On September 17, 2020, the National Council of the Slovak Republic approved an amendment to Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Financing of Terrorism, which transposes the Fifth European AML Directive (the EU Anti-Money Laundering Directive). The adopted changes primarily result in entities providing cryptocurrency services being classified as obligated entities subject to a number of obligations under the applicable legislation.
The era of digitalization has brought with it, among other things, the phenomenon of virtual money. Cryptocurrencies (e.g., Bitcoin, Ethereum, Ripple, and others) are currently an extremely attractive means for investment and business activities; however, the lack of legal regulation has created opportunities for their potential misuse, such as money laundering.
The amendment to Act No. 279/2008 Coll. on the Prevention of Money Laundering and the Financing of Terrorism and on Amendments to Certain Acts, as amended, and amending certain acts (hereinafter referred to as the “Act”), which entered into force on November 1, 2020, with the aim of preventing the potential misuse of cryptocurrencies, establishes the following related changes:
Classification of entities providing cryptocurrency services as obligated entities
Entities providing services related to cryptocurrencies will have the same obligations as, for example, banks and other financial institutions. According to the amendment to the Act, an virtual currency wallet service provider and a virtual currency exchange service provider are therefore also considered obligated entities. Under the new provisions of the Act, these entities are subject to the following obligations, among others:
- exercising due diligence by verifying client identification prior to establishing a business relationship,
- reporting suspicious transactions to the financial intelligence unit,
- developing internal guidelines, known as the internal control program, which takes risk factors into account and determines the scope of due diligence; that is, the obligated entity defines the procedures it implements to prevent the legalization of proceeds from criminal activity and money laundering.
Expansion of the list of regulated trades
Entities providing services related to cryptocurrencies are required to hold a trade license in the form of a regulated trade. The amendment also specifies the validity period of the trade license as follows: “A business license issued for a trade that, by its nature, meets the criteria for providing virtual currency exchange services or virtual currency wallet services, issued by October 31, 2020, expires on February 28, 2021.” It follows from the above that business entities will have to reapply for the trade license. The establishment and operation of such a trade is also subject to the following educational requirements for the persons responsible:
a. provision of virtual wallet exchange services – complete general secondary education or complete vocational secondary education,
b. provision of virtual currency wallet services – complete general secondary education or complete vocational secondary education.
Definition of the term “virtual currency”
Legal regulation of virtual money introduces the following definitions into legislative practice:
- virtual currency – a digital store of value that is neither issued nor guaranteed by a central bank or public authority, is not necessarily linked to legal tender, and does not have the legal status of currency or money, but is accepted by certain natural persons or legal entities as a medium of exchange that can be electronically transferred, stored, or traded,
- virtual currency wallet service provider – a person who provides services for the protection of private cryptographic keys on behalf of their clients, for the holding, storage, and transfer of virtual currency,
- virtual currency exchange service provider – a person who, as part of their business activities, offers or conducts transactions involving virtual currency, the subject of which is the purchase of virtual currency for euros or foreign currency or the sale of virtual currency for euros or foreign currency.
Entities conducting business activities focused on cryptocurrencies are required to act as obligated entities and perform customer due diligence starting from the effective date of this amendment, namely November 1, 2020. With regard to existing clients, businesses have until the end of May 2021 to implement due diligence. However, all obligated entities must establish their own internal procedures by the end of January 2021 at the latest.
The law firm Hronček & Partners, s. r. o. is ready to provide you with comprehensive legal services in the field of cryptocurrency business. Please feel free to contact us at any time.
