The cryptocurrency market has experienced significant expansion in the last ten years, becoming an essential part of the worldwide financial system. Regulatory frameworks are vital in influencing the operations and long-term sustainability of crypto businesses within this ever-changing environment. Recently, Lithuania has caught the interest of financial entrepreneurs due to its forward-thinking approach to fintech and digital innovation, as shown by the remarkable increase in such companies within the country.

Recognizing the increasing popularity of crypto assets, the European Commission and European Parliament have officially classified them as financial instruments. In addition to this favorable progress, companies involved in crypto assets must comply with new licensing rules outlined in Regulation (EU) 2023/1114 on Markets in Crypto-Assets, also known as MiCA regulation. Nonetheless, we at Adam Smith Law Office team are of the opinion that these alterations are advantageous for the overall cryptocurrency system. As a component of the MiCA implementation plan, Lithuania has recently made substantial legislative amendments to strengthen the oversight of cryptocurrency operations. These advancements highlight the nation’s dedication to creating a safe and compliant space for crypto businesses, positioning it as a prime location for companies looking for strong regulatory structures and chances for expansion. Lithuania has been recognized as the 2nd top destination for Fintech Startups in Europe and the 4th in the World, showcasing its attractive environment for new businesses in the digital finance industry.

Changes in Lithuania’s Legislation

In accordance with the broader regulatory goals of the European Union, Lithuania will integrate the MiCA into its domestic framework. In 2023, the EU implemented MiCA to create consistent regulations for crypto-asset operations among member countries. In contrast to other EU countries, Lithuania has chosen not to take advantage of the transitional period offered by MiCA, requiring full compliance by December 30, 2024. By June 2025, cryptocurrency service providers in Lithuania must have a crypto-asset service provider license due to the quicker timeline, giving more time for current and potential participants to get ready for the licensing procedure.

Important regulatory changes involve strict requirements for Know Your Customer (KYC) and Anti-Money Laundering (AML). Businesses need to put in place strong verification procedures to verify the authenticity of their customers and transactions. Furthermore, the range of activities under regulation has increased to include more services like management of crypto-assets, trading platforms, and advisory services in addition to virtual currency exchanges and custodial wallets. Crypto companies in Lithuania must implement thorough compliance strategies to successfully navigate the updated regulatory environment brought about by these changes.

Moreover, the latest Law on Preventing Terrorist Financing has implemented fresh rules, such as the necessity for cryptocurrency service providers in Lithuanian financial institutions to uphold a minimum share capital of €125,000. This condition provides more predictability and safety to the emerging crypto industry, making sure that only financially sound entities engage in the market. This condition mirrors the impending share capital demands set by MiCA and may sometimes necessitate extra investment from companies.

By the end of 2024, the implementation of MiCA will bring about a new categorization and structure for share capital.

Class of services 1 with share capital of 50,000 EUR will allow:

  • reception and transmission of orders on behalf of third parties; and/or
  • providing advice on crypto-assets; and/or
  • execution of orders on behalf of third parties; and/or
  • placing of crypto-assets.

Class 2 size of share capital 125,000 EUR will allow:

  • custody and administration of crypto-assets on behalf of third parties.

Class 3 size of share capital 150,000 EUR will allow:

  • exchange of crypto-assets for fiat currency that is legal tender;
  • exchange of crypto-assets for other crypto-assets;
  • operation of a trading platform for crypto-assets.

Advantages of Lithuania’s Jurisdiction

Lithuania is known for being an excellent location for cryptocurrency companies due to its combination of clear regulations, monetary benefits, and a supportive environment. One of the main benefits is the simplified licensing procedure. Lithuanian officials, mainly the Bank of Lithuania, have shown effectiveness and cooperation in communicating about the enforcement of MiCA regulations with stakeholders, guaranteeing that companies have a say in shaping the future of the crypto sector in Lithuania.

In addition, Lithuania provides attractive tax advantages designed for fintech and crypto companies. The corporate tax rates are advantageous, and there are special incentives for firms involved in innovative and digital ventures. In comparison to popular jurisdictions such as Malta or Poland, Lithuania offers a regulatory environment that is more economical and easy to navigate, while still maintaining high compliance standards.

The nation also has a well-trained labor force and a strong technological framework, increasing its attractiveness even more. The collaborative atmosphere supported by regulatory bodies and industry associations allows crypto businesses to thrive in changing market conditions. Moreover, Lithuania’s recent acknowledgment as one of the top locations for fintech startups highlights its effectiveness in offering a conducive atmosphere for digital financial innovation.

Benefits of Purchasing Ready-Made Companies

Entrepreneurs seeking to quickly penetrate the Lithuanian crypto market can gain a strategic edge by purchasing a pre-established company with a valid license. This method greatly decreases the time and complexity of starting a new entity and going through the licensing process from the beginning. By acquiring a company that is already licensed, businesses can skip long approval processes and start operating right away, guaranteeing a smooth entry into the market.

Furthermore, the purchase of a company with a pre-existing license reduces risks associated with following regulatory requirements. Ensuring all regulatory requirements are met through thorough research when buying a pre-existing business offers peace of mind and stable operations. This approach provides entry to a functional framework, enabling faster expansion and entrance into the market.

Our Expertise in Licensing

At Adam Smith Law Office team, we focus on handling the complications of cryptocurrency businesses in Lithuania. Operating from Lithuania, our company provides customized services for establishing cryptocurrency businesses and ensuring compliance with MiCA regulations. Furthermore, we offer services for selling pre-established cryptocurrency businesses that adhere to all current regulations.

