Ukraine -- Stablecoin Regulations Regulatory Overview

Ukraine has established a regulatory framework for virtual assets, including stablecoins, primarily through the Law of Ukraine "On Virtual Assets" (Закон України "Про віртуальні активи") and related legislation. While the framework is in place, the full implementation and specific sub-regulatory acts from the National Bank of Ukraine (NBU) and the National Securities and Stock Market Commission (NSSMC) are still being developed or awaiting full effect.

Here's a breakdown of the regulatory framework:

Main Legislation

1. Law of Ukraine "On Virtual Assets" (№ 2724-IX): Adopted by the Verkhovna Rada (Parliament) on 6 September 2022 and signed into law by the President on 15 March 2023. This is the foundational law.
   • Link to official text (Ukrainian)
   • Note: While the law is enacted, its full operation depends on amendments to tax legislation and the adoption of various sub-regulatory acts by the NBU and NSSMC.
2. Law of Ukraine "On Payment Services" (№ 1591-IX): Adopted on 30 June 2021. This law defines electronic money and payment services. The Law "On Virtual Assets" explicitly distinguishes virtual assets from electronic money under this law.
   • Link to official text (Ukrainian)

Regulatory Bodies

• National Bank of Ukraine (NBU): Responsible for regulating virtual assets that are secured by currency values (e.g., fiat-pegged stablecoins) and for supervising virtual asset service providers (VASPs) that provide services with such assets. It also oversees payment services and electronic money.
• National Securities and Stock Market Commission (NSSMC): Responsible for regulating virtual assets that are secured by other virtual assets or by property rights, and for virtual assets that qualify as security tokens.
• Ministry of Digital Transformation: Instrumental in developing the virtual assets legal framework and promoting blockchain technology.

Classification of Stablecoins

• Virtual Assets vs. Electronic Money/Securities: The Law "On Virtual Assets" categorizes virtual assets as intangible goods, explicitly stating that virtual assets are not legal tender, electronic money, or securities.
• "Secured Virtual Assets" (Забезпечені віртуальні активи): This is the category most relevant to stablecoins. A "secured virtual asset" is defined as a virtual asset that is secured by a certain object (money, other virtual assets, certain property rights, etc.).
  • Stablecoins pegged to fiat currency (e.g., USD, EUR, UAH) would primarily fall under "secured virtual assets" whose underlying asset is a currency value. These types of stablecoins and related services are under the NBU's jurisdiction.
  • Stablecoins pegged to other virtual assets or property rights would fall under the NSSMC's jurisdiction, provided they don't qualify as security tokens, in which case the NSSMC would also regulate them under securities law.
• Payment Tokens: The Law "On Payment Services" defines "payment instruments" and "payment tokens," but virtual assets (including stablecoins) are not directly classified as electronic money or payment tokens under this law. Instead, they are a separate class of "secured virtual asset" with potential payment functionality, regulated specifically under the "On Virtual Assets" law, with the NBU overseeing their use in payments.

Reserve Requirements

• Full Backing: For "secured virtual assets" (which includes stablecoins), the Law "On Virtual Assets" generally mandates full and appropriate backing of the virtual asset by the underlying asset (e.g., fiat currency, other virtual assets, or property rights).
• Specifics: The NBU (for fiat-pegged stablecoins) and the NSSMC (for other secured virtual assets) are expected to establish detailed requirements regarding the nature, location, and segregation of reserves, as well as audit requirements, through their sub-regulatory acts. These specifics are critical and are still awaited.

