The Ministry of Finance, together with the Bank of Lithuania, the Financial Crime Investigation Service and the Centre of Excellence in Anti-Money Laundering, has drafted amendments to the Law on Prevention of Money Laundering and Terrorist Financing (AML). The amendments were presented during a meeting of the Committee on Budget and Finance of the Parliament of the Republic of Lithuania on 23 March this year. In this newsletter, we review the major changes planned.
Cryptocurrency activities still considered unregulated
With the growing number of crypto-asset services providers (CASPs) in the EU, and in light of today’s global challenges and the increased risk of money laundering and terrorist financing with virtual currencies, institutions of the European Union are called upon to accelerate the process to enable the Regulation on Markets in Crypto-Assets (MiCA) to come into force. While one of the main objectives of MiCA is to reduce the risk of money laundering and terrorist financing and to strengthen consumer protection, the authorities of the European Union Member States are also looking forward to the requirements that will apply to CASPs and are eager to see how it will help supervising authorities to mitigate risks to financial stability.
Cryptocurrency activities are still considered unregulated in Lithuania. Therefore, it is sufficient for companies engaged in virtual currency activities to set up a company with minimum capital requirements. All they have to do is to register their activities with the Register of Legal Entities of the Republic of Lithuania, appoint a person responsible for the implementation of the prevention of money laundering and terrorist financing, and inform the Financial Crimes Investigation Service about this person.
The draft amendment to the AML Law has not yet been made public; however, there are a few planned changes:
- increase the share capital requirements;
- provide for stricter requirements regarding the reputation of members of management and supervisory bodies or beneficiaries of such persons;
- provide that a CASP must conduct all or part of its business in Lithuania, have a manager residing in Lithuania, employ an AML officer, carry out mandatory customer identification and not open anonymous accounts;
- publication of a list of crypto-asset services providers is planned.
It is not yet publicly known whether the Lithuanian authorities will follow MiCA’s example and introduce authorised capital requirements in the range EUR 50,000–150,000 (depending on the type of CASP activity), and strengthen internal governance and control requirements. It is also unclear what additional supervision requirements for the prevention of money laundering and terrorist financing should be expected.
However, we recommend that both crypto-asset services providers already operating in the Republic of Lithuania and those who are just planning to start their operations should assess the requirements for authorised capital, the quality of the AML documentation package and the quality of compliance therewith, including the processes of identification of both the customer and beneficiary, the competence of the appointed AML officers, and the reputation of the management bodies and shareholders.
The draft AML Law is expected to be submitted to market participants for consultation in March and to reach the Parliament of the Republic of Lithuania in April–May this year. The expected date of entry into force of the amendments to the AML Law is 1 November 2022.
Given the significant efforts by the authorities to limit the risks posed by the activities of crypto-asset services providers, it is likely that the Financial Crime Investigation Service will also increase the number of inspections of such companies.
Licensed market participants (e.g. credit institutions, or payment and electronic money service providers) providing services to CASPs should also revise their customer acceptance, KYB (Know Your Business) / KYC (Know Your Customer) procedures, and other internal service policies and rules.
CASPs and licensed market participants should prepare themselves in advance not only for the upcoming changes to the AML Law, but also for full compliance with the requirements envisaged in the MiCA.