Minister of Finance of Lithuania: The Amendments for Crypto Regulation To Appear in 2019

Baltic countries has always been tech-friendly: a vast number of startups grew and emerged in Latvia, Estonia and Lithuania for the last decade. The blockchain and DLT is also a popular topic of discussion, as the Ministries of Finance of all three republics have agreed on joint regional market development in 2017 already.

So, over almost a year has passed, and each of the states went it’s own way: Estonia has shown its eagerness in blockchain and even presented the idea of a national token ‘Estcoin’, which was strictly condemned by Mario Draghi. Despite that, a lot of crypto projects emerged in the country, as Estonia is known for having a good startup environment.

Then what about Lithuania? A year ago, the Lithuanian Government claimed that ICOs and cryptocurrencies are ‘risky business’ but the following year has shown the achievements of the country in this regard. Which ones exactly? Bitnewstoday.com managed to take an exclusive interview with Vilius ŠAPOKA, the Minister of Finance of the Republic of Lithuania at the Blockchain Seoul Summit to learn more about the recent issuance of ICO regulatory guidelines and other key milestones achieved by Lithuania during the past year.

BNT: The development of Lithuania in the sphere of FinTech is inspiring. What kind of laws, bills or guidelines regulating cryptocurrency and blockchain are now adopted in Lithuania?

VS: Recently, we released comprehensive guidelines in the area of taxation, accounting, regulatory environment, anti-money laundering issues and currently all answers are given for questions related to ICOs.

BNT: Is there any other legal framework regulating DLT, blockchain, crypto? When is it planned to update the legislation, and what is the preferable and most problematic issue to consider right now?

Even though the blockchain technology is very open and the data written there is immutable, the attribution of the cryptocurrencies or tokens to real individuals that own the crypto assets is very challenging. In our view, the most effective way to identify these individuals is when they go to virtual currencies exchanges and cash out or buy tokens during ICOs. Therefore, it is very important that these exchanges and entities organizing ICOs would have a proper due diligence and KYC procedures in place.

The Ministry of Finance is preparing amendments of Anti-Money Laundering and Counter Terrorist Financing Law of Lithuania, which will cover not only virtual currency exchanges and custodian wallet providers — these entities will be able to provide services only after their registration at the Register of Legal Entities, but also legal entities, organizing ICOs, which will also be the subject to the requirement of identifying their clients. It is planned that the amended Law will come into force next year.

BNT: What is the current situation with banks attitude towards ICOs? How is the regulation done in this regard?

VS: This year, together with the Central bank of Lithuania, we have initiated dialogue between ICO community and commercial banks operating in Lithuania in order to help banks and ICOs better understand each other's business models and to enhance cooperation between them to overcome the raising challenges. We also believe that the regulation amendments mentioned above will enhance trust between commercial banks and ICO initiators.

BNT: How many ICOs are currently present in Lithuania? From which countries do they come and what industries do these projects represent?

VS: According to the statistics, the total amount which was raised through ICOs is more than 500 mln euros. During the first two months of 2018 Lithuanian ICOs raised $249 mln and Lithuania was the third country in the world in terms of capital raised. This information is based on the data, collected by tokendata.io. We have quite a lot of companies from other countries: from the United States, Israel, Singapore, Germany, the United Kingdom — very different jurisdictions. As there is no obligation to register ICOs, we cannot provide exact number of ICOs in Lithuania. The Lithuanian ICOs projects based on blockchain technology represent various industries, e.g., green energy, telecommunications, food, health, finance, transportation.

BNT: Please tell us about the general influence of ICO and crypto industry on the economy of the country. What has changed and what do you expect in the following years?

At this early stage it is very hard to measure the influence of ICOs and cryptocurrencies on the economy of the country, but we see significant rise of blockchain community and infrastructure in our country. In January, Vilnius Blockchain Centre was launched. It was a first international centre in Europe for education and development of decentralized technologies and a unique place for blockchain startups, entrepreneurs, developers, investors, and regulators to share the ideas, know-how, and best practices; get technical, legal, and financial advisory services.

The Bank of Lithuania is going to launch regulatory and technological ‘sandbox’ platform-service named LBchain, where domestic and foreign companies will be able to develop and test blockchain-based solutions. Universities in Lithuania are including FinTech and blockchain subjects into curriculum. Every year, the Ministry of Finance together with partners organises international events, regarding FinTech, which gather professionals and leaders from around the world. This year’s Fintech Conference on the 8th of November will cover blockchain topics (including ICO) to a large extent. Various ministries and law enforcement authorities put crypto assets in their agenda. The national state-owned railway company Lithuanian Railways is planning to create traffic regulation platform which will ensure communication not only between traffic control centre and locomotives/trains but also between locomotives via blockchain to check traffic permeability.

We believe that the crypto-assets industry will significantly develop in following years and we, as part of Lithuanian Government, need to find the right balance between promoting the innovations and at the same time putting the right safeguards.

BNT: No experiments can be done without mistakes and obstacles. What barriers did you face, and what kind of lessons were learned?

VS: Lack of knowledge and education, development speed of the new technologies, lack of dialogue and cooperation between stakeholders – the main obstacles we are trying to overcome.

BNT: Is there any country in the world which serves as a model for Lithuania regarding the crypto sphere?

VS: As a member of European Union and Euro Area, we do follow the initiatives and positions of European Bodies in order not to violate the EU law. We do not have a specific country model in the crypto-assets area but we do follow the initiatives in many countries in order to identify the most effective practices.

BNT: This February was not optimistic for Bankera, one of the largest ICOs held in Lithuania. The Central Bank initiated probing after determining that the token counts as a security. Please shed some light to the Bankera case, what's going on now?

VS: Although Lithuania is innovation friendly jurisdiction, we also see the risks that are coming together with crypto assets and which need to be reduced, i.e. investor protection, money laundering prevention, etc. Lithuania pays special attention to these risks mitigation. Regarding Bankera, it does no longer operate in Lithuania‘s jurisdiction. Therefore, we cannot provide any further information on Bankera‘s activities specifically. However, recently the Board of the Bank of Lithuania has imposed a fine of €0,7 mln on the electronic money institution UAB Pervesk and a fine of €0,5 million on its CEO, who is also the co-founder of Bankera. UAB Pervesk was improperly assessing the risk level of its customers thus breaching the legal requirements laid down in the Law on the Prevention of Money Laundering and Terrorist Financing.

BNT: What is your main goal in the Ministry of Finance for the rest of the year?

VS: We look broader, since in Lithuania we decided to be fast growing, and we have a comprehensive plan with a lot of steps to do in order to facilitate the growth as a FinTech center — so we have a lot of work.