LITHUANIA HAS THE POTENTIAL TO TRANSFORM INTO A HUB FOR US CRYPTO ASSET OPERATORS: ALL YOU NEED TO KNOW ABOUT THE NEWLY ADOPTED EU MiCA REGULATION.
When observing the current regulatory environment in the US, it becomes evident that the legal framework for crypto companies lacks both accuracy and legal certainty.
Meanwhile, on 16 May 2023, the European Union took a leap forward by adopting the MiCA Regulation introducing clear rules and providing sufficient transitional period for crypto-asset providers to prepare for the upcoming regulation.
Recent cryptocurrency field developments in the USA
Lately, the Securities and Exchange Commission (SEC) has been actively conducting investigations in an attempt to extend its jurisdiction over cryptocurrencies. According to SEC Chair Gary Gensler, the vast majority of cryptocurrencies are securities, with Bitcoin being an exception based on the Howey Test. Therefore, the SEC strives to establish necessary legal precedents within the US courts to enforce its policy of including cryptocurrencies within the scope of securities regulation.
However, recent judiciary milestones, such as the Ripple and Terraform Labs Pte. Ltd cases, represent intermediate court decisions that do not fully resolve the existing turmoil. The establishment of a precedent regarding the classification of crypto-assets as securities or commodities and the allegations against Bitcoin and Coinbase will likely require a verdict from the higher courts to determine their validity.
The SEC’s „regulation by enforcement” not only raises doubts among market participants, scholars, and lawyers, but this aggressive policy also poses a threat to the competitiveness of the US economy. The regulation of crypto-assets should not be determined solely by the courts, given the lack of consistency in case law. History is rife with examples where legislative inaction has resulted in various issues, including political conflicts.
Solution for US crypto companies
The existing framework of crypto-asset operators in Lithuania
Currently, Lithuanian crypto asset operators are regulated according to the Law on Prevention of Money Laundering and Terrorist Financing of the Republic of Lithuania (AML Law). No licence required for crypto-asset operators.
However, crypto-asset operators shall comply with the following requirements according to the AML Law:
- Capital requirement. The company must have a minimum authorized capital of at least EUR 125,000 that can be used for any of the company’s needs.
- Impeccable reputation. The governing bodies, beneficiaries of an established crypto company must be of good repute.
- Permanent resident of the Republic of Lithuania. The company must have a senior manager who is a permanent resident of Lithuania. Senior manager does not necessarily have to be understood as the CEO. It could also be a local manager appointed to manage processes in Lithuania.
- Representing exclusively the interests of a crypto company. Employees holding senior positions in cryptocurrency exchanges may not represent more than one cryptocurrency exchange at the same time.
Once a company meeting the above requirements has been established, it is registered in the Register of Legal Entities of the Republic of Lithuania noting that the company is authorized to operate as a cryptocurrency exchange and/or cryptocurrency depository wallet operator. Additionally, it is necessary to notify the Financial Crime Investigation Service of the appointment of a person responsible for implementing anti-money laundering and anti-terrorist financing requirements within the company.
Current regulations in Lithuania do not prohibit any activities of authorised crypto companies outside Lithuanian jurisdiction, thus the companies are free to conduct similar businesses in other countries as well (if such activities fall under the regulation of the respective country).
Obtain an EU licence under the MiCA Regulation
For the time being, US companies may consider a possibility to relocate their businesses to Lithuania and establish themselves as crypto asset providers here, meeting the aforementioned requirements.
There will be a transition period of approximately 18 months (starting in the end of 2024) during which these crypto companies will have the right to operate without a licence under MiCA, providing them with additional time to prepare for MiCA licencing process that will allow passporting within the EU.
Click for more info regarding the licencing process in Lithuania under the MiCA Regulation.