Among other industries, the cryptocurrency sector experiences unique and ever-changing innovations. This means that the regulatory framework also alters as a response to new technology development. Therefore, navigating licensing and registration requirements is integral for all existing and to-be crypto businesses. Lithuania-based businesses can continue to reap the benefits of the government’s progressive attitude if they adhere to compliance when starting and while operating.
How regulatory requirements in Lithuania have changed over the years?
Crypto regulation in Lithuania started back in 2017. Government officials, understanding the volatility tied to virtual currencies, prohibited conventional financial institutions such as banks and payment organizations from participating in cryptocurrency trade and exchange.
While at first glance, it seems limiting, it’s this very law that built the foundation for rapid innovation in the coming years. Since traditional financial organizations do not have the frameworks in place to insulate themselves from crypto-related risks, they are ill-equipped to deal with them professionally. On the other hand, approved companies offering virtual currency services are built from the ground up with the right compliance structures in place.
Soon after the initial 2017 regulation, initial coin offerings by the government were encouraged to attract funding from investors under established legislative restrictions. Keeping in mind that not all ICOs are alike, officials from the Bank of Lithuania announced that the formation of financial market participants would be subject to varying laws determined by their nature of operations.
In recent years, starting a crypto business in Lithuania has changed. There is significantly greater clarity beyond the scope of ‘do’s and don’ts’. Changes in legislation have altered how service providers go about setting up their companies altogether.
By the end of 2022, the minimum share capital for new entrants in the virtual currency market rose to a range of 2500 – 125000 euros. To ensure that companies offering crypto services were confident in their endeavors, the new limits served as a means of strengthening financial security and protecting customer interests.
The inauguration of a national crypto license register in 2022 was next to come. This charter is publicly available and comprises names of virtual currency exchanges, depositors, and wallet operators alike. This registry center acts as the supervisory body watching over compliance requirements by companies as well.
To keep track of and monitor all crypto-based businesses, Lithuania mandates market participants to officially subscribe to this list. Since compliance structures are continually strengthening, companies today must hire designated anti-money laundering specialists to maintain adherence to regulatory standards.
Being expert in the field Star Legal will help to obtain Crypto license in Lithuania and build strong foundation for successful business start.
What is a cryptocurrency license and why is it essential for crypto businesses in Lithuania?
In order to legally provide services as a business in the cryptocurrency sphere, you must get authorized through a license. Due to concerns about compliance and financial reliability, obtaining the right license is necessary.
Lithuania boasts a diverse virtual currency landscape due to its commitment to regulatory excellence. As a result of the evolving legislature within the jurisdiction, having a cryptocurrency license confers a status of liability upon the business. Not to mention, licensing supports the goal of operational transparency expected of every entity in the digital assets niche.
In line with global trends, Lithuanian authorities leverage licensing mechanisms to monitor as well as regulate crypto-based activities to reinforce investor protection. And if need be, they also step in to hold suspicious participants of the industry accountable.
That said, being licensed has plenty of benefits aside from legal recognition. Lithuanian licenses are not just handed out to virtual currency service providers and this is a well-known fact across the EU. So, to be approved for a license in itself signals trust. This credibility is absolutely crucial to attracting the right partnerships, nurturing market relations, and growing clientele.
Remember, while it is possible to register the company without a license, continuing operations, especially on a massive scale, becomes impossible without a license eventually. This is because unlicensed crypto entities do not have strong relationships with important financial market participants such as banks which is a staggering impediment.
Crypto licensing and registration 2023
Anti-money laundering activities are common where customers-turned-criminals use anonymous accounts to conduct illicit transactions. This drastically interferes with a region’s economic health through the prevention of laundering funds.
Staying true to the country’s forward-thinking reputation, Lithuania has amended its anti-money laundering law for 2022/2023 onwards. In that, crypto exchanges, as well as companies operating crypto deposit accounts for clients, are now governed by more detailed regulatory guidelines than ever before.
