The Evolution of Cryptocurrency Regulation in Lithuania Prior to 2024

As the world of cryptocurrency continually evolved, Lithuania emerged as a notable player in shaping regulations for virtual asset service providers (VASPs) within the European Union. By the period leading up to 2024, Lithuania had developed a comprehensive legal framework, primarily focused on anti-money laundering (AML) and counter-terrorist financing (CTF) measures, to govern the operations of VASPs.

Key Regulatory Developments

Stringent AML and CTF Regulations: Lithuania’s Financial Crime Investigation Service (FCIS) laid down stringent AML and CTF regulations, crucial for over 478 registered VASPs in the country. The legislation framework included mandatory registration with the FCIS, Know Your Customer (KYC)/Know Your Business (KYB) measures, transaction monitoring, reporting obligations, and other related requirements. This robust framework was designed to ensure that VASPs operated in a responsible and secure manner​​.

FCIS Registration and Operational Requirements: The Money Laundering and Terrorist Financing Prevention Law of Lithuania classified VASPs into two broad categories: virtual currency exchange operators and depository virtual currency wallet operators. Most VASPs registered in Lithuania provided both services. The FCIS registration was mandatory for both local entities and branches of EU or non-EU legal entities. Moreover, VASPs were subjected to strict requirements such as having a tax resident senior manager in Lithuania, maintaining a significant authorized capital, and ensuring that management and beneficial owners had no criminal records​​.

AML/CTF Team and KYC/KYB Checks: VASPs were required to have a designated AML/CTF team, including senior employees or board members responsible for implementing AML/CTF measures. Additionally, VASPs had to perform KYC/KYB checks before establishing a business relationship with a customer or upon reaching a transaction threshold of 700 EUR. These measures were crucial for verifying the identity of customers and legal entities involved in transactions​​​​.

Transaction Monitoring and Reporting: VASPs were obliged to report a customer’s identification data to the FCIS for transactions exceeding 15,000 EUR. This requirement applied regardless of whether the transaction was conducted in one or several interconnected operations. Moreover, VASPs had to report any suspicious monetary operations or transactions to the FCIS, ensuring a high level of scrutiny and compliance​​.

Adoption of FATF Travel Rule: Starting January 2025, VASPs in Lithuania were required to comply with an analog of the FATF Travel Rule. This rule mandated VASPs to obtain and disclose detailed information about the sender and recipient of virtual asset transfers. This future regulation was aimed at enhancing transparency in virtual asset transactions and preventing misuse for illicit activities​​.

Risk Management and Compliance Training: VASPs were also required to conduct comprehensive risk assessments, manage identified risks effectively, implement international financial sanctions, and ensure continuous training for employees. These measures were vital for maintaining regulatory compliance and keeping abreast of the latest AML/CTF protocols and practices​​.

Conclusion

In summary, prior to 2024, Lithuania had established a proactive and detailed regulatory framework for cryptocurrencies, focusing predominantly on AML/CTF compliance and operational integrity of VASPs. The country’s approach mirrored the broader EU initiative to integrate virtual assets into the financial system responsibly. Lithuania’s regulations not only fostered trust and integrity in the crypto-market but also set a standard for responsible VASP operations, contributing significantly to the evolving landscape of cryptocurrency governance.