Lithuania -- Stablecoin Regulations Regulatory Overview

As an EU member state, Lithuania's regulatory framework for stablecoins is primarily governed by the Markets in Crypto-Assets (MiCA) Regulation (EU) 2023/1114, which came into full effect for stablecoins (Asset-Referenced Tokens and E-Money Tokens) on June 30, 2024.

Before MiCA, the classification and regulation of stablecoins in Lithuania were less clear, often relying on existing financial regulations (like the Law on Electronic Money and Payment Institutions or the Law on Securities) if a stablecoin happened to fit their definitions. However, MiCA now provides a dedicated and comprehensive framework.

The Bank of Lithuania (Lietuvos bankas) is the primary national competent authority (NCA) responsible for supervising crypto-asset service providers and issuers of stablecoins under MiCA in Lithuania.

Here's a detailed breakdown based on MiCA and relevant Lithuanian legislation:

1. Classification of Stablecoins

MiCA introduces two specific categories for stablecoins:

• E-money Tokens (EMTs): These are crypto-assets that purport to maintain a stable value by referencing the value of one single official currency (e.g., a Euro-backed stablecoin).

  • Classification: EMTs are classified as electronic money under the Electronic Money Directive 2009/110/EC (EMD2), with additional specific requirements imposed by MiCA.
  • Lithuanian Reference: The Law on Electronic Money and Payment Institutions of the Republic of Lithuania (Lietuvos Respublikos elektroninių pinigų ir mokėjimo įstaigų įstatymas) transposes EMD2 into national law and regulates electronic money institutions (EMIs) in Lithuania.
    • URL: https://www.e-tar.lt/portal/legalAct.html?id=TAR.5D3306EF3A7D (Lithuanian only, but official source)

• Asset-Referenced Tokens (ARTs): These are crypto-assets that are not EMTs and purport to maintain a stable value by referencing any other value or right, or a combination thereof, including one or several official currencies (if more than one), one or several commodities, or one or several crypto-assets, or a combination of such assets.

  • Classification: ARTs are a new category specifically defined and regulated by MiCA. They are not generally classified as e-money or securities, although a specific ART could still potentially fall under securities law if it meets the definition of a "transferable security" under MiFID II (Directive 2014/65/EU) – though MiCA generally aims to carve out ARTs that aren't securities.
  • Lithuanian Reference: MiCA is directly applicable, so no separate national transposition is required for ART classification itself.

• Payment Tokens / Securities:

  • Payment Tokens: Stablecoins, by their nature, generally fall under ARTs or EMTs in MiCA. Other "payment tokens" (i.e., crypto-assets primarily intended for payment, not ARTs/EMTs, nor securities) are a broader category under MiCA.
  • Securities: If a crypto-asset, even if it purports to be "stable," meets the definition of a "financial instrument" (which includes securities) under MiFID II, then it would fall under existing securities regulations, not MiCA. The Law on Securities of the Republic of Lithuania (Lietuvos Respublikos vertybinių popierių įstatymas) would apply. However, MiCA aims to provide regulatory clarity for stablecoins not classified as securities.
    • URL: https://www.e-tar.lt/portal/legalAct.html?id=TAR.D64F6ED6D12C (Lithuanian only, official source)

Primary Reference for Classification:

• Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA)
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114 (See Articles 3, 43, 48)

2. Reserve Requirements

MiCA imposes strict reserve requirements to ensure stability and liquidity:

• E-money Tokens (EMTs):

  • Must be backed 1:1 by fiat currency (e.g., Euros).
  • Funds received in exchange for EMTs must be placed in a separate account at a credit institution or invested in secure, low-risk assets.
  • Issuers must hold at least 30% of the reserve assets in deposits at credit institutions. The remaining part can be invested in highly liquid, low-risk financial instruments with minimal market risk.
  • Assets must be segregated from the issuer's own assets and held in custody by an independent third party (credit institution).
  • Issuers must have robust liquidity management policies.

• Asset-Referenced Tokens (ARTs):

  • Must be backed by a reserve of assets that are segregated from the issuer's own assets.
  • The reserve assets must be held in custody by a third party that is independent from the issuer.
  • The reserve must be managed in a way that minimises market risk and credit risk.
  • Issuers must have a clear and detailed policy for the stabilisation mechanism, including the type of assets, composition, and allocation of the reserve.
  • The reserve assets must be sufficiently liquid, and issuers must have a liquidity management policy.
  • For ARTs that aim for stability by reference to a single fiat currency, similar strict requirements as EMTs apply regarding the composition and custody of the reserve.

Primary Reference for Reserve Requirements:

• MiCA Regulation (EU) 2023/1114
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114 (See Articles 46-47 for EMTs, and Articles 35-42 for ARTs)

3. Issuer Licensing

• E-money Tokens (EMTs):

  • An issuer of EMTs must be authorized as a credit institution (bank) or an electronic money institution (EMI) under the Electronic Money Directive 2009/110/EC (transposed by the Lithuanian Law on Electronic Money and Payment Institutions).
  • Additionally, they must obtain authorization under MiCA specifically for the issuance of EMTs. The Bank of Lithuania is the competent authority for granting these licenses.
  • Lithuanian Context: Lithuania is known for being a hub for EMIs due to its relatively streamlined licensing process for compliant entities. Many crypto firms have sought EMI licenses there.

• Asset-Referenced Tokens (ARTs):

  • An issuer of ARTs must be a legal entity established in the EU and obtain specific authorization under MiCA from their national competent authority (the Bank of Lithuania for Lithuanian-based issuers).
  • The authorization process requires a detailed application including a programme of operations, governance arrangements, prudential safeguards, IT systems, and a white paper.