These amendments are largely aimed at identifying customers. In that, all cryptocurrency companies have been barred from approving or opening anonymous accounts.
Given increasing risk management concerns, Lithuanian law also demands that every crypto business must assign a senior manager. This designation can only be filled by a resident of the country. So to say, if founders are foreigners, they need to appoint a AML professional with a Lithuanian passport.
Moreover, virtual assistant service providers in the country must now have a local anti-money laundering officer, who is professionally employed by just one virtual currency business.
Cryptocurrency company licenses
Cryptocurrency exchange licenses enable companies to trade one type of digital money with another, as well as digital currency with traditional money. In other words, exchanges are like intermediaries. Since cryptocurrency is decentralized and not owned by any single entity, customers need a platform for buying and selling.
And because conventional banks are not allowed to sell digital money, individuals turn to crypto exchanges for transacting. Therefore, to legally and officially engage in crypto-to-crypto and crypto-to-fiat (as well as vice versa) transactions, exchanges must obtain licensing rights.
Just like exchanges enable crypto trade, wallets offer depository accounts to people who wish to hold their digital assets. Companies operating custodian wallets must fulfill the stringent responsibilities of secure storage for clients.
Naturally, Lithuanian regulation prioritizes the customer’s interest and makes it necessary for any such business model to get licensed prior to opening operations to the public.
Pan-European Licenses for cryptocurrency companies
Lithuanian crypto businesses have been in the spotlight for quite a few years now. While being under the lens certainly brings more scrutiny, it also means selection for participation in better opportunities. Since Lithuania’s environment is popular for nurturing fintech ventures and its regulatory framework is considered one of the best in the world, companies in the country are able to acquire a pan-European license in 2023.
This license saves approved businesses the hassle of separately registering and getting licensed in independent European countries. In a way, the pan-European license is like a valid passport for businesses. It was introduced to encourage greater collaboration among players in the EU’s unified financial industry and bolster competition.
Is your business eligible for a pan-European license?
Obtaining a pan-European license isn’t complicated since it requires companies to abide by EU and Lithuanian regulatory directives. At the top of the pyramid, regulatory requirements include AML and KYC procedures alongside strict security protocols to protect clients.
Existing companies with a Lithuanian license are automatically passported in the EU. However, even new businesses can make their way to achieving one.
Lithuanian legislation only grants licenses to UABs that are registered as limited liability companies. However, opening up an LLC isn’t that hard in the country. For one, you don’t need to be a resident, even foreigners can set up a crypto company. Your business also doesn’t need to have a physical presence in Lithuania. Entrepreneurs environing virtual headquarters can easily access business opportunities remotely.
Once set up, all companies, be they depository in nature or specializing in exchange services, must abide by established AML and KYC rules. Compliance with both, or lack thereof, is directly governed by the Financial Crime Investigation Service, operated under the Ministry of Interior. In case of weak compliance or suspicious activity, the FCIS can suspend transactions and alert assisting law enforcement agencies.
Being expert in the field Star Legal will help to obtain Crypto license in Lithuania and build strong foundation for successful business start.
8 most common mistakes that interfere with the registration and licensing of crypto companies in Lithuania
- Lack of robust identification procedures
As mentioned before, customer identification is uncompromisable to win over the trust of regulatory authorities in Lithuania. It cannot be stressed enough – every single transaction must be traced back to a registered and identifiable individual. Crypto business models applying for a license without such checks and balances in place are always rejected.
- Weak risk assessment frameworks
When registering a crypto business, approval committees affiliated with the government analyze its risk potential. In case a robust internal control infrastructure is not found, licensing success is drastically reduced.
- Company owners/directors have a criminal record
In the world of virtual currencies, Lithuania tolerates no compromises on risk mitigation. Unfortunately, having a criminal record sends negative signals. So, if the owners or board personnel have a proven criminal record, their company is automatically ineligible for obtaining a license.
