CMS Expert Guide to Crypto Regulation in Latvia

Financial services are regulated under the Financial Instrument Market Law and other legislation, most notably the Law on Payment Services and Electronic Money.

Authorisation and enforcement regarding financial and capital markets, including but not limited to legislation above, is principally overseen by the Bank of Latvia. At present no legislation has been made in respect of cryptoassets per se.

As of now the following activities are mostly unregulated in terms of cryptoassets. There are only AML Law specific regulations and definitions.

The only reference to cryptoassets, specifically to the term virtual currencies, and to some of the activities referred to in the question, is included in the AML Law, in line with the AML Directives.

Virtual currency is defined as a digital representation of the value which can be transferred, stored or traded digitally and operate as a means of exchange, but has not been recognized as a legal means of payment, cannot be recognized as a banknote and coin, non-cash money and electronic money and is not a monetary value accrued in the payment instrument which is used in the cases referred to in Section 3, Clauses 10 and 11 of the Law on the Payment Services and Electronic Money.

Virtual currency service provider is the person providing virtual currency services, including the provider of services of exchange of the virtual currency issued by other persons, which provides the users with the possibility to exchange the virtual currency for another virtual currency by receiving commission for it, or offer to purchase and redeem the virtual currency through a recognised legal means of payment.

Virtual currency service providers are subjects of the AML Law, meaning that they are required to (i) register with the State Revenue Service as subjects of the AML Law, including appointing a responsible person; (ii) conduct and document the assessment of the money laundering and terrorism and proliferation financing risks (Risk Assessment); (iii) establish an internal control system; (iv) report unusual and suspicious transactions.

In essence, virtual currency service providers are subject to the same money laundering regulations as any other subject of the AML Law.

There are no rules applicable to the promotion of cryptoassets per se in Latvia if such cryptoassets are not classified as financial instruments.

As of now, AML Law contains crypto-asset and related definitions, where:

1. Crypto-asset is a digital representation of value which may be traded or transferred digitally and which may be used for payments or investments. A crypto-asset does not include a digital representation of a currency emitted by countriesʼ central banks, security, or another financial asset;
2. Crypto-asset service provider is a person who, within the scope of his professional or commercial activity, performs on behalf of or for the benefit of a client (i) exchange of crypto-assets to currency issued by national central banks, (ii) exchange between one or more types of crypt-assets, transfer of crypto-assets, (iii) storage or management of crypto-assets or instruments that provide control over crypto-assets, (iv) provision of financial services and participation in the provision of financial services in connection with the issuer's offer or sale of crypto-assets.

As of now, crypto-asset service providers are subjects of the AML Law, meaning that they are required to (i) register with the State Revenue Service as subjects of the AML Law, including appointing a responsible person; (ii) conduct and document risk assessment; (iii) establish an internal control system; (iv) report unusual and suspicious transactions.

In essence, crypto-asset service providers are subject to the same money laundering regulations as any other subject of the AML Law.

Protection Centre (CRPC) (competent authority in the field of consumer lending) is quite active in supervision of consumer lending, but the CRPC does not appear to have sanctioned any firms or made any public announcements in this regard.

In regards to exchange, custody, and yield/staking, such operations are regulated and accordingly require licence or permission if they “are traditional financial services”. Generally, virtual assets are investment-type (issued tokens) and might be qualified and classified as financial instruments within the meaning of the FIML (transferable securities — capital, debt, other securities or financial derivatives).

In essence, virtual currency service providers are subject to the same money laundering regulations as any other subject of the AML Law.

There are no rules applicable to the promotion of cryptoassets per se in Latvia if such cryptoassets are not classified as financial instruments.

In essence, virtual currency service providers are subject to the same money laundering regulations as any other subject of the AML Law. 

There are no rules applicable to the promotion of cryptoassets per se in Latvia if such cryptoassets are not classified as financial instruments.

Legal regulation in Latvia does not impose specific terms for the mentioned activities.

In our approximate evaluation, the legal documentation production stage and establishment of the company could take 1-2 months.

As of now in Latvia, there is no specific national framework for establishing cryptoassets business or obtaining a license for cryptoasset transactions, if any.

Depending on the business model, there are types of virtual assets which are subject to authorisation. Mainly, these virtual assets are investment-type (issued tokens) and could be classified as financial instruments within the meaning of the Financial Instrument Market Law (transferable securities — capital, debt, other securities or financial derivatives).

If this is the case the organiser of the initial coin offering needs to assess whether or not the investment firm shall obtain authorisation for the provision of investment services and ancillary investment services in Latvia.

If cryptoassets are issued without the intention to grant the right to profit distribution, financial benefit or management in the issuer’s company, authorisation by the Bank of Latvia may be excluded but consultations with this competent authority would be advisable.

As of now, crypto-asset service providers are subjects of the AML Law in our assessment registration with the State Revenue Service as subjects of the AML Law, including appointing a responsible person; conducting the Risk Assessment, and establishing an internal control system can take 1-4 months depending on the scope and size of the operations.

The same as within the scope of AML response.

In Latvia, there is no specific national framework for establishing cryptoassets business or obtaining a license for cryptoasset transactions, if any.

Depending on the business model, there are types of virtual assets which are subject to authorisation. Mainly, these virtual assets are investment-type (issued tokens) and could be classified as financial instruments within the meaning of the Financial Instrument Market Law (transferable securities — capital, debt, other securities or financial derivatives).

If this is the case the organiser of the initial coin offering needs to assess whether or not the investment firm shall obtain authorisation for the provision of investment services and ancillary investment services in Latvia.

If cryptoassets are issued without the intention to grant the right to profit distribution, financial benefit or management in the issuer’s company, authorisation by the Bank of Latvia may be excluded but consultations with this competent authority would be advisable.

In regard to authorization under MiCAR and the Crypto-Asset Service Law it is not possible to state approximate authorization timelines. The Bank of Latvia is appointed as the national competent authority, and it will accept applications from cryptoasset service providers for an operating licence and issue operating licences from January 2025. However, the Bank of Latvia already invites companies to take advantage of the free consultations offered during the pre-licensing phase. During this familiarisation phase, the Bank of Latvia's experts advise companies on the applicable regulation and the documents to be submitted, and initially assess the company's compliance with the regulatory requirements. The pre-licensing phase helps the company to prepare a high-quality application for an operating licence, and thus the assessment of the application proceeds smoothly. However, based on the usual timeframe for financial institutions, it may take around 3-9 months (including the pre-application stage). However, the term may change depending on specific requirements of the national competent authority and the number and volume of applications filed. 

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The Bank of Latvia aims to provide support to FinTech’s and to promote innovation in the financial system. This intention to promote innovative financial services in Latvia, could include cryptoassets (depending on the business model).

Hence, the Regulatory Sandbox is open to all financial service companies, including cryptoassets, that want to introduce an innovative financial service or business model, regardless of whether they are subject to supervision or are newcomers.

N/A

The Bank of Latvia aims to provide support to FinTech’s and to promote innovation in the financial system. This intention to promote innovative financial services in Latvia, could include cryptoassets (depending on the business model).

Hence, the Regulatory Sandbox is open to all financial service companies, including cryptoassets, that want to introduce an innovative financial service or business model, regardless of whether they are subject to supervision or are newcomers.