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Update of Lithuanian VASP regulatory framework

Author: Mihhail Šerle
July 6, 2022
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In this article we’ll provide information about VASP legislation amendment in Lithuania. On 25.03.2022 was introduced project for amendment of Lithuanian AML framework regarding virtual assets service providers (VASP). After discussion with Lithuanian authorities (Bank of Lithuania, Ministries, the State Enterprise Centre of Registers, etc.) amendments to Money Laundering and Terrorist Financing Prevention Law No. VIII-275 were accepted by Lithuanian Parliament. Further, the President of the Republic shall either sign and officially promulgate the amendments to the law, or shall refer them back to the Parliament together with relevant reasons for reconsideration. The latter case usually does not happen so often, therefore it is likely that the amendments will be signed by the President soon. It should be noted that said amendments will come into force from November 1, 2022, however, some changes will be applicable later.

CHANGES IN CUSTOMER DUE DILIGENCE MEASURES APPLICATION

Within the new amendment, VASPs are obligated to apply customer due diligence measures (primarily identification of the customers and their beneficial owners) each time, when transaction(s) equal to or exceeding 700€ per 24h are performed. Current regulation sets a threshold of at least 1,000€ for the identification of the customer and the beneficiary.  Also, it’s prohibited to open anonymous account(s) for customers and there’s specific requirements for customer’s identification. The requirement related to identification will come into force on January 1, 2023 and the prohibition on anonymous account(s) will come into force on November 1, 2022.

TRAVEL RULE IMPLEMENTATION

In June 2019 the Financial Action Task Force (FATF) has made recommendation to extend the "travel rule" requirement to VASPs. It obliges VASPs to collect and retain the details of the transaction’s originator and recipient (incl. their personal data). This data shall be sent promptly and securely to the recipient's VASP or financial institution. The new amendments to the legislation has implemented this requirement and it will be applicable in 2025. The VASP of the originator of the transaction will be obliged to collect at least the following information on the originator of the transaction:

Natural person

  • name
  • unique transaction code (hash)
  • payment account number or virtual currency wallet address
  • type of identity document and its number
  • personal identification number(code) or date of birth
  • citizenship
  • residential address

Legal entity

  • name
  • unique transaction code (hash)
  • payment account number or virtual currency wallet address
  • type of identity document and its number
  • registry code or similar number
  • registered office address

For the transaction’s recepient, the following data shall be collected and sent:

Natural person

  • name
  • payment account number or virtual currency wallet address
  • personal identification number(code) or date of birth

Legal entity

  • name
  • payment account number or virtual currency wallet address
  • registry code or similar number

It’s important to note, that amendment of legislation doesn’t describe situations, where transaction’s recipient doesn’t have VASP, which is able to receive transmitted data. However, legislation allows to refuse such transactions by decision of Lithuanian VASP.
In our opinion, approach for travel rule may be amended in the future, considering the fact, that this part of amendment should come into force in year 2025.

REQUIREMENTS TO VASP LICENSING

“Fit and proper” requirement

Members of the management, supervisory bodies and beneficial owner(s) of VASP must not have criminal records, where specific conditions also apply to some types of committed crimes. For example, if aforementioned person has committed serious or very serious crime (e. g. murder, etc.) – it is restricted to participate in VASP activities permanently. Also, if crime was minor or aggravated against property, property rights and property interests, economy and business order, financial system, public service and public interests, public safety – at least 5 years must pass after disappearance or annulment of the person's criminal record in order such person would be able to participate in VASP activities. In case of any other crimes – at least 3 years must pass after the date of the completion of the sentence, suspension of the execution of the sentence or release from serving the sentence.

Local substance requirement for senior manager

Lithuanian VASP shall have at least one senior manager, who is permanent resident of Lithuania. For assessment of residence criteria, definition from Lithuanian Law on Personal Income Tax is used. In opinion of our legal team, additional interpretation will be needed for this amendment. According to AML Act, senior manager is an officer or employee holding a sufficiently high position who has sufficient knowledge of the risk of money laundering and/or terrorist financing arising for the company and is responsible for making decisions that may affect the risk. In practice, VASP’s money laundering reporting officer (MLRO) or similar Employee may be appointed as senior manager in the meaning of AML Act. In practice, Lithuanian VASPs mostly have local MLRO, due to circumstance, that it makes possible to send suspicious activity reports to FCIS more convenient way.

Exclusive senior manager requirement

Additional requirement is set for designated employees responsible for implementation of AML/CTF measures (usually – MLRO) – such person can’t represent more than one VASP (except VASPs belong to same company group).

Share Capital requirement

VASP's registered share capital shall be at least 125 000€. Such requirement is comparable with minimal capital requirements specified in the project of MiCA regulation, which should be implemented in next years.
Important to note, that methods of share capital contribution are not specified, which creates opportunity to make non-monetary contributions (e.g. intellectual rights, virtual currencies, etc.). Also, there are no special requirements for monitoring procedures (e.g. similarly as requirements for own funds monitoring, applicable to PSPs and EMIs).

Requirement to provide service for local market

The Lithuanian VASP shall have connection with Lithuania. According to new legislation, such connection may exist if at least part of services, which are not considered as non-essential by the nature of its business activity, is provided in Lithuania and to Lithuanian customers. At the moment there's no specific approach, which part of activities must be carried out in Lithuania. In Author’s opinion, that criteria shall ensure adequate performance of supervision under activities related to AML/CTF. For this reason, requirement to have local employees, also as requirement to have place of business suitable for services provision may apply.

REGISTER OF AUTHORISED VASPS AND LICENSING PROCESS

The data of all VASPs authorised to provide services shall be publicly available in the State Enterprise Centre of Registers. It allows to create more transparent market where information about legally acting VASPs is available to everyone. The following data will be available about each licensed VASP:

  • name of the legal entity;
  • legal entity code;
  • registered office address;
  • date of commencement of activity;
  • e-mail address (if it is specified in the Register of Legal Entities);
  • website address (if it is specified in the Register of Legal Entities).

Aforementioned register will start working from February 1, 2023.

REQUIREMENTS APPLICATION TERM TO EXISTING VASPs

Existing VASPs must be in compliance with new legislation by December 31, 2022 and the relevant notification to Register of Legal Entities must be submitted for confirmation of such compliance. Companies who will not confirm their compliance with new requirement will be prohibited to perform VASP activities.

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