Crypto-funded debit card in Latvia

Financial Intelligence Unit (FIU) of Latvia (Finanšu izlūkošanas dienests - FID): The primary authority responsible for registering and supervising VASPs for AML/CTPF compliance.

Specific VASP section: https://www.fid.gov.lv/uzraudziba/virtualo-asentu-pakalpojumu-sniedzeji (Note: Primarily in Latvian, use a translation tool.)

Current Regime (Pre-MiCA): Registration. Latvia requires entities engaged in virtual asset services to register with the FIU. This registration is primarily an AML/CTPF compliance obligation, meaning the focus is on preventing money laundering and terrorist financing, rather than prudential supervision (e.g., capital adequacy for consumer protection, market integrity, etc., which is typical of a full licensing regime).

Future Regime (Post-MiCA): Licensing. Once MiCA fully applies to VASPs (expected December 2024), Latvia will transition to a comprehensive licensing regime under MiCA. This will involve more stringent requirements, including prudential safeguards, operational resilience, and specific disclosures, and will likely be overseen by the Bank of Latvia (FCMC).

Exchanges (Virtual Asset Exchange Service Providers):

Entities offering services for the exchange of virtual assets against fiat currency or one or more other virtual assets. This covers both fiat-to-crypto, crypto-to-fiat, and crypto-to-crypto exchanges.

Custody Providers (Virtual Asset Wallet Service Providers):

If a payment processor facilitates transactions directly involving virtual assets (e.g., accepting crypto payments on behalf of merchants and converting them to fiat, or enabling crypto-to-crypto payments), they will likely fall under the VASP definition as an exchange or potentially another VASP activity.

If a payment processor only handles fiat currency and does not touch virtual assets directly, but serves crypto businesses, they would be subject to traditional payment service regulations (PSD2/EMD) and overseen by the Bank of Latvia (FCMC), not the FIU's VASP register. However, their clients would still need VASP registration.

The applicant must be a legal entity registered in Latvia (typically a Limited Liability Company – SIA).

The company must have its registered office in Latvia.

AML/CTPF Internal Control System (ICS):

This is the core requirement. The company must establish a robust internal control system for AML/CTPF compliance, including:

Risk Assessment: A comprehensive assessment of the company's money laundering and terrorism financing risks.

Client Due Diligence (CDD) and Enhanced Due Diligence (EDD): Procedures for identifying and verifying clients, beneficial owners, and monitoring business relationships.

Transaction Monitoring: Systems for monitoring transactions for suspicious activities.

Reporting: Procedures for reporting suspicious transactions to the FIU.

Record-keeping: Maintaining records for a specified period (typically 5 years).

Training: Regular AML/CTPF training for employees.

Appointed AML Officer:

The company must appoint a board member or an employee (who reports directly to the board) as the responsible person for AML/CTPF compliance (the AML Officer).

Requirement: Entities providing services of custodial wallet providers (which includes safekeeping or administration of virtual assets or instruments enabling control over virtual assets on behalf of clients) are considered Virtual Asset Service Providers (VASPs). They are required to register with the Latvian Financial Intelligence Unit (FID).

Process: The registration involves demonstrating compliance with AML/CTF requirements, including:

Developing and implementing robust internal control systems.

Appointing a responsible person for AML/CTF compliance.

Conducting customer due diligence (CDD) and ongoing monitoring.

Reporting suspicious transactions.

Ensuring the fitness and propriety of management and beneficial owners.

Law on the Prevention of Money Laundering and Terrorism Financing (AML/CFT Law) (Nozagoto noziedzīgi iegūtu līdzekļu legalizācijas un terorisma finansēšanas novēršanas likums): This is the primary law regulating AML/CFT, which also covers sanctions compliance for obligated entities, including VASPs.

Financial Intelligence Unit of Latvia (FID) website on VASPs:

Current Status: Under the current AML framework, there are no explicit, specific rules mandating the segregation of client crypto assets for non-bank VASPs. However, general good practice, risk management principles, and the expectation of investor protection inherent in financial services would strongly suggest that reputable custodians segregate client assets from their own operational funds. For traditional financial institutions providing crypto services, existing segregation rules for client funds/assets would generally apply.

Current Status: There are no explicit insurance or bonding requirements specifically for custodial VASPs under the current AML registration regime in Latvia. However, the FID expects VASPs to have robust internal controls and risk management procedures, which may indirectly lead to considering insurance as a best practice for operational risks.

Current Status: There are no explicit insurance or bonding requirements specifically for custodial VASPs under the current AML registration regime in Latvia. However, the FID expects VASPs to have robust internal controls and risk management procedures, which may indirectly lead to considering insurance as a best practice for operational risks.

Current Status: The Latvian AML law refers to "custodial wallet providers" as a type of VASP requiring registration. There isn't a specific definition of a "qualified custodian" that goes beyond meeting the VASP registration requirements and AML/CTF obligations.

Requirement: Under MiCA, providing "custody and administration of crypto-assets on behalf of clients" will require a full authorization (license) from the competent authority in the home Member State – in Latvia, this will be the Bank of Latvia (Latvijas Banka).

Authorization Process: CASPs will need to meet stringent requirements, including:

Specific organizational requirements (e.g., robust governance arrangements, internal control mechanisms).

Prudential safeguards (capital requirements).

Specific rules on the safekeeping of client crypto-assets.

Detailed information technology and security arrangements.

Suitability of management and shareholders.

Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA):

Latvijas Banka (Bank of Latvia) website: (Will provide specific guidance as MiCA implementation approaches)

Mandate: MiCA explicitly mandates strict segregation of client crypto-assets.

E-money Tokens (EMTs): These are crypto-assets that purport to maintain a stable value by referencing the value of a single fiat currency, such as the Euro.

E-money Tokens (EMTs): Only credit institutions (banks) or electronic money institutions (EMIs) authorized under the Directive 2009/110/EC (E-money Directive) can issue EMTs. The authorization under the E-money Directive extends to EMT issuance.

Law on Payment Services and Electronic Money (Maksājumu pakalpojumu un elektroniskās naudas likums):

URL (Latvian): https://likumi.lv/ta/id/240226-maksajumu-pakalpojumu-un-elektroniskas-naudas-likums

Taxable Event: The moment a virtual asset is sold, exchanged for fiat currency, exchanged for another virtual asset, or used to acquire goods or services.

Tax Rate: 20% on the positive difference between the selling price (or fair market value at the time of exchange/use) and the acquisition cost.

Exchange of Crypto for Fiat (and vice versa): The exchange of virtual currencies for traditional (fiat) currencies and vice versa is considered a supply of services concerning currency, securities, and other financial instruments. These services are exempt from VAT under Article 135(1)(e) of the EU VAT Directive.

DAC8 (Upcoming): As an EU member state, Latvia will be implementing the EU's Directive on Administrative Cooperation in the Field of Taxation (DAC8). This directive will mandate crypto-asset service providers to report information on EU clients and their crypto-asset transactions to tax authorities, which will then be automatically exchanged between EU member states. This will significantly increase the data available to tax authorities regarding crypto activities.

Penalty Amount: Varies depending on the severity of the violation, ranging from warnings and administrative measures to significant fines. However, publicly reported large fines against pure crypto businesses are scarce. Outcome: Remedial actions required, potential fines, or in severe cases, withdrawal of registration/license.

Outcome: Remedial actions required, potential fines, or in severe cases, withdrawal of registration/license.