Georgia moves forward with crypto regulation

by Mariam Giorgadze, Crystal Regulatory & Compliance Team

On June 13, 2023, the National Bank of Georgia (NBG) issued a new regulation for Virtual Asset Service Providers (VASPs) operating in Georgia. 

The regulation applies to those who are obliged to register with the NBG or those who wish to carry out virtual asset services in Georgia in the future.  

The newly announced regulation stipulates the registration procedure for VASPs. 

VASPs in Georgia 

According to the regulation introduced by the NBG, the following activities will be in the scope of the new regulation: 

  • Exchanges (including ATM kiosks) between convertible virtual assets and fiat currencies (national or foreign), between one or more forms of virtual assets, between convertible virtual assets and financial instruments; 
  • Transfers of convertible virtual assets; 
  • Safekeeping and/or administration of convertible virtual assets or the instrument enabling control over virtual assets; 
  • Portfolio management of convertible virtual assets (excluding collective portfolio management); 
  • Administration of the trading platform of the convertible virtual assets; 
  • Lending of convertible virtual assets; 
  • Initial coin offering of convertible virtual assets and/or service related to initial coin offering.  

Obligations for VASPs in Georgia 

The regulation sets out obligations that apply to all VASPs: 

  • Only a legal entity, a limited liability company, or a joint-stock company, founded and registered in line with the Georgian legislation is entitled to undertake virtual asset services. It is not allowed to provide virtual asset services through an agent. 
  • VASPs must submit a detailed description of the implementation scheme for the virtual asset service. This must include information about the movement of data, virtual assets and fiat currencies, indicating and describing all participants, even intermediary providers. 
  • VASPs should meet strict requirements for compliance, anti-money laundering, customer identification and management skills. 
  • VASPs should have a business plan (with a minimum three-year budget forecast) confirming they have the capacity to ensure the appropriate and adequate systems, as well as having the necessary resources and procedures to carry out their activities.  
  • VASPs should have an administrator, who is a member of the supervisory board of a virtual asset service provider, a member of the directorate, as well as a person who is authorized to independently and/or jointly with one or more persons undertake obligations on behalf of a virtual asset service provider. Administrators must have a good reputation, appropriate qualifications, sufficient work experience, and the skills needed to perform their duty and ensure reliable and prudent management of the VASP.

Crypto compliance requirements in Georgia 

VASPs should meet strict requirements for compliance and anti-money laundering including: 

  • Having an anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) policy, procedure, and organizational risk assessment framework.  
  • Proving a self-declaration document that complies with AML/CFT legislation and confirms the VASP has implemented AML/CFT control mechanisms before starting its operation. 
  • VASPs must implement a transaction monitoring system before the launch of their operation. Such a system is designed to prevent money laundering and terrorist financing risks. This system must be able to detect unusual or significant transactions. In addition to monitoring its activities, the system should be able to record, store, and systematically organize operations performed by VASPs.  

The VASP must identify and verify the client in accordance with the process required by NBG. 

Prohibitions imposed on VASPs in Georgia 

VASPs are prohibited from doing business with a VASP or a financial institution that: 

  • Is not registered/licensed; 
  • Is not subject to AML/CFT supervision; 

The legislation of the VASP’s host country does not provide for identical or stricter requirements of the legislation of Georgia in accordance with the recommendations of the Financial Action Task Force (FATF) to prevent money laundering and terrorist financing. 

Prohibition on Privacy Coins 

VASPs are prohibited from providing services by anonymity-enhanced or privacy coins and using such technological methods/mechanisms that prevent identification of the transaction and the parties involved. 

How the new regulation impacts the crypto community in Georgia  

The new regulation defines a service provider as an accountable person and the NBG as its supervisory authority. Consequently, the NBG will oversee the operations of virtual asset services providers and ensure that they meet the necessary AML/CFT requirements. The NBG will have the power to conduct inspections and impose sanctions on service providers.  

This will enable VASPs to carry out their activities within a legal framework to manage the risks of money laundering and terrorism financing.  

By complying with regulations, VASPs will automatically increase the transparency of their activities, thereby increasing their credibility.  

A new era for Georgian VASPs 

July 1, 2023 is defined as the regulation’s implementation date. VASPs are obliged to ensure implementation within one year after registration with the NBG, but no later than 2024. 

The Georgian government recognized the potential benefits of blockchain technology and cryptocurrencies early on and sought to create a favorable environment for their development. The new crypto regulation demonstrates the government’s willingness to embrace the opportunities presented by blockchain technology and protecting the investors while maintaining the integrity of the financial system.  

At Crystal, our Regulatory & Compliance team keenly monitors global regulatory developments.  

For all crypto compliance and regulation questions, please contact us at compliance@crystalblockchain.com