With the adoption of Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA), the European Union has taken an important step towards establishing clear and transparent rules for the crypto-asset market. Latvia became one of the first countries to adapt its legislation to European standards. On June 13, 2024, Latvia adopted the Law on Crypto Asset Services, which entered into force on June 30. 2024.
The main purpose of this Law is to implement MiCA into national legislation, establish a legal framework for the crypto asset market and designate the Bank of Latvia (Latvijas Bank) as the component authority for the supervision and regulation of this sector. One of the key roles of the Bank of Latvia in the new regulatory system is the licensing of crypto asset service providers (CASP).
CASP regulation in Latvia
The Latvian Law on Crypto Asset Services implements the requirements of MiCA and appoints the Bank of Latvia as the main regulator for the crypto asset market in the country. The main task of the Central Bank is to control activities of CASP, including licensing such companies, supervising their activities, and ensuring compliance with international standards in the field of financial stability and transparency.
Crypto-asset service providers in Latvia are companies that provide one of the 10 services defined by the MiCA, such as providing custody and administration of crypto-assets on behalf of clients, exchange of crypto-assets for funds and for other crypto-assets, placing of crypto-assets and providing advice on crypto-assets, etc.. Thus, CASP wishing to operate in Latvia must undergo a licensing procedure with the Bank of Latvia and meet the established requirements. The licensing procedure includes the review of company documents, including statutory documents, financial indicators, business plan, as well as compliance with anti-money laundering (AML) and terrorist financing regulations.
Authorization procedure and general requirements for CASP
The MiCA Regulation sets out clear requirements for CASPs that must obtain authorization to provide their services in Latvia. Obtaining authorization is a regulated process by which you can become a participant in the Latvian financial market and start a business after receiving authorization. The procedure for obtaining a CASP license includes several stages, which are described in the Regulation and additional legal acts of the Latvijas Banka.
- Preparation and submission of the application: The Central Bank of Latvia provides detailed consultations for companies planning to apply for a CASP license. The MiCA Regulation stipulates that in order to obtain authorization, a legal entity must have a registered office and place of management in the EU, with at least one responsible person who has experience and reputation in the field of crypto-assets. Latvijas Banka emphasizes that in order to obtain a license, a company must have a physical office in Latvia. In addition, the applicant’s own funds should be between EUR 50,000 and EUR 150,000, depending on the type of services provided. At the consultation stage, documents can be submitted in English.
- Requirements for directors, shareholders, and other officials: Directors must be available for communication with the Bank and have relevant experience. At least one director must be a resident of the EU. A Latvian resident director is an additional advantage. As for AML officers, they must also be available for prompt communication with the Bank. Although Latvian residency is not mandatory, it is considered a plus. The lack of proper AML tools (KYC/KYT) makes it impossible to obtain a license.
- Submitting an application: Documents for licensing are submitted in Latvian, and their review takes up to 25 business days. During this time, Latvijas Banka checks the completeness of the documents. If necessary, the Bank may request additional explanations or corrections. If the application is complete, the Bank makes a decision on granting a license within 40 working days.
- License and annual supervision fees: The application fee is EUR 2500, which is one of the lowest fees among EU countries. Annual supervision includes a fee of up to 0.6% of the company’s gross revenue, but not less than EUR 3000 per year.
- Supervision and reporting: After receiving a license, Latvijas Banka requires regular reporting, which includes submitting quarterly reports on the numbers of customers, transaction volumes, and other key indicators. This helps to ensure that CASP’s activities comply with the requirements of the Regulation.
The approach of Latvijas Banka to CASP regulation
One of the main features of the Bank of Latvia’s approach is the emphasis on transparency and fostering the development of the crypto-asset market.
Representatives of Manimama OU participated in an online conference organized by the Central Bank of Latvia, where the Bank announced that they aim to create the most competitive requirements for CASP and offer more loyal opportunities to market participants among EU countries, thus turning Latvia into a hub for innovation. These advantages are particularly reflected in the lowest application fee among EU countries – EUR 2 500 – and free personal consultations at any stage of licensing. These consultations cover the provision of necessary documents, evaluation of such documents, and requirements for directors and AML officers in accordance with the law.
Currently, an important part of the Bank of Latvia’s work is to provide consultations to companies that intend to apply for licensing as crypto-asset service providers. The consultations are free of charge and their number is not limited, which makes the process of preparing for licensing more accessible and understandable for market participants.
At the consultation stage, companies have the opportunity to receive comprehensive information on the regulatory requirements for CASP, as well as advice on how to prepare the necessary documentation. This practice aims to ensure the submission of high-quality applications, which increases the chances of successful licensing. As a result of these consultations, companies gain a better understanding of the legal requirements, particularly MiCA, helping them prepare for the official licensing process.
The Bank of Latvia closely cooperates with other supervisory authorities, including the Ministry of Finance and the State Revenue Service, to ensure a smooth transition to the new MiCA standards. It is important to note that the regulatory process is quite detailed and includes regular reporting by CASPs on their activities, transaction volumes, and number of clients.
To ensure compliance with MiCA rules, the Bank of Latvia has introduced instructions and guidelines for obtaining authorization to provide CASP services. These guides offer detailed information on application preparation requirements and explain the rules for classifying crypto-assets under MiCA. Additionally, the Bank of Latvia organizes meetings on MiCA implementation in Latvia, where they provide detailed information about crypto-market regulation and the requirements for CASPs.
Latvijas Banka also has the authority to apply a wide range of sanctions on violators of the law. Sanctions may include financial fines, warnings, or temporary bans on conducting certain operations. In the case of serious violations, authorization to operate may even be revoked. CASPs that do not meet AML or transparency requirements may be fined substantial amounts, highlighting the strictness of the regulation.
It is important to note that CASPs already providing services on the market before the new law comes into force can continue to operate until June 30, 2025 without the need for immediate authorization. This transitional provision allows businesses to prepare for the new regulations, ensuring a smooth transition to the new market conditions.
Conclusion
The approach of the Bank of Latvia to the regulation of crypto-asset service providers in accordance with MiCA serves as an example of the integration of European standards into national legislation. The Bank plays a key role not only in regulating but also in supporting the development of the crypto industry by creating favorable conditions for crypto companies. Thanks to a transparent licensing process and constant supervision, Latvia has become one of the leading countries in Europe that actively promotes the development of the cryptocurrency market. The low administrative costs for obtaining licenses and effective support from Latvijas Banka position Latvia as an attractive jurisdiction for crypto companies seeking to operate in the EU markets.
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Manimama Law Firm provides a gateway for the companies operating as the virtual asset wallet and exchange providers allowing to enter to the markets legally. We are ready to offer an appropriate support in obtaining a license with lower founding and operating costs. We offer KYC/AML launch, support in risk assessment, legal services, legal opinions, advice on general data protection provisions, contracts and all necessary legal and business tools to start business of virtual asset service provider.
The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
