Review of the law on the legalization of cryptocurrency in Ukraine: comments of lawyers

The Verkhovna Rada of Ukraine adopted the law “On Virtual Assets”, regulating transactions with cryptocurrencies.

According to the Minister of Digital Transformation MikhailFedorov, the daily turnover of virtual assets in Ukraine is 1 billion hryvnia, but “all this is in the shadows.” The law is intended to bring the digital asset market into the legal realm.

The document was changed and supplemented several times. We will discuss the final version with the authors of the bill, the Ministry of Digital Transformation and independent lawyers.

• Virtual assets (VA) are recognized as intangiblea benefit and an object of civil rights, but not a means of payment. They are divided into secured and unsecured. The document also introduces the category of financial VA.
• The market regulators will be the National Bank, the National Commission for Securities and Stock Market and a new specially created body. Until its formation, these functions will be performed by the Ministry of Finance.
• The VA market is closed for Russian business.
• The law will not come into force until the parliament adopts amendments to the Tax Code. When this will happen is unknown.

Basic Provisions

The law defines virtual assets asan intangible benefit that is the object of civil rights. They are divided into secured and unsecured. Cryptocurrencies like Bitcoin or Ethereum are classified as the second type. Secured VA must certify property rights, in particular rights of claim to other objects of civil rights.

VAs are not recognized as a means of payment and cannot be exchanged for goods and services.

As one of the authors of the law explained, chapterof the blockchain4Ukraine inter-factional association Oleksiy Zhmerenetsky, according to the Civil Code of Ukraine, property has a material nature, while VA represents information that the Civil Code refers to as intangible goods:

“Firstly, VA as a digital code or software is muchmore intangible than property. Secondly, the FATF considers IA as a “digital representation of value” and this definition is, of course, closer to intangible good than to property. "

The Blockchain Association of Ukraine (BAU) notes that the definition of VA as an intangible good raises questions, since its status is "still unclear."

Market participants of the IA have received the right to:

• selection of a counterparty to carry out operations;
• opening bank accounts for settlements on transactions with VA;
• judicial protection of their rights to VA;
• obtaining information from service providers about their activities and opportunities to protect user rights;
• independent determination of VA prices at which transactions with them are carried out.
• protection of personal data.

Opening bank accounts will allow businessconduct transactions with VA "as the main or exclusive activity," said Alexander Bornyakov, Deputy Minister of Digital Transformation for IT Development:

“Of course, the banks that want to issuethe so-called "bitcoin cards" (which most likely mean cases of providing a client with services for storing and automatically converting VA into fiat) will be able to open accounts in banks to solve their own problems, as will their clients equally " ...

It is known that monobank, popular in Ukraine, is hatching plans to issue Bitcoin cards. There is information that the project has already been implemented in partnership with the WhiteBIT exchange.

Service providers are legal entities that carry out one or more types of activities, among which there are four main ones:

• storage/management of VA or keys to VA;
• exchange;
• translation;
• provision of intermediary services related to such assets.

Companies cannot be like thatregistered or located on the territory of “a state recognized by the Verkhovna Rada as an occupying country or an aggressor country.” This status has so far been assigned only to Russia.

According to Bornyakov, this rule means that VA suppliers from the Russian Federation will not be able to legally work in Ukraine.

Other service providers will be able to operate only on the basis of a special permit.

If a VA provider wants to provide multiple types of services, it must obtain approval for each of them.

“There is a Lego constructor principle. Based on the business model, companies will apply for each type of activity as BA suppliers ", - said the head of the blockchain4Ukraine advisor group Konstantin Yarmolenko.

The Ministry of Digital Development expects that this “will be a very simple, substantially automated procedure that can be carried out remotely.”

According to lawyer Dmitry Nikolaevsky, Ukrainian legislation provides for the possibility of implementing regulatory policy both through the issuance of licenses and through permits:

“According to the practice already established in other spheres of the economy, the second option, as a rule, is simpler. Most likely, that is why they gave preference to him. "

The cost of the permit, as well as the size of the authorized capital for residents and non-residents of Ukraine, differs.

Kind of activity	Resident	Non-resident
storage / management of VA or keys to VA	136,000 hryvnia (≈ $ 5,000)	680,000 hryvnia (≈ $ 25,000)
exchange	85,000 hryvnia (≈ $ 3100)	425,000 hryvnia (≈ $ 16,000)
translation	85,000 hryvnia (≈ $ 3100)	425,000 hryvnia (≈ $ 16,000)
provision of mediation services	68,000 hryvnia (≈ $ 2,500)	340,000 hryvnia (≈ $ 12,700)

Service authorization cost for VA providers. The calculation was made on the basis of non-taxable minimum incomes of citizens (17 hryvnia).

To renew the permit, suppliers must resubmit and pay for it.