Issuer Licensing (Virtual Asset Service Providers - VASPs)

• The Law "On Virtual Assets" introduces a licensing regime for Virtual Asset Service Providers (VASPs). This includes entities that issue virtual assets (including stablecoins), facilitate their exchange, transfer, storage, or provide other related services.
• Who Licenses:
  • NBU: Licenses VASPs dealing with secured virtual assets whose underlying asset is currency value (i.e., fiat-pegged stablecoins) and those offering services with such assets.
  • NSSMC: Licenses VASPs dealing with other types of secured virtual assets (e.g., asset-backed stablecoins not pegged to fiat, or security tokens).
• Requirements: Licensing requirements will cover aspects like capital adequacy, anti-money laundering (AML) and counter-terrorist financing (CTF) compliance, cybersecurity, and operational resilience. These detailed requirements are to be set forth in NBU and NSSMC regulations.

Redemption Rights

• The concept of "secured virtual assets" requiring full backing implies the right of the holder to redeem the stablecoin for its underlying asset.
• Issuer Obligation: Issuers of secured virtual assets are expected to ensure the possibility of redemption, though the precise mechanisms and timelines for this will be detailed in the NBU's or NSSMC's specific regulations.
• The backing requirement is designed to ensure stability and maintain the peg, which inherently supports redemption.

Algorithmic Stablecoin Rules

• The Ukrainian framework, with its strong emphasis on "secured virtual assets" and the requirement for "full and appropriate backing," presents significant challenges for purely algorithmic stablecoins (those that rely solely on algorithms and market mechanisms rather than direct reserves).
• Lack of Direct Backing: Algorithmic stablecoins, by definition, do not typically maintain a 1:1 reserve in fiat currency or other tangible assets. This lack of direct "backing by a certain object" may mean they do not qualify as "secured virtual assets" under the Ukrainian law.
• Alternative Classification: If they don't meet the "secured virtual asset" definition, they might be classified as other types of "virtual assets" or even face restrictions on issuance if they are deemed too volatile or risky to protect consumers and financial stability.
• Specific Prohibition: The current law does not explicitly prohibit algorithmic stablecoins, but the fundamental requirement for full backing for payment-related stablecoins (under NBU's purview) makes their legal operation in Ukraine highly problematic under the existing framework. Further clarity from the NBU on this specific point is anticipated.

CBDC Interaction (e-Hryvnia)

• National Bank of Ukraine's e-Hryvnia Project: The NBU has been actively researching and piloting a central bank digital currency (CBDC), the e-hryvnia. This is a high priority for the NBU as part of its payment system modernization efforts.
  • NBU's information on e-Hryvnia (Ukrainian)
• Distinct from Stablecoins: The e-hryvnia is a direct liability of the NBU, representing digital fiat currency. It is fundamentally different from private stablecoins, which are issued by private entities and backed by reserves.
• Coexistence: The NBU's intention is for the e-hryvnia to coexist with existing forms of money (cash and cashless hryvnia) and potentially with regulated private stablecoins.
• Regulatory Role: The NBU will oversee both the e-hryvnia (as its issuer) and private stablecoins (as their primary regulator for payment-related use cases). The development of the e-hryvnia project could influence the NBU's approach to regulating private stablecoins, particularly in terms of interoperability, payment infrastructure, and competition in the digital payments space.
• The Law "On Virtual Assets" itself does not directly regulate the CBDC, as the CBDC is a form of state-issued money, not a virtual asset as defined by the law.

Conclusion

Ukraine has laid the legislative groundwork for stablecoin regulation, differentiating them from e-money and securities, and mandating full backing. The National Bank of Ukraine is poised to be the primary regulator for fiat-pegged stablecoins. However, the operational details, specific technical requirements, and the exact treatment of emerging stablecoin models (like algorithmic ones) will depend on the detailed sub-regulatory acts yet to be fully adopted and implemented by the NBU and NSSMC. The country's ongoing CBDC efforts are separate but complementary to the regulation of private stablecoins, aiming to foster a comprehensive digital financial ecosystem.

Disclaimer: This information is for general informational purposes only and does not constitute legal advice. Given the rapidly evolving nature of cryptocurrency regulation, especially in a country like Ukraine, it is crucial to consult with legal professionals for specific advice.