Business in Georgia

Getting a Crypto License in Georgia in 2023

Georgia now requires companies working with cryptocurrency to obtain a license from the Central Bank.

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Bitcoin - Cryptocurrency

Regulations were harmonized on January 1, 2023, with instructions on how to register a company operating in the crypto field effective July 1, and Crypto companies are now registered with the National Bank as virtual asset service providers.

In fact, Georgian legislation is based on European MiCA regulations designed to be transparent, uniform, and secure, and in this article, we’ll delve into what the new reality means for the crypto business in Georgia:

The reality up to now

Before January 1, 2023, anyone could carry out crypto activities (exchange, storage, initial offering, etc.) in Georgia without the need for a separate license: No legal framework existed to regulate these activities.

After January 1, 2023, however, that all changed with new regulations requiring that crypto-related companies register with the National Bank, and on July 1, a legislative order was published with the conditions, terms, and order for registering a company and obtaining a Georgian crypto permit.

Activities open to Virtual Asset Service Providers (VASP)

A VASP can engage in one or more of the following:

  1. Transfer and/or storage/administration of virtual assets;
  2. Trade platform administration;
  3. Exchange (including through a self-service kiosk):
    • in national or foreign currency
    • in another virtual asset
    • in a financial instrument
  4. Initial offerings
  5. Services related to initial offerings
  6. Portfolio management (except collective portfolio management)
  7. Virtual asset lending

Activities not regulated by the new law

The new law does not regulate activity around virtual assets that are not subject to transmission or not used for payment or/and investment purposes, like with loyalty program or gaming points or other types of virtual assets that can only be used in a closed virtual space.

The law also excludes the regulation of non-replaceable tokens (also known as non-fungible tokens or NFTs for short).

How to obtain virtual asset service provider status (a license)

To get a license for a company (LLC, JSC), you have to register with the National Bank and satisfy a number of requirements that related to the following categories:

  1. Company director
  2. Company beneficiaries
  3. Company office space
  4. Electronic system
  5. AML/TF protection

Let’s look at each one a bit more closely:

Company director

Number of directors:

A company may have a single director only if the founder and director of the company are different persons. If the company has only one founder who also happens to the director, then it’ll have to find a second director.

Director’s experience:

The company director must have a degree in

  • economics
  • finance
  • banking
  • business administration
  • auditing
  • accounting
  • law
  • information technology
  • quantitative methods,
  • or some other related field

Experience can replace the educational requirement. Work in a managerial position in the financial or virtual asset services sector is good too.

A clean record

  • No prior convictions. A serious crime, like financing terrorism, or laundering income, or some other economic crime would be a problem.
  • No violations of entrepreneurial, banking, or financial legislation. Entrepreneurial practices posing a threat to the healthy functioning of a specific entity and/or the financial sector would also be a no-no.
  • No breach of fiduciary duties in a financial institution with an accompanying court decision.
  • Must not have participated in an operation causing significant damage to a virtual asset service provider or financial institution or impairing the rights of a virtual asset service provider’s customers or depositors or other creditors, or causing the virtual asset service provider’s or financial institution’s insolvency or bankruptcy.
  • Must not have any unfulfilled financial obligations.
  • Must not have been declared insolvent.

Conflict of interest

  • Must not be the administrator of another virtual asset service provider unless the virtual asset service providers happen to be members of the same group.

Presence in Georgia

Someone authorized to represent the virtual asset service provider must be present in Georgia for at least 14 calendar days per month.

Company beneficiaries

A clean record

  • No prior convictions. A serious crime, like financing terrorism, or laundering income, or some other economic crime would be a problem.
  • No violations of entrepreneurial, banking, or financial legislation. Entrepreneurial practices posing a threat to the healthy functioning of a specific entity and/or the financial sector would also be a no-no.
  • Must not have any unfulfilled financial obligations.
  • Must not have been declared insolvent.

Company office space

The virtual asset service provider’s head office, where its director(s) will actually manage the virtual asset service provider’s activities from, must be located in Georgia.

The head office must be physically separated from premises used for any purpose by any other person (i.e., it can’t be some shared office space).

Head office real estate and equipment need to be sufficient for managing and controlling the virtual asset service: the National Bank will drop by for an inspection to make sure everything is legit.

The virtual asset service provider must be recording operations systematically: you want to have a record of activities you can then easily trace.

If services are carried out on-site, especially for the mutual exchange of the virtual asset by receiving or transferring cash, a video surveillance system must be installed in the office.

Electronic system

There must be a software (electronic) system in place before getting underway, and it must be proportional to the risks related to volume of business and money laundering and terrorist financing associated with the activity, and it must ensure the automatic detection of noteworthy/unusual transactions by processing information based on distributed ledger technology (DLT).

An SRU company receiving a virtual asset service provider license must describe in detail to the National Bank the plan for the service to be provided. From beginning to end.

The National Bank may request a demonstration of the electronic system used for the implementation of the virtual asset service.

To obtain a license, the following information about the electronic system used to provide virtual asset services must be submitted:

  • The name of the electronic system
  • Website address of the system manufacturer
  • Somewhere to place information about the electronic system, the obligations to the registered users, and operations related to virtual assets

AML/TF policy

Those seeking a license must have an internal instruction (policy-procedure) developed for the implementation of a compliance control system to prevent money laundering and terrorist financing. The National Bank will be looking at the document seriously, so you want to be prepared to show that you do too.

In addition to the aforementioned document, the company must implement virtual asset service provider compliance control systems to promote the prevention of money laundering and terrorist financing along the following 12-point plan:

  1. Approval of internal AML/TF instruction
  2. Implementation of effective system of risk assessment and management of money laundering and terrorism financing
  3. Assessment of money laundering and terrorist financing risks associated with the client to determine risk level in accordance with legislation
  4. Implementation of preventive measures in accordance with legislation
  5. Implementation of software system to provide automatic verification of politically active, sanctioned persons required by the resolutions of the UN Security Council and the written instructions of the National Bank
  6. Implementation of suspicious/unusual transaction detection system
  7. Safekeeping of information/documentation in the manner and period established by law
  8. Appointment of individual responsible for operating the compliance control system
  9. Designation of member of governing body or individual with managerial authority to be responsible for the effectiveness of the compliance control system
  10. Provision of independent audit function to verify the effectiveness of the compliance control system
  11. Establishment of rules for employee selection to ensure the hiring of highly qualified, reputable individuals
  12. Adoption of a compliance control system for on-going employee training

Time frame for obtaining a license

The National Bank is required to issue a decision regarding the issuance of the license within 2 months of the submission of the application. However, the deadline can change if the National Bank requires additional documentation.

So it can depend on the company and how quickly it responds to additional requests from the National Bank.

How PB Services can help you

Experience

We’ve been on the market for more than 6 years and have helped hundreds of businesses in Georgia obtain various types of registration, licenses, and permits. Our lawyers are experienced, and they are always ready to provide you with qualified assistance.

Knowledge

We understand crypto and international and local legislation.

Contacts

We are in constant touch with a variety of state organizations. In the licensing process, personal contacts are essential to speeding up the process.

The initial consultation is free – get in touch with us to find the best solution for you.

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