According to Bloomberg, Lithuania, a hub for financial-technology startups over the past decade, is set to implement stricter regulations on crypto companies operating within its borders. The country is expected to start awarding licenses next year, which could potentially reduce the number of cryptoasset firms currently registered in the country. Of the 580 cryptoasset firms registered, the number expected to pass the hurdle for obtaining full permits is anticipated to be significantly lower.
The Baltic nation has been striving to establish itself as a center for innovative digital banks and payments companies. However, the crypto industry has faced challenges in a lightly-regulated environment, with numerous failures and embezzlement cases reported not only in Lithuania but also in the US and other European countries. This has prompted Lithuania to tighten its regulations, mirroring steps taken by regulators worldwide over the past three years.
Financial centers such as Singapore, Hong Kong, and Dubai have introduced comprehensive regulatory regimes for digital assets since 2021. Seven of the world's largest crypto exchanges are already present in Lithuania. Some of the digital-asset firms operating in Lithuania are already licensed in other EU states, which may exempt them from needing authorization in Lithuania.
The European Union's first unified crypto legislation, known as Markets in Cryptoassets (MiCA), is due to take effect starting in January 2025. Lithuania is also in the process of implementing its own legislation to govern crypto, including powers for the country's Financial Intelligence Unit, an anti-money laundering watchdog, to terminate corporate registrations.
The central bank has been investing to ensure its staff understand the business models of crypto firms. The central bank will start a pre-assessment procedure for licensing in July, six months before MiCA takes effect. The crypto sector is expected to fully integrate into the financial sector from next year.