The Verkhovna Rada of Ukraine adopted a law “On virtual assets” regulating operations with cryptocurrencies.
According to the Minister of Digital Transformation Mikhail Fedorov, the daily turnover of virtual assets in Ukraine is 1 billion hryvnia, but “all this is in the shadows.” The law is intended to bring the digital asset market into a legal plane.
The document was changed and supplemented several times. We will discuss the final version with the authors of the bill, the Ministry of Digital Transformation and independent lawyers.
- Virtual assets (VA) are considered intangible goods and objects of civil rights, but not a means of payment. They are divided into secured and unsecured. The document also introduces the category of financial IA.
- The market regulators will be the National Bank, the National Commission for Securities and Stock Market and a new specially created body. Until its formation, these functions will be performed by the Ministry of Digital Affairs.
- The VA market is closed for Russian business.
- The law will not come into force until the parliament adopts amendments to the Tax Code. When this will happen is unknown.
The law defines virtual assets as an intangible good that is an object of civil rights. They are divided into secured and unsecured. Cryptocurrencies like Bitcoin or Ethereum are classified as the second type. The secured VA must certify property rights, in particular, the right to claim other objects of civil rights.
VAs are not recognized as a means of payment and cannot be exchanged for goods and services.
As one of the authors of the law, the head of the blockchain4Ukraine inter-factional association Oleksiy Zhmerenetsky, explained, according to the Civil Code of Ukraine, property has a material nature, while IA represents information that the Civil Code refers to as intangible goods:
“Firstly, VA as a digital code or software is much more intangible than property. Secondly, the FATF considers IA as a “digital representation of value” and this definition is, of course, closer to intangible good than to property. “
The Blockchain Association of Ukraine (BAU) notes that the definition of VA as an intangible good raises questions, since its status is “still unclear.”
Market participants of the IA have received the right to:
- selection of a counterparty to carry out operations;
- opening bank accounts for settlements on transactions with VA;
- judicial protection of their rights to VA;
- obtaining information from service providers about their activities and the possibilities of protecting the rights of users;
- independent determination of VA prices at which transactions with them are carried out.
- protection of personal data.
Opening bank accounts will allow a business to conduct transactions with VA “as the main or exclusive activity,” said Alexander Bornyakov, Deputy Minister of Digital Transformation for IT Development:
“Of course, banks that want to issue so-called“ bitcoin cards ”(which, most likely, mean cases of providing a client with services for storing and automatically converting VA into fiat) will be able to open bank accounts to solve their own problems as well as their customers. ”
It is known that monobank, popular in Ukraine, is hatching plans to issue bitcoin cards . There is information that the project has already been implemented in partnership with the WhiteBIT exchange.
Service providers are legal entities that carry out one or more types of activities, among which four main ones were identified:
- storage / management of VA or keys to VA;
- provision of intermediary services related to such assets.
These cannot be companies registered or located on the territory of “a state recognized by the Verkhovna Rada as an occupying country or an aggressor country.” This status has so far been assigned only to Russia.
According to Bornyakov, this rule means that VA suppliers from the Russian Federation will not be able to legally work in Ukraine.
The rest of the service providers will be able to operate only on the basis of a special permit.
If an IA provider wants to provide more than one type of service, they need to get approval for each one.
“There is a Lego constructor principle. Based on the business model, companies will apply for each type of activity as BA suppliers, ”said Konstantin Yarmolenko, head of the Blockchain4Ukraine advisory group.
The ministry expects that this “will be a very uncomplicated, essentially automated procedure that can be carried out remotely.”
According to lawyer Dmitry Nikolaevsky, the legislation of Ukraine suggests the possibility of implementing regulatory policy both through the issuance of licenses and through permits:
“According to the practice already established in other spheres of the economy, the second option, as a rule, is simpler. Most likely, that is why they gave preference to him. “
The cost of the permit, as well as the size of the authorized capital for residents and non-residents of Ukraine, is different.
