Bank of Lithuania bans banks from virtual currency activities

The Bank of Lithuania has prohibited financial market players from engaging in activities relating to virtual currencies under new guidelines.

“Virtual currency is an instrument involving high risk, while profiteering on it may lead to significant losses of funds,” says Marius Jurgilas, a board member of the central bank.

In the document, published on October 11, the central bank sets out its position on virtual currencies and initial coin offerings (ICOs), warning financial institutions their licences could be revoked should they fail to comply with the new guidance.

Engagement in activities associated with virtual currencies, the central bank says, “is not the provision of financial services” and participation in such activity is “incompatible with legislation regulating their activities”.

The Bank of Lithuania regards activities and services associated with virtual currencies as including: purchase, storage or sale of virtual currency; organising an ICO or distribution of coins; establishing virtual currencies as a means of payment; exchange activity; and investment in virtual currency.

The new guidelines, Jurgilas says, aim to “protect the customers of financial institutions”. “An illusion that virtual currencies are supervised or safe can in no way be created,” he adds.

Financial institutions are also prevented from forming relationships with virtual currency companies under the guidelines – even by association.

“When providing financial services to customers, [financial market participants] should not link financial services to the services associated with virtual currencies provided by third parties,” the central bank says.

However, when providing financial services to customers who are engaged in activities associated with virtual currencies, financial institutions “should ensure compliance with the requirements of money laundering and terrorist financing prevention legislation”, the central bank says.

The central bank has also issued guidance on ICOs, which are becoming a popular means to raise capital for start-up companies.

“Notwithstanding the fact that such activities are not regulated, in their essence, they are the raising of funds from investors, often unprofessional, to finance some activity,” the central bank explains.

These ventures, according to the regulator, should be in some circumstances subject to investment-related legislation, and be restricted in instances where they may result in loss of investor funds.