Like many European countries, Romania has not yet taken any proactive measures to regulate virtual/crypto assets and the status of the market actors offering related services.
However, the enactment of a new anti-money laundering directive by the European Union in May 2018 pushed the Romanian authorities to start setting the necessary rules for providers offering exchange services between virtual and fiat currencies, as well as for providers of custodian wallets (Services Providers). Even though these legal provisions are only regulating a limited part of the services in the crypto segment, they are considered by the market players as highly important steps forward.
Under the national anti-money laundering legislation in force since July 15, 2020, Service Providers must comply with several mandatory requirements, such as (1) implementing know-your-customer measures, (2) implementing the necessary measures and procedures to prevent money laundering, and (3) following the registration/authorization process and obtaining a technical evaluation report from the competent Romanian authority.
Surprisingly, demonstrating compliance with the know-your-customer requirements and the obligation to implement measures and procedures in order to prevent money laundering proved to be the easiest part.
Most of the difficulties encountered by Service Providers relate to the registration and technical evaluation procedures.
The anti-money laundering legislation sets out the main rules for the authorization of Service Providers but states that a secondary legal instrument detailing these provisions should be enacted.
Thus, the Romanian Government (namely, the Ministry of Public Finances, in association with the Romanian Authority for Digitalisation and the National Office for Prevention and Control of Money Laundering) should have issued, almost a year ago, a decision setting the detailed rules for the registration process. The timeline for entering into force of these rules is uncertain, considering that not even the first draft has been published yet.
Until the secondary legislation enters into force, the status of the Services Providers remains unclear, as they are unable to obtain the authorization to provide exchange services between virtual and fiat currencies or custodian wallets services. There are several important issues caused by this legal vacuum.
The first issue is the uncertainty with respect to whether or not the Services Providers are still allowed to carry out the activities they were performing before the anti-money laundering law was amended, as at the time their activities were in a somewhat grey area – the legislation in force at that time did not regulate their activities, but it also did not forbid those activities.
This question is relevant because obtaining the relevant authorization is an essential requirement for being able to lawfully operate on the Romanian territory. In the absence of registration, carrying out the activities is strictly forbidden by the current anti-money laundering law and may constitute a crime.
The authorities’ silence causes confusion among the market players, as the existing twisted framework may trigger two interpretations, both based on equally solid arguments: (1) on one hand, it can be argued that all Services Providers should be allowed to carry on their activities in Romania, as it was the legislator’s responsibility to enact the necessary legislation regarding the exchange of virtual and fiat currencies and custodian wallets activities; on the other hand, (2) the current anti-money laundering law prohibits performing such activities without following the authorization process without any exemption.
The same legal vacuum also generates hitches for the Services Providers authorized in one of the EU/EEA member states, as the procedure for the notification for operating on Romanian territory should also have been regulated by the secondary legislation. The delay in the legislative process can be viewed as practically discouraging the Services Providers registered in other EU states from bringing their businesses to Romania.
Unfortunately, the incomplete legislation hinders the relevant market actors from contributing to the development of the Romanian business and economic environment. The only choice at this time seems to be waiting for the legislator to resolve the important issues caused by this legal vacuum. In the absence of the necessary secondary legislation, a constantly growing market with significant financial potential that could generate valuable income to the state budget is currently overlooked.
By Gabriela Neagu, Head of Banking and Finance, Bancila, Diaconu si Asociatii / EY Legal
This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