|Kind of activity||Resident||Non-resident|
|storage / management of VA or keys to VA||136,000 hryvnia (≈ $ 5,000)||680,000 hryvnia (≈ $ 25,000)|
|exchange||85,000 hryvnia (≈ $ 3100)||425,000 hryvnia (≈ $ 16,000)|
|translation||85,000 hryvnia (≈ $ 3100)||425,000 hryvnia (≈ $ 16,000)|
|provision of mediation services||68,000 hryvnia (≈ $ 2,500)||340,000 hryvnia (≈ $ 12,700)|
To renew the permit, suppliers must resubmit and pay for it.
|Kind of activity||Resident||Non-resident|
|storage / management of VA or keys to VA||at least 1,190,000 hryvnia (≈ $ 44,000)||at least 5,950,000 hryvnia (≈ $ 222,000)|
|exchange||at least 595,000 hryvnia (≈ $ 22,000)||at least 2,975,000 hryvnia (≈ $ 111,000)|
|translation||at least 595,000 hryvnia (≈ $ 22,000)||at least 2,975,000 hryvnia (≈ $ 111,000)|
|provision of mediation services||at least 595,000 hryvnia (≈ $ 22,000)||at least 2,975,000 hryvnia (≈ $ 111,000)|
Aleksey Zhmerenetsky noted that so far there is no direct prohibition on the formation of the authorized capital in VA, but it may be introduced in the future.
“The authorized capital formed by bitcoins still cannot adequately perform all the necessary functions ,” he said.
The permit is valid for a year. Information about service providers is entered into a special state register.
“All exchanges, custodians and exchangers will become regulated objects of financial monitoring and will have to carry out KYC / AML procedures ,” said Anna Voevodina, lawyer of the Kuna exchange.
According to Bornyakov, the law creates the legal preconditions for professional market participants, as well as persons carrying out a public offering of VA, to be identified:
“If they do not conduct business honestly, the affected market participant will know who is involved in the violation of his rights and will be able to apply at his own discretion either to the court or to law enforcement agencies with appropriate statements.”
For failure to comply with the requirements of the law, penalties are provided. They only apply to VA providers.
“The law does not establish additional rights and obligations for any old or new government agencies to monitor the citizens of Ukraine ,” said Alexander Bornyakov.
|activities of the VA supplier without the permission of the regulator||from 34,000 (≈ $ 1200) to 119,000 hryvnia (≈ $ 4400)|
|implementation by the VA supplier of other activities provided for by law without permission||from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3100)|
|for providing false information when obtaining permission||from 8500 (≈ $ 320) to 17,000 hryvnia (≈ $ 630)|
|for violation of the terms of notification of the regulator about changes in the information included in the state register of VA suppliers||up to 17,000 hryvnia (≈ $ 630)|
|for non-provision, provision of incomplete or inaccurate information to the regulator||up to UAH 17,000 (≈ $ 630),
for a repeated similar violation throughout the year – up to UAH 34,000 (≈ $ 1200)
|for non-fulfillment or untimely fulfillment of the regulator’s orders to eliminate violations||from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3,100),
for a repeated similar violation throughout the year – from 34,000 (≈ $ 1,200) to 102,000 hryvnia (≈ $ 3,800)
|for violation of the requirements for the publication of information in the course of organizing a public offer of VA||from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3,100),
for a repeated similar violation throughout the year – from 34,000 (≈ $ 1,200) to 102,000 hryvnia (≈ $ 3,800)
Three regulators and a new supervisory authority
A specially created central executive body will issue permits and regulate the market. It must be created by the Cabinet of Ministers of Ukraine within six months from the date of publication of the law. Until this moment, its functions will be performed by the Ministry of Digital Affairs.
“In fact, the Ministry of Digital Industry will act as the main regulator of the industry, which will form the regulatory policy. But to put it into practice in practice will be a completely new state body – a specially created service, which will have all the functionality for interaction with market participants, ”said lawyer Dmitry Nikolaevsky.
The competence of the new body will include regulation of the circulation of all VA, except for those that, in accordance with the law, are financial virtual assets, said Alexander Bornyakov.
At BAU, the issue with the regulator was called “the biggest and most controversial.”
“To date, the necessary infrastructure has not yet been created, there is no necessary staff of officials and there are many nuances that should be improved and optimized,” Anna Voevodina noted.
The document also introduces the category of financial IA. Their issue is allowed to residents of Ukraine. They can be secured with currency values - in this case, the turnover is regulated by the National Bank (NBU), as well as securities or derivatives – regulated by the National Commission on Securities and Stock Market (NSSMSC).
