Introduction

Recently, crypto technologies have become very popular in Georgia. Until now, crypto regulation was unregulated in Georgia, which raises the risks of money laundering and terrorist financing, but from January 1, 2023, the National Bank of Georgia began regualtion of the crypto industry.

Regulation includes the registration of digital asset operators with the National Bank and their regulation in terms of prevention of money laundering and financing of terrorism. In connection with this, amendments were made to the Organic Law on the National Bank of Georgia, which came into effect on January 1, 2023. Regulation is based on the recommendations of the Financial Action Task Force, FATF. Also, the experience of the United States of America, EU member states and Singapore was taken into account.

Definition

Let’s get acquainted with the amendment to the law of the National Bank, according to which it was determined:

1) Digital (crypto) asset – a digital expression of value, which is interchangeable and not unique, is the subject of transfer or trade in digital form and is used to make investments and/or payments. A digital asset does not include a digital representation of cash, securities or other financial instruments;

2) Convertible digital (crypto) asset – a digital asset that has an equivalent value in the market in national or foreign currency, in another digital asset and/or financial instrument, in which it can be exchanged;

3) Digital (crypto) asset service – exchange of a convertible digital asset (including through a self-service kiosk) in national or foreign currency, another digital asset or financial instrument, transfer and/or storage/administration of a convertible digital asset or an instrument necessary for its use, which allows for control over a digital asset, management of a portfolio consisting of convertible digital assets (except collective portfolio management) and/or administration of a trading platform for convertible digital assets and/or lending of such digital asset and/or initial offering and/or initial offering services;

4) Digital (crypto) asset service provider – an entity who provides digital asset services for the benefit of another entity.

Regulation

Let’s start by saying that according to the law the digital (crypto) asset is not a legal tender in Georgia.  The National Bank has been granted full authority to supervise the activities of the digital (crypto) asset service provider. The National Bank is authorized to:

a) In accordance with the legislation of Georgia on the prevention of money laundering and financing of terrorism, the entity subject to supervision shall request and receive information on the sources of capital of the subject subject to supervision, ownership structure, direct owners and beneficial owners of significant shares (including the origin of property and/or funds) );

b) In case of violation of the legislation of Georgia on the prevention of money laundering and financing of terrorism, the entity subject to supervision should stop or limit certain operations, prohibit the distribution of profits, accrual and distribution of dividends, increase wages, issue bonuses and other similar compensation, impose a monetary fine, cancel registration. , authorization, recognition and revocation of license;

c) in case of violation of the legislation of Georgia on the prevention of money laundering and financing of terrorism, suspend the administrator of the entity subject to supervision from the right to sign, impose a monetary fine and demand his dismissal;

d) to provide the entity subject to supervision in accordance with the legislation of Georgia on the prevention of money laundering and terrorist financing, the list of entities whose activities contain or may contain the risk of money laundering or financing of terrorism;

e) In case of non-submission or incomplete submission of the requested information within the defined period, impose a sanction on the entity subject to supervision in accordance with the Georgian legislation on the prevention of money laundering and terrorism financing.

In order to prevent money laundering and financing of terrorism and fight against them, the National Bank supervises the activity of the entity subject to supervision based on a risk-based approach. Information about the sanctions imposed by the National Bank is published on the official website of the National Bank according to the procedure established by the National Bank.

Supervision

1) The National Bank is authorized to supervise the activities of the digital (crypto) asset service provider. Supervision provides for the registration and deregistration of the digital (crypto) asset service provider, the establishment of suitability criteria for the administrators of the digital (crypto) asset service provider, inspection and regulation in order to facilitate the prevention of money laundering and terrorist financing, the determination of information accompanying the transfer of the digital (crypto) asset, the issuance of written instructions, the imposition of additional requirements, restrictions and sanctions .

2) The digital (crypto) asset service provider is obliged to register with the National Bank and meet the requirements established by the National Bank. The rules of registration, cancellation of registration and regulation of the digital (crypto) asset service provider in the National Bank are established by the normative act of the National Bank.

3) It is not allowed to provide digital (crypto) asset services by a an entity who is not a digital (crypto) asset service provider registered by the National Bank or a representative of the financial sector, who is authorized to provide digital (crypto) asset services by the activity regulatory legislation.

4) The digital (crypto) asset service provider is prohibited from providing digital (crypto) asset services, supporting activities necessary for the provision of this service, and performing activities other than the exchange of its own digital (crypto) asset.

5) The National Bank is authorized to the digital (crypto) asset service provider and the representative of the financial sector, who has been granted the authority to provide digital (crypto) asset services by the activity regulatory legislation, to stop or limit the implementation of certain types of activities/operations (including, depending on the types of digital (crypto) assets), as well as other digital (crypto) assets Business relationships with service providers that pose increased risks related to money laundering and terrorist financing and/or the risk of evading international financial sanctions, hinder the traceability and/or supervision of the transactions carried out.

6) The National Bank is authorized to impose a sanction (including a monetary fine) on the digital (crypto) asset service provider and the provider’s administrator for violation of this law and the legal acts of the National Bank in the manner determined by it. The amount of the monetary fine will be sent to the state budget of Georgia.

Conclusion

The amendments included in the Organic Law on the National Bank of Georgia entered into force on January 1, 2023, but the National Bank of Georgia has until July 1, 2023 to introduce the all relevant rules for crypto regulation. Entities that carry out activities related to digital assets must register with the National Bank within 90 days of the implementation of the mentioned rule, because otherwise, their activities will be considered illegal business activities.

For more information or/and questions about the regulation of crypto assets in Georgia please contact us, we are always ready to help you.