Cryptocurrency Controlled: What to Expect after the Adoption of New Financial Monitoring Rules in Ukraine?

Key cryptocurrency regulation amendments concerning prevention of and counteraction to money laundering will come into force on April…

Key cryptocurrency regulation amendments concerning prevention of and counteraction to money laundering will come into force on April 28, 2020. Changes introduced by the Parliament in the Financial Monitoring (or AML) law caused controversy in the cryptocurrency community. Opinions are divided. Some community members support the new law, it being the next step towards acceptance of cryptocurrencies as a legal payment instrument. Others treat the amendments negatively because cryptocurrency will lose its key advantage – anonymity.

What the sensational amendments are about

Ukraine is not the “groundbreaker”, it simply implements FATF recommendations which are already followed by many countries. So Ukraine had a choice: prohibit the cryptocurrency or apply the relevant regulations. Having chosen the second option, Ukraine made changes in the Law “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction”. The changes are as follows:

1) Cryptocurrency as a virtual asset has been given a definition: a digital unit of value that can be traded electronically and transferred and used as a means of payment or investment.

2) The legislator has provided a definition for virtual asset service providers. Those include any individual or entity carrying out the following types of activity:

  • exchange of virtual assets;
  • transfer of virtual assets;
  • safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
  • participation in and provision of financial services related to an issuer’s offer and/or sale of virtual assets.

According to the above definition, virtual asset service providers include not only cryptocurrency exchanges and exchangers but also companies engaged in ICOs (Initial Coin Offering).

3) Counterparties to virtual asset transactions should be identified if the transaction amount exceeds UAH 30,000. Virtual asset service providers may require verification even for transactions under UAH 30,000.

4) Virtual asset service providers need to submit special reports in the prescribed form to the Financial Monitoring Service with regard to transactions exceeding UAH 400,000 where there are reasons to believe that the transaction is:

  • undertaken by politically exposed persons;
  • conducted by a party registered in a sanctioned country;
  • performed to transfer funds abroad;
  • conducted with the use of cash.

5) The Ministry of Digital Transformation of Ukraine has been appointed as the virtual asset regulator.

Effects on the crypto industry

The Law will affect only those ordinary nationals who keep their assets with a cryptocurrency exchanger or exchange. Failing to pass the verification, they will be required to do so by the exchange, otherwise, the account could be blocked. Besides, the common person will now have to be more careful about their exchange transactions since the exchange may consider any transaction suspicious and demand extra documents.

Crypto exchanges/exchangers are implementing a user verification process. It is mandatory at all times unless the user’s transactions on the exchange do not exceed UAH 30,000. In real practice, it is possible that the mandatory verification will apply only to users whose transactions exceed the amount of UAH 30,000.

Virtual service providers will be obligated to increase their personnel and appoint a Compliance Officer – a person to oversee the conformance of user transactions to the AML laws. This requirement is implied by the provisions of the Law since the obligations imposed on crypto businesses will demand the services of a qualified specialist, i.e. the Compliance Officer.

There is a silver lining too: crypto exchanges/exchangers and platforms collecting money via ICOs are now legal. They will be able to open bank accounts in the future. This is a great advantage that was practically not accessible before the amendments. Now there are good reasons to expect the situation to change for the better.

How compliance with the Law will be controlled

The task of virtual asset regulation in Ukraine and oversight of AML compliance in this domain has been assigned to the Ministry of Digital Transformation.

The Ukrainian Association of Payment Systems has addressed deputies of Verkhovna Rada (Supreme Council) of Ukraine with a request to postpone the Law’s effective date. The issue is that Ukraine does not have remote identification rules in place, and there are no clear new rules for e-money and pre-paid card issue. Furthermore, there are no functionalities for quick customer data verification.

European experience

The Ministry of Digital Transformation has announced plans to regulate the market by using the best practices of European countries. There are a number of states which had long implemented FATF recommendations into their legislation.

Malta and Estonia, for instance, introduced special cryptocurrency licenses for the provision of virtual asset services. Allowing entities to set up a bank or payment system account easily, the license also involves a number of obligations, including compliance with the country’s AML laws.

For example, it is mandatory for a project to have a Compliance Officer in order to obtain the cryptocurrency license in Estonia. The Compliance Officer must possess the relevant qualifications and have industry-specific education.

England followed another scenario. The country does not have specific cryptocurrency licenses but every business dealing with cryptocurrencies (exchangers, exchanges, ICO, and IEO organizers, providers of crypto wallet applications) needs to be registered with the FCA. The following is mandatory for businesses:

  • AML verification: the virtual asset service provider must be aware of the source of client funds.
  • KYC verification.

The laws of England require virtual asset service providers to have both a Compliance Officer and a Financial Monitoring Department. The FCA oversees the due transaction monitoring and security of funds safekeeping. Failure to comply with the AML laws entails financial and criminal responsibility.

The cryptocurrency market regulation will not be limited to this new Law. Most probably, there will be a cryptocurrency licensing mechanism to provide for more elaborate virtual asset control tools.

The readiness of cryptocurrency exchanges for the new requirements

Most cryptocurrency exchanges and exchangers have implemented the verification process and adhere to the KYC (Know Your Customer) policy. In addition, exchanges and exchangers will start investigating transaction purposes and checking the source of money. Several crypto exchanges are already cooperating with various analysis services, Chainalysis being the most popular one. Its services are used by such well-known cryptocurrency exchanges as Bithumb, Bitfinex, Binance, and the prominent stable coin — Tether.

With the pressing global issue of money laundering and terrorism financing, the Ukrainian crypto market will obviously work with analysis services as well. International communities are continuously introducing new crypto industry requirements. Virtual asset service providers had better be prepared beforehand and implement best practices used by major crypto exchanges.

The current situation in the Ukrainian crypto market shows that the crypto industry is not ready for such changes yet. Many market players will have to choose whether to operate with violations or suspend their activities.


The new financial monitoring rules have been designed to implement the best international standards on anti-money laundering and counter-terrorism financing. The Ministry of Digital Transformation of Ukraine states that the changes are just the first step towards the establishment of the cryptocurrency industry’s legal framework, and the next step will involve changes in the tax laws.

The Law’s underlying idea is simple – to legalize the cryptocurrency business and give crypto exchanges, exchangers, and other participants of the crypto industry access to the banking system. As of now, there are more questions than answers regarding its implementation.

In any event, crypto exchanges and exchanges are advised to establish partnerships with various analysis centers, employ a qualified Compliance Officer, analyze their clients’ business operations and sources of funds and be more considerate about their website AML policies.

The general public should think over whether they are able to confirm the origin of their money. The world’s practice suggests that any crypto exchange reasonably considering any specific transaction as suspicious has the authority to block the transaction.

SBSB International Legal Firm has immense experience in working with regulators worldwide in connection with clients’ AML compliance. SBSB experts will help your exchange draft AML policies, find a Compliance Officer, and will give personalized advice. We have an extensive portfolio of successful unblocking of funds in bank accounts, payment systems, and exchanges. Join our Telegram chat for a free online consultation.

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