Thus, the market received three regulators. The National Securities and Stock Market Commission, the NBU and a number of lawyers have already criticized the previous version of the document for the fact that it did not clearly delineate the powers of regulators. In the adopted law, their areas of responsibility are spelled out separately, and there is also an article on the interaction and coordination of the actions of these bodies.
The head of the NBU, Kirill Shevchenko, said that after the signing of the law by President of Ukraine Volodymyr Zelensky, regulators will begin to develop by-laws, which will become “powerful incentives for market development and at the same time protect Ukrainians from fraud.”
At the same time, he stressed that the hryvnia remains the only legal tender in the country. Shevchenko noted that now the NBU is studying the possibility of launching its own digital currency .
“We see its use in the sphere of VA turnover as one of the potential areas of research into the issue of e-hryvnia ,” Shevchenko said.
According to him, this can create a new infrastructure that will become “an effective gateway between the real economy and the VA market.”
The National Securities and Stock Market Commission stated that the adopted law is “a good start for the development of the IA segment in Ukraine.”
“But we need to clearly understand that the state must ensure the high-quality functioning of the market, proper regulation and supervision to protect its participants. Now we see some inconsistencies with European and international standards regarding the introduction of IA into the Ukrainian legal field, ”said Yuriy Boyko, a member of the National Securities and Stock Market Commission.
It is important to note that the adopted law will not enter into force without the adoption of the draft law on amendments to the Tax Code concerning the taxation of transactions with VA.
The tax bill is currently under development, Alexander Bornyakov said:
“Since the development of this bill cannot be carried out by the Ministry of Digital Industry without close cooperation with other state bodies, including the Ministry of Finance of Ukraine, we still do not know the date of submitting the bill to parliament for voting in the first reading.”
Lawyers and market assessments
Igor Olekhov, partner of the law firm CMS Cameron McKenna Nabarro Olswang, emphasized that the adopted law on IA is a framework and most of the mechanisms and procedures are not spelled out in detail in it.
“The law only defines and permits the IA, and the practical application should be spelled out additionally in bylaws. However, it is important that they are developed on time and adopted simultaneously with the entry into force of the law in order to avoid the situation that the market will function in violation of the law. “
According to Nikolay Rekhlitskiy, senior lawyer of the intellectual property practice of Arzinger JSC, the adopted law proposes “concise regulation of key points for the legal circulation of VA in Ukraine”:
“Despite the obvious need to” make friends “virtual assets with legislation in the field of AML and KYC, an important step has been taken in the law – virtual assets are introduced into the legal system as objects of civil rights, which brings legal clarity to their civil and commercial turnover.”
Dmitry Pshenichnyuk, an advisor to the law firm Kinstellar, noted that the law creates an opportunity to attract global players in the crypto industry, such as Coinbase, Fidelity or Square, to Ukraine.
“In addition, banks, exchanges and other companies in traditional business sectors will be able to fully provide services in the cryptocurrency market and invest in DeFi startups and innovations,” he added.
Konstantin Yarmolenko noted that the legislation will adapt to the main trends in the industry and its regulation:
“The updated FATF IA guidelines will be published this fall, with a focus on DeFi, so the law will still be amended to respond quickly to all regulatory and technological challenges in the crypto economy.”
Market participants generally positively assessed the adoption of the law as a step towards the legalization of cryptocurrencies.
Gleb Kostarev, director of Binance in Eastern Europe, said that the company has a positive attitude towards regulation and considers it necessary, and called the adoption of the law “another significant step towards the formation of a stable position of the country in the field of financial technology and cryptocurrency.”
“The already large local crypto community will grow and develop, and cryptocurrencies and blockchain technology will enter the lives of ordinary people and gain even more popularity ,” said Kostarev.
Kuna also stated that the market should be regulated and expressed its readiness to participate in the formation of new legal institutions, but noted possible problems in the application of the law:
“Taking into account how law enforcement agencies work in our country and what an unattractive investment climate there is, of course, there is a fear that any good undertaking will pass through the prism of corruption schemes, flaws, ignorance, and this can play a negative role.”