Our lawyers in Lithuania collaborate closely with the Financial Crime Investigation Service of Lithuania and the Bank of Lithuania to stay current with regulatory requirements and legislative changes. Our close partnership enables us to provide clients with precise and prompt guidance, guaranteeing their businesses are compliant and set up for success.

The Bank of Lithuania is known for its friendly and welcoming approach, which encourages cooperation between regulators and businesses. This collaboration guarantees effective enforcement of MiCA while addressing stakeholders’ worries, establishing a fair and supportive regulatory atmosphere.

We are fully immersed in the crypto regulation development in Lithuania. We are closely following legislation as well as communication form government institutions on consultations. We have taken the initiative to notify our current clients about these regulations, giving them the reassurance and confidence to proceed with their crypto activities securely.

Moreover, Lithuania being acknowledged as the top choice for Fintech Startups highlights our nation’s commitment to fostering advanced financial technologies. At Adam Smith, we use this prestigious award to support our clients in succeeding in a competitive marketplace.

At the moment, there is a draft being prepared for the implementation plan of MiCA in Lithuania. Our team plays a key role in developing this strategy, guaranteeing that our clients are provided with the best advice and assistance. We highlight the significance of top-notch documentation and proactive interaction with regulators in order to streamline the licensing process.

Recommendations for Cryptocurrency Companies

To thrive under Lithuania’s regulatory framework, cryptocurrency companies should adopt proactive compliance measures and strategic planning. Here are 10 key recommendations that we offer to our existing clients and would like to share with you:

  • Early Preparation: Begin the licensing process well in advance of the December 30, 2024 deadline. This includes gathering necessary documentation, establishing robust KYC and AML protocols, and ensuring organizational structures meet regulatory standards. Our firm, Adam Smith Law Office, can assist you in preparing all required materials to streamline this process.
  • Comprehensive Compliance Programs: Develop and implement comprehensive compliance programs that address all aspects of MiCA requirements. This includes risk assessment, internal controls, and regular audits to ensure ongoing adherence.
  • Engage with Experts: Collaborate with regulatory consultants and legal experts, such as those at Adam Smith Law Office team, to navigate the complexities of the licensing process and stay updated on legislative changes.
  • Invest in Technology: Utilize advanced compliance and security technologies to enhance operational efficiency and safeguard against regulatory breaches.
  • Continuous Monitoring: Establish mechanisms for continuous monitoring and reporting to promptly address any compliance issues and adapt to regulatory updates.
  • Focus on Documentation Quality: Ensure that all submitted documents are thorough, accurate, and tailored to your specific business model. Avoid generic templates and provide detailed information to meet the Bank of Lithuania’s expectations.
  • Enhance Management Competence: Ensure that your management team has a comprehensive understanding of the legal frameworks governing crypto activities. Provide ongoing training and support to maintain high standards of regulatory knowledge.
  • Promote Shareholder Transparency: Maintain clear and transparent records of shareholder information, including the origin of funds and ownership structures, to facilitate the Bank of Lithuania’s reputation assessments.
  • Strengthen Internal Controls: Implement robust risk management and internal control systems to prevent money laundering and terrorist financing. Ensure that responsible personnel are adequately qualified and experienced.
  • Collaborate with Financial Institutions: Foster strong relationships with banks and other financial institutions to ensure smooth operations and compliance with regulatory requirements. At Adam Smith Law Office team, we can guide you in establishing these critical partnerships.

The Bank of Lithuania has pinpointed numerous typical shortcomings in license applications, underscoring the significance of thorough documentation and a full grasp of regulatory mandates. Applicants should steer clear of using generic, template applications and make sure that all provided information is accurate, clear, and customized to their individual business situation. Main areas to concentrate on are:

  • Application Quality: Avoiding template-based submissions and ensuring all necessary information is provided upfront.
  • Management Competence: Demonstrating a thorough understanding of the legal framework governing crypto activities.
  • Shareholder Transparency: Providing comprehensive information about shareholders, including the source of funds and ownership structures.
  • Internal Controls: Ensuring robust risk management measures are in place to prevent money laundering and terrorist financing.

By adhering to these suggestions, cryptocurrency firms can reduce regulatory exposure, maintain smooth operations, and take advantage of the benefits offered by Lithuania’s supportive regulatory landscape. To receive a personalised consultation for detailed advice on preparing for MiCA implementation, please contact us.

Conclusion

Lithuania’s commitment to creating a robust and transparent regulatory framework for cryptocurrency businesses presents unparalleled opportunities for growth and innovation. The recent legislative changes, aligned with the EU’s MiCA regulation, enhance the operational landscape, making Lithuania an attractive jurisdiction for crypto enterprises. Purchasing a ready-made company with an existing license emerges as a strategic move, offering immediate market entry, reduced risks, and operational stability.

Embracing an expert-driven approach is essential to navigate the complexities of the evolving regulatory environment successfully. Adam Smith Law Office team is dedicated to providing the necessary expertise and support to ensure your cryptocurrency business not only complies with current regulations but also thrives in the competitive market. Our deep understanding of Lithuanian regulations, combined with our proactive engagement with regulatory bodies, positions us uniquely to assist your business in achieving compliance and operational excellence.

Take the next step towards securing your place in Lithuania’s burgeoning crypto market. Contact us today for a consultation and explore how we can assist you in establishing a compliant and successful cryptocurrency enterprise.