For Crypto Asset Service Providers ("CASP"s) operating in Europe, selecting a jurisdiction in which to base themselves is a crucial decision that they have to take in the immediate future. Malta and Lithuania are two popular jurisdictions that are attracting a lot of attention.
Lithuania's Stricter Approach to Regulation
Recently, Lithuania tightened its regulations pertaining to businesses that deal in cryptocurrency assets. To address issues like money laundering and fraud within the cryptocurrency sector, the Bank of Lithuania and the Ministry of Finance, among other Lithuanian authorities, have stressed the need for stronger laws. This regulatory tightening comes after Lithuania saw a sharp rise in the number of crypto-asset businesses, from 9 at the end of 2020 to 850 by the end of 2022, mostly due to its lax oversight of the industry players.
Strengthened Monitoring and Implementation
The Lithuanian strategy calls for tighter oversight of CASPs, and financial institutions are crucial in spotting and disclosing any possible money laundering or financing of terrorism. Companies that do not follow the requirements are subject to enforcement actions by the Financial Crime Investigation Service (the "FCIS"), which include warnings and fines.
Getting Ready for the MiCA Rule
As the European Union's ("EU") Markets in Crypto-Assets ("MiCA") regulation is set to become effective in December 2024, Lithuania is actively preparing for its implementation. Notably, Lithuanian authorities have decided not to utilize MiCA's transitional period, indicating a shift towards more stringent regulatory oversight. Consequently, Lithuanian operators will be obliged to cease their operations in the end of 2024 and those aiming to still maintain their business activities in Lithuania will be required to wait for their MiCA licence to be issued in order to be able to restart legally their operations. This situation may prompt numerous operators based in Lithuania to search for a jurisdiction with a more stable regulatory environment.
Malta's Forward-Looking Legal Structure
Malta, on the other hand, took a MiCA style approach since 2018 when it became a pioneer in developing a regulatory framework for cryptocurrencies. Malta has shown that it is committed to creating a dynamic and well-balanced regulatory environment with the adoption of the Maltese Virtual Financial Assets ("VFA") Act and with the recent additional steps to bring it fully in conformity with the MiCA regulation.
Accepting MiCA through the VFA Act
Malta's VFA Act demonstrated a proactive approach to complying with EU requirements, as it is in line with the MiCA legislation. To make sure that local VFA service providers are ready for MiCA, the Malta Financial Services Authority (the "MFSA") has suggested tweaks to the VFA Rulebook in the past weeks. You can read more about this here, in our previous article.
Implementation in Phases for a Smooth Transition
The new laws will be implemented gradually as part of the MFSA's strategy to give CASPs enough time to adjust. This transition plan, which offers businesses a more gradual and controllable adjustment period, contrasts with Lithuania's more immediate implementation.
Put Innovation and Growth First
Malta's regulatory framework is intended to promote innovation and expansion in the cryptocurrency industry in addition to guaranteeing compliance and protecting investors. Malta is a desirable location for CASPs searching for a jurisdiction that upholds strict regulations while supporting their business goals because of this balance.
In conclusion, Malta is the favoured option.
Malta's approach provides a more balanced and stable environment for CASPs, whilst Lithuania's sudden shift towards proper regulation combined with the termination of operations in the end of 2024 will undoubtedly come as a shock to many of the operators based there. It will likely also put pressure on the regulator to process the large number of applications it will receive. Because of its progressive early adoption, focus on innovation, and early alignment with EU norms, the Maltese regulatory framework presents itself as a more advantageous location for cryptocurrency enterprises looking for stability and growth in a well-regulated setting.
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