- The business plan is vague
For any business to be successful, a clearly defined roadmap to achieving its goals is essential. Just like attractive business plans are pivotal to loan approvals, similarly, they play a pivotal role in convincing license issuers. As a wallet, exchange, p2p trader or any form of crypto currency service provider, make sure that your business plan is foolproof and backed by solid figures.
- Poor review by AML officer
Licensing applications include another crucial step that determines whether companies will get approved. This involves the review of a designated Anti-money laundering officer. The AML official has to substantiate that the business is reliable and has a good reputation. To bring the ball in your court, submit all necessary documentation that proves why you and your business deserve that license.
- Owners/board personnel face restrictions in their home nation
While Lithuanian legislation allows foreigners to register a business within its borders, restrictions imposed by the owners/board directors’ nationality is a major setback. Unless these restrictions are lifted, setting up a crypto venture will not be possible.
- Improper KYC/AML procedures
Crypto companies must prove that they have strong KYC and AML procedures in place for client identification and transaction tracking. This includes clearly defined verification protocols such as requiring app users to register with their national identity card and adding contact numbers/email addresses. Without these, no matter how promising a virtual currency company might seem, getting licensed becomes impossible in 2023.
- Incomplete data of owners/directors/special shareholders
Every person legally categorized as a beneficial owner of the company must submit comprehensive personal data to back the license application. This is a legal prerequisite that determines the success or failure of business registration/licensing.
The outcomes of Lithuania’s regulatory dedication
Licensing and registration requirements for crypto businesses in Lithuania are correlated to the regulatory dedication. Implementation of laws and policies is tactile to boost investor confidence, boost market trust, lower risks and provide an equitable playing ground for everyone.
Stabilized market infrastructure
Cryptocurrencies, in their own right, are volatile. Naturally, if the industry structure was equally uncertain, market trustworthiness would plummet. Verily, clear cut regulations governing market aspects and agents prevent exorbitant volatility.
With Lithuania’s progressive regulatory approach, market manipulation including pump/dump schemes and insider trading are closely monitored. This reinforces transparency and builds upon a stable foundation where all market participants are allowed to thrive without discrimination. In the longer term, such stability is key to sustaining investor trust.
Seamless integration into financial frameworks
Bitcoin’s bewildering impact on the world’s financial markets is no less than a historical event. It set the ground for other digital currencies to take flight. However, none of this would be possible without the integration of virtual money into the traditional financial system. Subsequently, integration would never be possible without appropriate compliance measures.
The regulations tied to licensing and registration bring the ecosystem together. They provide an established legal framework to facilitate the involvement of businesses, investors, customers and government bodies without clashing interests.
Reasonable licensing requirements
Remember, bird’s eye scrutiny is not the same as legal monitoring. Safe to say, regulations are necessary. However, when they are too vague or too impractical, there isn’t much room left for innovative growth. Lithuania’s licensing requirements are undeniably reasonable. While they do secure the interest of involved parties and keep financial disasters at bay, companies are allowed a great deal of creative freedom to bring their crypto ventures to life.
The bottom line
Opportunities for cross border opportunities and Lithuania’s growth-focused environment are just two of the many advantages of setting up a crypto venture in the country. The presence of valid and updated protocols, strict client identification procedures and mandatory monitoring are an ode to the country’s contribution toward stakeholder protection.
In the midst of changing amendments and regulatory advancements, businesses eager to enter the crypto space must approach registration and licensing prerequisites carefully. Comprehensive risk assessments, convincing business plans and fool proof AML/KYC measures make obtaining a license the first of many productive milestones to come.
At the end of the day, the Lithuanian market infrastructure reflects financial stability, and seamless financial integration. This is fortified by a series of balanced licensing requirements that provide regulatory benchmarks for businesses to follow and thrive. Ultimately, the nation’s progressive regulations provide a launching pad for new-age ventures despite the skepticism surrounding crypto currencies in other areas of the world.