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New requirements for VASPs

Published:

August 20, 2024

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In recent times, the use of virtual assets has grown rapidly, leading to the need of regulation of VASP to ease exchange and storage.

To guarantee the strongest integrity and safety of these services, the duties for VASP’s were amended in the AML/CFT Law.

This article will lead you through all new liabilities.

AML/CFT Law in Europe

Let’s take a closer look at this law.

The European Commission conducts hazard evaluation for the intention of pinpointing and dealing with risks that have an impact on the European internal market. It helps to adopt international solutions to defy the hazards worldwide.

Coming out of this, the EU made a decision to enact a law to oppose illegally concealing the origin of money and the act of supplying finances to terrorists (this opposition is the main purpose of Market in Crypto-Assets) – AML/CFT Law.

New VASP regulation in Lithuania

Let’s sort out all the new requirements for VASP’s, which The Parliament of the Republic of Lithuania approved to the AML/CFT Law:

CSPs who fail to comply with a newly set of obligations will lose the right to conduct the activities of virtual currency convertibility;
Equity capital is not the same as initial one of the firm and is not directly linked to cash kept in bank accounts (insufficiency of the equity capital usually occurs because of loss making actions);
Crypto market participants have to monitor equity sufficiency every day to guarantee that equity capital is at least €125000 all the time (The creation of “safety barrier” is preferably in order to enable effective monitoring; the method allows to estimate possible business losses over a specified period. Nevertheless, this method may appear as an impossible due to new obligation in the AML/CFT Law, which require VASP’s to increase share capital only through the bank account created within financial institution).

Conclusion

Eventually, only 1 out of 10 crypto service providers, at best, have bank accounts opened with banking institutions, which are usually inrushed to create an account for crypto market participants.

This could lead to VASP’s being unable to maintain adequate equity capital because of the impossibility of creating a bank account with conventional banks.

FAQ

Are VASP’s regulated?

Definitely yes. Provider’s work is under the control of administrative bodies around the globe. In order to avoid legal penalties and guarantee the legitimacy of their actions, abidance with regulations is compulsory for clients.

Regulatory frameworks such as the FATF instructions obligate VASPs to apply strong KYC procedures. In regions such as the US and the EU, specific laws obligate providers to adhere to strict KYC and AML liabilities.

What are the requirements for the FATF travel rule?

“Travel rule” obligates monetary organizations focused on VA transfers and crypto companies to acquire “required and precise originator data, and required beneficial data” or share it with counterparty VASP or banks throughout or prior to business deal.

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