The Markets in Crypto-Assets Regulation (MiCAR) has just been launched, and this brings big changes for crypto-asset markets in the European Union. MiCAR applies to both crypto-asset service providers (CASPs) and crypto-asset issuers, but it focuses mainly on CASPs due to the higher risks involved with their activities. Each EU member state has the option to set its own transition periods for implementing the CASP regulations.
In Lithuania, the transition period is only five months, starting from January 1, 2025. CASPs must receive licenses as financial market participants until June 1, 2025. This means that any CASP operating in Lithuania (currently there are around 250 CASPs in the country) must obtain a license to continue its activities after that date. Given that Lithuania has always been a crypto-assets start-up hot spot, the CASP licensing process will attract a lot of attention.
Getting a CASP License in Lithuania
Formally, the process of reviewing a CASP license application in Lithuania should take up to 65 working days. This timeline can be extended to 85 working days if there are issues with the documents or application. However, the process will probably take no less than five months because the Lithuanian supervisory authority (the Bank of Lithuania) usually requests more information if the submitted details are incomplete or incorrect.
It is important to note that the Bank of Lithuania places a strong emphasis on the reputation and experience of the people behind the CASP. When applying for a license, CASPs must provide proof of the reputation of their shareholders and managers. The supervisor wants to ensure that these individuals are credible and have the necessary expertise to manage a crypto-asset business.
Additionally, applicants must provide full details about the source of their funds. This includes the shareholder’s business history and the financing scheme used to capitalize the company. The Bank of Lithuania would consider it good practice for a CASP to have a sufficient capital buffer to cover foreseeable and unforeseeable operational losses.
Why Transparency and Reputation Matter
The Bank of Lithuania is very strict when it comes to transparency and accuracy. It will not tolerate shell companies or entities that fail to provide full or correct information. For this reason, CASPs should ensure that all required documents are submitted and that those documents are accurate and clear. The Bank of Lithuania is not only looking at the quality of the application but also the credibility of the people behind the business. Companies with any connection to fraudulent or unethical activities may find their application rejected.
Factors Leading to CASP License Rejection
The Bank of Lithuania has broad powers to refuse a license. This goes beyond the standard provisions of MiCAR. If a CASP fails to meet the licensing requirements or provides misleading information, the Bank of Lithuania can reject the application for objective and justified reasons. The supervisor has the right to refuse a license if the applicant or other persons with close links to the applicant create conditions that prevent the effective exercise of supervisory functions.
Furthermore, the Bank of Lithuania can refuse a license if the laws, regulations, and administrative provisions of a third country governing the applicant or those with close links to it obstruct the effective exercise of supervision. This includes assessing the applicant’s management competence, business model reliability, and ability to manage risks associated with crypto-asset services.
Preparing for the Licensing Process
It is crucial for any CASP looking to operate in Lithuania to prepare thoroughly for the licensing process. Companies should start by ensuring that they have all required documentation ready and that they understand the licensing requirements in detail.
Applicants should pay particular attention to the following elements: (1) reputation checks (ensuring that the company’s shareholders and managers have an impeccable reputation in the industry); (2) clear financial documentation (source of capital and any complex ownership structures); and (3) complete application (all forms and supporting documents are complete and correct before submitting). Given that the Bank of Lithuania places high importance on transparency, applicants should not hesitate to seek legal or regulatory advice if they are unsure about any part of the process.
Conclusion
The upcoming implementation of MiCAR will significantly change how CASPs operate across the European Union. Only licensed entities will be allowed to continue offering crypto-asset services. The licensing process requires more than just submitting an application – CASPs must demonstrate the credibility and experience of their shareholders and managers, disclose the source of their funding, and ensure that their corporate structure is clear and transparent. The Bank of Lithuania is committed to ensuring that only trustworthy and capable entities are allowed to operate in the market.
By Ausra Brazauskiene, Partner, Widen
This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
