DeFi protocol frontend in Lithuania

Key Regulator: The Financial Crime Investigation Service (FCIS) is the main supervisory body for virtual currency exchange operators and custodian virtual currency wallet operators.

Bank of Lithuania (BoL): Supervises traditional financial institutions (including EMIs and PIs) and provides general guidance on financial innovation, but does not directly license crypto-native activities without fiat components.

Virtual Currency Exchange Operator:

Definition: Any natural or legal person that provides services of exchanging virtual currency to fiat currency or vice versa, or virtual currency to another virtual currency, or transfers virtual currencies. This covers most common crypto exchanges.

Custodian Virtual Currency Wallet Operator:

Crypto-only Payment Processors (facilitating crypto-to-crypto transactions, or processing payments solely in crypto without touching fiat): If their activities fall within the definitions of a Virtual Currency Exchange Operator (e.g., enabling transfer of virtual currencies) or a Custodian Virtual Currency Wallet Operator (if they custody keys), they would need the respective FCIS registration(s).

Fiat-to-Crypto / Crypto-to-Fiat Payment Processors (or traditional payment services using crypto): If the payment processor handles fiat currency (e.g., accepting fiat payments for crypto, converting crypto back to fiat and paying out to bank accounts, or issuing electronic money backed by fiat), then they would likely need a separate license from the Bank of Lithuania as either:

Electronic Money Institution (EMI) License: Allows issuing electronic money and providing related payment services.

Payment Institution (PI) License: Allows providing various payment services (e.g., money remittance, payment initiation, account information services).

Registration Regime (FCIS): For virtual currency exchange and custodian wallet operators, Lithuania operates a registration model. This means that once an applicant meets the specified criteria (primarily AML/CTF related) and submits the required documentation, they are registered and allowed to operate. It is generally a less intensive process than obtaining a full financial services license.

Licensing Regime (Bank of Lithuania): For Electronic Money Institutions (EMIs) and Payment Institutions (PIs), a full licensing regime is in place, involving comprehensive assessment of business plans, financial soundness, risk management, governance, and fit & proper checks, with ongoing prudential supervision.

Legal Entity: The applicant must be a legal entity (e.g., UAB – private limited liability company) incorporated in Lithuania.

A minimum €125,000 registered share capital is required for both virtual currency exchange operators and custodian virtual currency wallet operators. This requirement was significantly increased in November 2022 from a previous €2,500.

AML/KYC Requirements: Robust internal procedures are paramount:

Internal AML/CTF Rules: Comprehensive written policies and procedures aligned with Lithuanian AML Law and EU directives.

Risk Assessment: A documented assessment of money laundering and terrorist financing risks specific to the business model.

Customer Due Diligence (CDD): Procedures for identifying and verifying customers (individuals and legal entities), beneficial owners (UBOs), and understanding the purpose and nature of business relationships. This includes ongoing monitoring.

Enhanced Due Diligence (EDD): For high-risk customers, politically exposed persons (PEPs), or complex/unusual transactions.

Transaction Monitoring: Systems and procedures to monitor transactions for suspicious activities.

Reporting: Obligation to report suspicious transactions and activities (SARs) to the FCIS.

Record Keeping: Maintaining records of customer identification data and transactions for at least 8 years.

Registered Office: Must have a registered office in Lithuania.

AML Officer (MLRO): A dedicated, qualified Anti-Money Laundering Officer (MLRO) must be appointed. This individual must be a permanent resident of Lithuania. They are responsible for implementing AML/CTF procedures, training staff, and reporting to the FCIS.

Management/Board: While not all board members need to be Lithuanian residents, the company must demonstrate sufficient substance and connection to Lithuania, and the FCIS may require certain key personnel (e.g., CEO, board members) to have a strong link to the country.