Kind of activity	Resident	Non-resident
storage / management of VA or keys to VA	at least 1,190,000 hryvnia (≈ $ 44,000)	at least 5,950,000 hryvnia (≈ $ 222,000)
exchange	at least 595,000 hryvnia (≈ $ 22,000)	at least 2,975,000 hryvnia (≈ $ 111,000)
translation	at least 595,000 hryvnia (≈ $ 22,000)	at least 2,975,000 hryvnia (≈ $ 111,000)
provision of mediation services	at least 595,000 hryvnia (≈ $ 22,000)	at least 2,975,000 hryvnia (≈ $ 111,000)

The amount of the authorized capital for VA suppliers. The calculation was made on the basis of non-taxable minimum incomes of citizens (17 hryvnia).

Aleksey Zhmerenetsky noted that so far there is no direct prohibition on the formation of the authorized capital in VA, but it may be introduced in the future.

"The authorized capital formed by bitcoins still cannot adequately perform all the necessary functions", - he said.

The permit is valid for one year. Information about service providers is entered into a special state register.

"All exchanges, custodians and exchangers will become regulated objects of financial monitoring and will have to carry out KYC / AML procedures",” stressed Kuna exchange lawyer Anna Voevodina.

According to Bornyakov, the law creates legal preconditions for professional market participants, as well as persons carrying out a public offering of VA, to be identified:

“If they don’t conduct business honestly -the affected market participant will know who is involved in the violation of his rights and will be able to apply at his own discretion either to the court or to law enforcement agencies with appropriate statements. "

For failure to comply with the requirements of the law, penalties are provided. They only apply to VA providers.

"The law does not establish additional rights and obligations for any old or new government agencies to spy on citizens of Ukraine", - said Alexander Bornyakov.

Violation	Fine
activities of the VA supplier without the permission of the regulator	from 34,000 (≈ $ 1200) to 119,000 hryvnia (≈ $ 4400)
implementation by the VA supplier of other activities provided for by law without permission	from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3100)
for providing false information when obtaining permission	from 8500 (≈ $ 320) to 17,000 hryvnia (≈ $ 630)
for violation of the terms of notification of the regulator about changes in the information included in the state register of VA suppliers	up to 17,000 hryvnia (≈ $ 630)
for non-provision, provision of incomplete or inaccurate information to the regulator	up to 17,000 hryvnia (≈ $ 630), for a repeated similar violation within a year - up to 34,000 hryvnia (≈$1200)
for non-fulfillment or untimely fulfillment of the regulator's orders to eliminate violations	from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3100), for a repeated similar violation within a year - from 34,000 (≈$1200) to 102,000 hryvnia (≈$3800)
for violation of the requirements for the publication of information in the course of organizing a public offer of VA	from 17,000 (≈ $ 630) to 85,000 hryvnia (≈ $ 3100), for a repeated similar violation within a year - from 34,000 (≈$1200) to 102,000 hryvnia (≈$3800)

Penalties for VA suppliers. The calculation was made on the basis of non-taxable minimum incomes of citizens (17 hryvnia).

Three regulators and a new supervisory authority

Issuing permits and regulating the market willa specially created central body of executive power. It must be created by the Cabinet of Ministers of Ukraine within six months from the date of publication of the law. Until that moment, its functions will be performed by the Ministry of Digital Affairs.

“In fact, the main regulator of the industry will beThe ministry, which will form the regulatory policy. But to put it into practice in practice will be a completely new state body - a specially created service, which will be responsible for all the functionality of interaction with market participants ", - said the lawyer Dmitry Nikolaevsky.

The competence of the new body will include regulation of the circulation of all VA, except for those that, in accordance with the law, are financial virtual assets, said Alexander Bornyakov.

The BAU called the issue with the regulator “the biggest and most controversial.”

"To date, the necessary infrastructure has not yet been created, there is no necessary staff of officials and there are many nuances that should be improved and optimized.", - said Anna Voevodina.

The document also introduces the category of financial IA.Their issue is allowed to residents of Ukraine. They can be secured by currency values ​​- in this case, the turnover is regulated by the National Bank (NBU), as well as securities or derivatives - regulated by the National Commission for Securities and Stock Market (NSSMSC).

Thus, the market received three regulators.The National Securities and Stock Market Commission, the NBU and a number of lawyers have already criticized the previous version of the document for the fact that it did not clearly delineate the powers of regulators. The adopted law specifies their areas of responsibility separately, and also contains an article on the interaction and coordination of the actions of these bodies.

The head of the NBU, Kirill Shevchenko, stated that afterOnce the law is signed by Ukrainian President Vladimir Zelensky, regulators will begin developing by-laws that will become “powerful incentives for market development and at the same time protect Ukrainians from fraud.”

At the same time, he emphasized that the hryvnia remains the only legal means of payment in the country. Shevchenko noted that the NBU is now studying the possibility of launching its own digital currency.

“We see its use in the sphere of VA turnover as one of the potential research directions of e-hryvnia issue”, - Shevchenko said.

