LITHUANIA Law and Practice Contributed by: Tadas Kuzminskas, APB “Leagus”
1. Overview of Blockchain and Crypto- Assets 1.1 Blockchain 1.1.1 Evolution of Uses of Blockchain The use of blockchain in business in Lithuania is still at an early stage. Existing market participants and start‑ups are experimenting with blockchain in are- as such as anti-money laundering (AML), securities accounting and tokenisation of various projects (for example, tokenised loyalty reward systems). As most projects are still in development, the real benefits (and potential costs) of blockchain over traditional systems cannot yet be assessed – only once these solutions reach broader, large‑scale use will an accurate picture emerge. There is no separate regulation for blockchains in Lith- uania, so all blockchain‑based projects must comply with the existing legal framework, which may limit the implementation of certain innovative solutions. The key challenge for the practical use of blockchain will therefore be how proposed solutions can be aligned with the requirements of current legislation. 1.1.2 Regulatory Sandbox The Bank of Lithuania operates a regulatory sandbox that can be used for blockchain‑based projects. The sandbox allows firms to test innovative financial products and business models in a real‑world environ- ment under the Bank of Lithuania’s supervision and with its advisory support. Entry is selective and based on criteria such as: • genuine innovation – the solution is not yet avail- able on the Lithuanian financial market; • consumer benefit – the proposed innovation deliv- ers identifiable benefits to society (eg, by making financial services more convenient, safer or cheap- er, or by otherwise contributing to the sustainable development of the financial markets); • need for live testing – real‑world testing is objec- tively necessary for testing the innovation in a controlled, real‑world environment, and such testing should materially support the innovation’s implementation; and
• commitment to Lithuania – the tested services, products or business models are intended to be further developed and offered in Lithuania. 1.1.3 Regulation of Blockchain Technology Lithuania’s stance on blockchain is favourable to inno- vation but risk‑aware: it supports the development of blockchain and crypto‑asset businesses while requir- ing strict compliance with regulation, consumer pro- tection and rules for AML and combating the financ- ing of terrorism (CFT). The environment is favourable for legitimate, compliant projects – especially those that engage with regulators early; use the sandbox; and prioritise AML, data protection (GDPR) and con- sumer safeguards. Privacy/anonymity-focused tokens and services that obstruct AML/CFT controls are treated with caution and are effectively discouraged or restricted, and fraudulent schemes, unlicensed exchanges or offerings that bypass investor protec- tion are prohibited. Lithuanian law is technology‑neutral, so blockchain as a technology is not prohibited, but nor is there a separate regulatory regime for it. Financial institutions – such as banks, electronic money institutions (EMIs) and fund managers – and other supervised entities that rely on blockchain providers must nevertheless comply with applicable outsourcing and third‑party risk rules. This includes conducting prior due dili- gence, putting written contracts in place, clearly allocating liabilities, agreeing service‑level arrange- ments, and establishing business‑continuity and exit plans, as well as preserving audit and access rights and maintaining ongoing monitoring. Accordingly, a company should first assess whether adopting a blockchain‑based solution will enable it to meet its legal and regulatory obligations. Data Protection The EU General Data Protection Regulation (GDPR) is applicable in Lithuania. Storing personal data on a blockchain should be avoided if this conflicts with data protection principles. Design choices (eg, permis- sioned ledgers, off‑chain storage, encryption, pseu- donymisation, clear data‑controller/processor roles) are commonly used to address GDPR challenges. Moreover, blockchains possess certain characteristics that can create challenges in meeting GDPR require-
399 CHAMBERS.COM
Powered by FlippingBook