The significant use of cryptocurrencies plays a major role in shaping economic and innovation processes at both the national and international levels, prompting authorities to develop effective mechanisms for their regulation.
As of early 2024, the EU did not have a harmonised legislation for regulating the usage of virtual assets. Instead, each member state established its own internal requirements for crypto asset providers and their areas of activity.
This gave rise to several issues. Firstly, the lack of unified regulation has encouraged the development of the «grey zone», which caused difficulties in developing innovations and attracting investment. Secondly, a significant number of crypto companies were registered in jurisdictions with the least stringent requirements. For instance, almost half of all European providers are currently located in Poland, which has minimal legal requirements for the companies’ share capital, provides a fast registration procedure and sets low tax rates.
Therefore, in order to create a transparent market of virtual assets, the European Parliament adopted a new Regulation on Markets in Crypto-Assets Regulation (MiCA), which aims to establish a comprehensive mechanism for regulating the turnover of virtual assets in the EU, develop clear rules for service providers, and ensure the protection of investors‘ and consumers’ interests.
The provisions of the MiCA will gradually come into force from June 2024 and will become fully applicable from 30 December 2024.
Although the Regulation will not have direct legal effect in Ukraine, the Verkhovna Rada is currently considering Draft Law №10225 «On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Regarding the Regulation of the Turnover of Virtual Assets in Ukraine» (the «Draft Law №10225»), which was developed on the basis of the MiCA.
Similar to the MiCA, the draft law №10225 identifies three main types of virtual assets that will be subject to legislative regulation:
The legislator further addresses this matter by identifying another category of crypto assets — NFTs. Notably, the MiCA framework explicitly excludes this type of token from its scope of regulation.
The draft law stipulates that crypto service providers must be established in the legal forms of a joint-stock company, limited liability company or additional liability company, be located in Ukraine and have at least one director resident in Ukraine.
In addition to the mentioned above, the legislator establishes the following requirements for members of the management body:
While the above conditions overlap with the provisions of the MiCA, the absence in the national draft law of a requirement that the founders shall have clean criminal record connecting to money laundering, terrorist financing, fraud or professional liability, which is mandatory under the European Regulation, remains controversial.
A notable innovation in national legislation will be the mandatory preparation of a «white paper» for virtual assets, which is required to include, among other details, information on:
The white paper should be posted on the providers’ official websites and serve as an information source for consumers, investors and regulatory authorities.
The development of a white paper for providers of virtual assets other than asset-referenced tokens and e-money tokens will be sufficient to start operating in the market. At the same time, providers of asset-referenced tokens will also be required to carry out the state registration procedure by submitting an application to the National Securities and Stock Market Commission. Finally, only banks, electronic money institutions or accredited branches of foreign electronic money institutions will be able to issue e-money tokens.
Draft Law №10225 does not impose any minimum capital requirements for virtual asset service providers. Instead, under the MiCA provisions, a minimum balance sheet value of EUR 50,000 is required for market entry.
In light of the above, we can conclude that the adoption of a specialised legislative act regulating the turnover of virtual assets is a necessary step for Ukraine, which is in the process of European integration and is actively implementing the most effective European regulations. Furthermore, Ukraine’s position in the global top ten for cryptocurrency usage among its population underscores the importance of implementing such legal mechanisms.
As of early 2024, the EU did not have a harmonised legislation for regulating the usage of virtual assets. Instead, each member state established its own internal requirements for crypto asset providers and their areas of activity.
This gave rise to several issues. Firstly, the lack of unified regulation has encouraged the development of the «grey zone», which caused difficulties in developing innovations and attracting investment. Secondly, a significant number of crypto companies were registered in jurisdictions with the least stringent requirements. For instance, almost half of all European providers are currently located in Poland, which has minimal legal requirements for the companies’ share capital, provides a fast registration procedure and sets low tax rates.
Therefore, in order to create a transparent market of virtual assets, the European Parliament adopted a new Regulation on Markets in Crypto-Assets Regulation (MiCA), which aims to establish a comprehensive mechanism for regulating the turnover of virtual assets in the EU, develop clear rules for service providers, and ensure the protection of investors‘ and consumers’ interests.
The provisions of the MiCA will gradually come into force from June 2024 and will become fully applicable from 30 December 2024.
Although the Regulation will not have direct legal effect in Ukraine, the Verkhovna Rada is currently considering Draft Law №10225 «On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Regarding the Regulation of the Turnover of Virtual Assets in Ukraine» (the «Draft Law №10225»), which was developed on the basis of the MiCA.
Similar to the MiCA, the draft law №10225 identifies three main types of virtual assets that will be subject to legislative regulation:
- e-money tokens — a type of virtual asset that aims to maintain its stable value by pegging it to the value of only one official currency;
- asset-references tokens — virtual assets that maintain their stable value by linking to the value of any other civil rights object, including combinations with one or more official currencies;
- crypto assets other than asset-reference tokens and electronic money tokens — all other types of virtual assets, except for those expressly excluded from the scope of the draft law.
The legislator further addresses this matter by identifying another category of crypto assets — NFTs. Notably, the MiCA framework explicitly excludes this type of token from its scope of regulation.
The draft law stipulates that crypto service providers must be established in the legal forms of a joint-stock company, limited liability company or additional liability company, be located in Ukraine and have at least one director resident in Ukraine.
In addition to the mentioned above, the legislator establishes the following requirements for members of the management body:
- having business reputation that meets the requirements established by the National Securities and Stock Market Commission;
- possessing appropriate knowledge, skills and experience to manage the applicant.
While the above conditions overlap with the provisions of the MiCA, the absence in the national draft law of a requirement that the founders shall have clean criminal record connecting to money laundering, terrorist financing, fraud or professional liability, which is mandatory under the European Regulation, remains controversial.
A notable innovation in national legislation will be the mandatory preparation of a «white paper» for virtual assets, which is required to include, among other details, information on:
- the person applying for admission to trading;
- the project for which the virtual asset is being issued;
- the public offering of virtual assets;
- description of the relevant virtual assets;
- risks associated with the turnover of the virtual asset.
The white paper should be posted on the providers’ official websites and serve as an information source for consumers, investors and regulatory authorities.
The development of a white paper for providers of virtual assets other than asset-referenced tokens and e-money tokens will be sufficient to start operating in the market. At the same time, providers of asset-referenced tokens will also be required to carry out the state registration procedure by submitting an application to the National Securities and Stock Market Commission. Finally, only banks, electronic money institutions or accredited branches of foreign electronic money institutions will be able to issue e-money tokens.
Draft Law №10225 does not impose any minimum capital requirements for virtual asset service providers. Instead, under the MiCA provisions, a minimum balance sheet value of EUR 50,000 is required for market entry.
In light of the above, we can conclude that the adoption of a specialised legislative act regulating the turnover of virtual assets is a necessary step for Ukraine, which is in the process of European integration and is actively implementing the most effective European regulations. Furthermore, Ukraine’s position in the global top ten for cryptocurrency usage among its population underscores the importance of implementing such legal mechanisms.