the relevant ICO should be analysed and assessed,” officials stated at the time.

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Baltic Finance Ministries Decide to Support Blockchain Technology Development

The finance ministries of the Baltic states have expressed their support to the development of Blockchain or distributed ledger technologies (DLT). The aim is to help in the advancement of capital market innovations.

In their recent Memorandum of Understanding (MOU), the ministries for Estonia, Latvia and Lithuania have announced their cooperation on several actions aimed at expanding and developing their economies. The actions include the promotion of DLT to foster innovations in the capital markets.

Part of the MOU reads:

“The Estonian Ministry, the Latvian Ministry and the Lithuanian Ministry recognize the importance of the development of the capital market and a stronger institutional framework to handle the cross-border challenges in the Baltic States. … [And] supporting the development of capital market innovations and new technologies with a consideration for regional Fintech solutions, e.g. distributed ledger technology.”

Estonia and Lithuania’s efforts in the Blockchain industry

Both Estonia and Lithuania have already tackled DLT in the past, particularly the initial coin offerings (ICO) and other aspects of the technology.

In October 2017, regulators in Lithuania have issued guidance covering the Blockchain funding use case. The regulators have also warned the consumers that ICOs are not yet regulated and that investors who will participate in them are risking the possible loss of their entire funds.

Meanwhile, Estonia has been very supportive of the technology. In fact, the Estonian government has even planned to develop its own digital currency called “estcoin” to be used for its e-residency program. Under the plan, the proceeds raised from the program will be used to establish a public-private sovereign wealth fund which will invest in digital infrastructure projects and technology startups.

Several institutions such as the European Central Bank, however, have criticized the country’s “estcoin” initiative. Despite the criticisms, Estonia may still launch its proprietary virtual currency as a “quasi-official entity.”