On 8 September 2021, the Ukrainian parliament adopted Law No. 3637 On Virtual Assets (the “Law”). The Law aims to regulate the circulation of virtual assets in Ukraine; it also defines the rights and obligations of virtual asset market participants and the principles of state policy in the area of virtual asset circulation. Thus, the Law creates a legal and regulatory framework for the circulation of virtual assets in Ukraine and the provision of services in relation to virtual assets. It essentially legalises virtual asset service providers and their operations, including within the banking system. Currently, virtual asset market regulation is very fragmented and does not provide sufficient protection to participants. The Law is expected to eliminate the legal risks that arise in the operation of the virtual assets market and thus attract international companies and foreign investment in the Ukrainian virtual assets industry.
The draft law is yet to be signed by the President and officially published. When this happens, it will enter into force simultaneously with the respective law introducing the taxation of with virtual asset transactions (yet to be adopted).
In what follows, we present a summary of how this Law is supposed to regulate legal relations arising from the circulation of virtual assets in Ukraine.
The legal status of virtual assets
The Law defines a “virtual asset” as an intangible good that is an object of civil rights, has a value, and is expressed as a data set in electronic form. A virtual asset may certify proprietary rights, particularly rights of claim to other objects of civil rights.
Virtual assets are not a means of payment in Ukraine and cannot be directly exchanged for property, goods, or services.
The Law distinguishes between unsecured virtual assets (those not certifying property rights) and secured virtual assets (affirming property rights, particularly the rights of claim of other objects of civil rights).
Also, under the Law, virtual financial assets are divided into:
- virtual assets issued by a resident of Ukraine and secured by currency values, and
- virtual assets issued by a resident of Ukraine and secured by security or a derivative financial instrument.
Under the Law, a virtual asset key owner is deemed as the owner of such a virtual asset, unless:
- the key of the virtual asset or the virtual asset is stored by a third party in accordance with the terms of the transaction between the custodian and the owner of this virtual asset;
- the virtual asset is transferred for safekeeping to any person in accordance with the law or a court decision that has entered into force; or
- the key to the virtual asset was acquired by a person illegally.
Applicability of the Law
The Law applies to:
- services related to the circulation of virtual assets if the subjects of such legal relations have a registered office or a permanent representation on the territory of Ukraine;
- transactions with a virtual asset as their object if the parties have determined that the Law of Ukraine applies to the transaction as a whole or any part of it; and
- transactions with a virtual asset as an object if both parties are residents of Ukraine or the acquirer of the virtual asset is a resident of Ukraine.
State regulation of virtual assets
The Law grants powers over virtual assets to the following state authorities:
- Ministry of Digital Transformation – to ensure the formation of state policy in the field of the circulation of virtual assets;
- A new authority – to be created and become responsible for implementing the state policy on the circulation of virtual assets;
- National Bank of Ukraine – to regulate the turnover on the territory of Ukraine of secured virtual assets with currency values; and
- National Commission on Securities and Stock Market of Ukraine – to regulate the turnover on the territory of Ukraine of such secured virtual assets secured by security or a derivative financial instrument.
Licensing of virtual asset services
The Law defines the following exhaustive list of activities related to virtual assets that are subject to licensing in Ukraine:
- Custody/administration of virtual assets or keys of virtual assets (i.e., provision of custody of virtual assets or keys to virtual assets, with the ability to move such virtual assets independently for and on behalf of third parties);
- Virtual asset exchange services for other virtual assets and currency values (i.e., activities related to the exchange of virtual assets for other virtual assets and currency values, carried out for and on behalf of the third parties);
- Virtual assets transfer services (i.e., the transfer of virtual assets for the benefit of third parties from a third party’s virtual asset wallet to the virtual asset wallets of others); and
- Intermediary services related to virtual assets (i.e., execution of transactions on virtual assets – including the execution of a public offering of virtual assets – for the benefit of third parties).
The Law also sets out the requirements for the future licensee as well as establishes that the licence will be issued by the new authority responsible for implementing the state policy on the circulation of virtual assets.
For more information on this draft Law, contact your CMS client partner or local CMS experts: Anna Pogrebna, Maria Orlyk, Ihor Olekhov.
Authors:
Anna Pogrebna, Partner, anna.pogrebna@cms-rrh.com
Maria Orlyk, Partner, maria.orlyk@cms-rrh.com
Diana Valyeyeva, Associate, diana.valyeyeva@cms-rrh.com
Taras Chernikov, Associate, taras.chernikov@cms-rrh.com
Ihor Olekhov, Partner, ihor.olekhov@cms-cmno.com
Kateryna Chechulina, Councel, kateryna.chechulina@cms-cmno.com
