As we previously reported, in May 2020, the Ukrainian Ministry of Digital Transformation (MDT) carried out a public consultation in relation to the draft text for a law relating to virtual assets. On September 16, 2020, the Ukrainian Parliament registered the draft law “On Virtual Assets” (the “Draft Law,” available here in Ukrainian).
One significant change brought about by the public consultation is that the Draft Law now defines a virtual asset as a separate category of intangible benefits (among other categories of intangible benefits such as (i) objects of IP rights, (ii) information and (iii) personal non-property benefits). This should be contrasted with the initial draft, which regarded a virtual asset as a separate category of property. A curious anomaly is that the Draft Law still contemplates ownership of a virtual asset, which is probably a relic of the initial draft text because the Civil Code does not envisage ownership of intangible benefits.
Another important change is that the Draft Law now provides for an extended list of forms in which virtual assets may exist. Thus, a virtual asset may exist in the form of an unsecured and collateralized virtual asset. There is also a subset of a collateralized virtual asset — a financial virtual asset, which is a virtual asset secured by the ownership rights of the holders of equity, debt, mortgage or derivative securities, derivative financial instruments or money market instruments. Moreover, the Draft Law provides that the virtual assets do not constitute a payment method in the territory of Ukraine, meaning that they will not be regarded as legal tender.
The Draft Law envisages the following types of intermediary services:
- virtual assets exchange;
- virtual assets transfer;
- custody and administration of virtual assets and virtual asset keys; and
- financial services related to public offer and/or sale of the financial virtual assets.
As we previously reported, all of these intermediaries were already required to comply with AML laws and to register with the State Service of Financial Monitoring (which issued practical guidance on the registration process on April 28 2020, when the new AML law came into force). Under the Draft Law, these intermediaries will additionally have to register with the MDT, and their activity will also be subject to the requirements established by the Draft Law. Moreover, those service providers falling under the final bullet will need to apply for a financial services license.
It is also noteworthy that the Draft Law was registered almost in parallel with the publication of the proposal for the EU regulation on markets in crypto-assets (available here), which is a part of the broader digital finance package (available here), which was published by the European Commission on September 24, 2020. The key differences between the Draft Law and the framework proposed by the EU seems to be the fact that the European Commission differentiates between those crypto-assets already governed by the effective EU legislation (e.g., those crypto assets regarded as financial instruments) and other crypto-assets. The Ukrainian legislature seems to follow a different path. That is, the Draft Law does not regard any virtual asset type as a financial instrument (such as a security or a derivative). This difference might be perceived as an advantage for those seeking an appropriate jurisdiction for the issuance of their virtual assets, because such issuance in Ukraine would not involve compliance with financial services legislation. In contrast, in the EU, depending on the nature of the virtual assets, such compliance might be necessary.