Primary Reference for Issuer Licensing:

• MiCA Regulation (EU) 2023/1114
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114 (See Articles 19-21 for ARTs, and Article 49 for EMTs)
• Law on Electronic Money and Payment Institutions of the Republic of Lithuania
  • URL: https://www.e-tar.lt/portal/legalAct.html?id=TAR.5D3306EF3A7D
• Bank of Lithuania official information on licensing:
  • URL: https://www.lb.lt/en/our-activities/licensing (General licensing information for financial institutions)

4. Redemption Rights

MiCA explicitly grants strong redemption rights for stablecoin holders:

• E-money Tokens (EMTs):

  • Holders of EMTs have a right to redeem their tokens at par value (1:1) against the issuer at any moment, free of charge (unless fair and proportionate fees are explicitly agreed upon).
  • The redemption must be executed without undue delay.
  • Important: EMTs are not covered by deposit guarantee schemes (like those under Directive 2014/49/EU) or investor compensation schemes. This must be clearly disclosed.

• Asset-Referenced Tokens (ARTs):

  • Holders of ARTs have a right to redeem their tokens at their market value against the issuer or directly against the reserve assets, without undue delay, and free of charge (unless fair and proportionate fees are explicitly agreed upon).
  • The redemption policy must be clearly outlined in the white paper.

Primary Reference for Redemption Rights:

• MiCA Regulation (EU) 2023/1114
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114 (See Article 48 for EMTs and Article 42 for ARTs)

5. Algorithmic Stablecoin Rules

• MiCA's Stance: MiCA explicitly states that it does not apply to crypto-assets that aim to maintain a stable value through an algorithm, which means they are not regulated as ARTs or EMTs under MiCA.
• Implication: Algorithmic stablecoins without a true reserve of underlying assets (or where the stability mechanism is purely algorithmic) fall outside the specific stablecoin regime of MiCA. This means they are not subject to the stringent reserve, custody, and redemption requirements of MiCA's ART/EMT framework.
• Regulatory Gap/Alternative Classification: While not regulated as stablecoins under MiCA, they might still be subject to other regulations if they meet different definitions (e.g., if they are deemed a security, or if they facilitate payments and fall under payment services laws). However, for the specific purpose of "stablecoin" regulation, MiCA excludes them.

Primary Reference for Algorithmic Stablecoins:

• MiCA Regulation (EU) 2023/1114
  • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114 (See Recital 11, which clarifies this exclusion from the definition of ARTs)

6. CBDC Interaction

• No National CBDC: Lithuania, as part of the Eurozone, does not have its own national CBDC. Any future CBDC interaction would be in the context of a Digital Euro issued by the European Central Bank (ECB).
• Impact of a Digital Euro:
  • A Digital Euro would be a central bank liability, offering superior settlement finality, zero credit risk, and potentially universal accessibility compared to private stablecoins.
  • It could significantly impact the market for private EMTs, potentially reducing their appeal, especially for retail payments, as the Digital Euro would fulfill many of the same functions with greater safety and trust.
  • Private stablecoins might still find niches in wholesale markets, specific enterprise applications, or cross-border payments where a CBDC might not be the optimal solution.
• ECB Position: The ECB is actively exploring and progressing with the Digital Euro project.

Primary Reference for CBDC Context:

• European Central Bank (ECB) Digital Euro project:
  • URL: https://www.ecb.europa.eu/paym/digital-euro/html/index.en.html

7. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF)

Regardless of their MiCA classification, all stablecoin issuers and service providers (including exchanges, wallet providers, etc.) operating in Lithuania are subject to robust AML/CTF obligations.

• EU Framework: These obligations stem from the EU Anti-Money Laundering Directives (AMLDs), particularly the 5th and upcoming 6th AMLD.
• Lithuanian Legislation: Transposed into the Law on the Prevention of Money Laundering and Terrorist Financing of the Republic of Lithuania (Lietuvos Respublikos pinigų plovimo ir teroristų finansavimo prevencijos įstatymas).
  • This law requires crypto-asset service providers to implement know-your-customer (KYC) procedures, monitor transactions, report suspicious activities to the Financial Crime Investigation Service (FCIS), and have robust internal controls.
  • URL: https://www.e-tar.lt/portal/legalAct.html?id=TAR.5CEB6D55CDDC (Lithuanian only, official source)
• Supervision: The Bank of Lithuania and the Financial Crime Investigation Service (FCIS) supervise compliance with AML/CTF rules.

Summary:

Lithuania's regulatory framework for stablecoins is now almost entirely dictated by the EU's MiCA Regulation. This means:

• Stablecoins are largely classified as E-money Tokens (EMTs) or Asset-Referenced Tokens (ARTs), falling under MiCA's specific regimes.
• Issuers require MiCA authorization (and an EMI license for EMTs), primarily from the Bank of Lithuania.
• Strict reserve requirements (1:1 backing, segregation, custody) and redemption rights are mandated.
• Algorithmic stablecoins are explicitly excluded from the MiCA stablecoin regime.
• Any CBDC interaction would be with a Digital Euro from the ECB.
• All stablecoin activities remain subject to comprehensive AML/CTF regulations under Lithuanian law.

Disclaimer: This information is for general guidance and is based on the regulatory landscape as of late 2023/early 2024 with MiCA's stablecoin rules having taken effect on June 30, 2024. Regulations can change, and specific legal advice should always be sought for individual circumstances.