According to him, this could create new infrastructure that will become “an effective gateway between the real economy and the VA market.”

The National Securities and Stock Market Commission stated that the adopted law is "a good start for the development of the IA segment in Ukraine."

“But you need to clearly understand that the state shouldensure the quality of the market functioning, proper regulation and supervision to protect its participants. Now we see some inconsistencies with European and international standards regarding the introduction of IA into the Ukrainian legal field ", - said the member of the National Securities and Stock Market Commission Yuriy Boyko.

It is important to note that the adopted law will not enter into force without the adoption of the draft law on amendments to the Tax Code concerning the taxation of transactions with VA.

The tax bill is currently under development, Alexander Bornyakov said:

“Since the development of this bill is notcan be carried out by the Ministry of Digital Development without close interaction with other government bodies, including the Ministry of Finance of Ukraine - the date of introducing the bill into parliament for voting in the first reading is still unknown to us.”

Lawyers and market assessments

Igor Olekhov, partner of the law firm CMS Cameron McKenna Nabarro Olswang, emphasized that the adopted law on IA is a framework and most of the mechanisms and procedures are not spelled out in detail in it.

“The law only defines and permits VA, andpractical application should be additionally spelled out in bylaws. However, it is important that they are developed on time and adopted simultaneously with the entry into force of the law in order to avoid the situation that the market will function in violation of the law. "

According to the senior lawyer of the practiceintellectual property of Arzinger JSC Nikolai Rekhlitsky, the adopted law offers “laconic regulation of key points for the legal circulation of VA in Ukraine”:

"Despite the obvious need to" make friends "virtual assets with legislation in the field of AML and KYC, an important step has been taken in the law - virtual assets have been introduced into the legal system as objects of civil rights, which brings legal clarity to their civil and commercial turnover. "

Dmitry Pshenichnyuk, an advisor to the law firm Kinstellar, noted that the law creates an opportunity to attract global players in the crypto industry, such as Coinbase, Fidelity or Square, to Ukraine.

"In addition, banks, exchanges and other companies in traditional business sectors will be able to fully provide services in the cryptocurrency market and invest in DeFi startups and innovations."- he added.

Konstantin Yarmolenko noted that the legislation will be adapted to the main trends of the industry and its regulation:

“This fall will be published updatedFATF IA recommendations, which will focus on DeFi, so the law will still be amended to respond quickly to all regulatory and technological challenges in the crypto economy. "

Market participants generally positively assessed the adoption of the law as a step towards the legalization of cryptocurrencies.

Binance Director in Eastern Europe Gleb Kostarevstated that the company has a positive attitude towards regulation and considers it necessary, and called the adoption of the law "another significant step towards the formation of a stable position of the country in the field of financial technology and cryptocurrency."

"The already large local crypto community will grow and develop, and cryptocurrencies and blockchain technology will enter the lives of ordinary people and gain even more popularity."- said Kostarev.

Kuna also stated that the market should be regulated and expressed its readiness to participate in the formation of new legal institutions, but noted possible problems in the application of the law:

“Given the way they work in our countrylaw enforcement agencies and what an unattractive investment climate, of course, there is a fear that any good undertaking will pass through the prism of corruption schemes, shortcomings, ignorance, and this can play a negative role.”

Where is it more profitable to buy cryptocurrency? TOP-5 exchanges

For a safe and convenient purchase of cryptocurrencies with a minimum commission, we have prepared a rating of the most reliable and popular cryptocurrency exchanges that support deposits and withdrawals of funds inrubles, hryvnias, dollars and euros.

The reliability of the site is primarily determinedtrading volume and number of users. By all key metrics, the largest cryptocurrency exchange in the world is Binance. Binance is also the most popular crypto exchange in Russia and the CIS, since it has the largest cash turnover and supports transfers in rubles from bank cardsVisa / MasterCardand payment systemsQIWI, Advcash, Payeer.

Especially for beginners, we have prepared a detailed guide: How to buy bitcoin on a crypto exchange for rubles?

Rating of cryptocurrency exchanges:

#	Exchange:	Website:	Rating:
1	Binance (Editor's Choice)	https://binance.com	9.7
2	Huobi	https://huobi.com	7.4
3	Exmo	https://exmo.me	6.9
4	OKEx	https://okex.com	6.5
5	Bybit	https://bybit.com	6.3

The criteria by which the rating is set in our rating of crypto-exchanges:

• Work reliability— stability of access to all functions of the platform, including uninterrupted trading, deposits and withdrawals of funds, as well as the duration of the market and daily trading volume.
• Commissions– the amount of commission for trading operations within the platform and withdrawal of assets.
• Additional features and services— futures, options, staking, NFT marketplace.
• Feedback and support– we analyze user reviews and the quality of technical support.
• Convenience of the interface– we evaluate the functionality and intuitiveness of the interface, possible errors and failures when working with the exchange.
• final grade– the average number of points for all indicators determines the place in the ranking.

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