Navigating the New Digital Frontier: Understanding VASP Regulations in Georgia

The world of virtual assets, often simply called "crypto," has evolved rapidly from a niche interest into a significant component of the global financial landscape. With this growth comes the increasing necessity for robust regulation to ensure stability, protect consumers, and combat illicit activities. Georgia, recognized for its forward-thinking approach to fintech, is at the forefront of establishing a clear fintech friendly regulatory framework based on the registration of Virtual Asset Service Providers (VASPs) and conducting only AML-CFT robust supervision.

What are VASPs and Why Do They Need Regulation?

A Virtual Asset Service Provider (VASP) is any business that conducts specific activities involving virtual assets on behalf of others. In Georgia this typically includes:

• Exchange (including via kiosks) between convertible virtual asset and fiat currencies (national or foreign), between one or more forms of virtual assets, between convertible virtual asset and financial instrument;

• Transfer of convertible virtual asset;

• Safekeeping and/or administration of convertible virtual asset or of the instrument enabling control over virtual asset;

• Portfolio management of convertible virtual assets (excluding collective portfolio management);

• Administration of the trading platform of the convertible virtual assets;

• Lending of convertible virtual asset;

• Initial Coin Offering of convertible virtual asset and/or service related to initial coin offering.

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The rapid growth and often borderless nature of virtual assets bring inherent risks:

• Money Laundering & Terrorism Financing (ML/TF): The pseudo-anonymous nature can be exploited for illicit flows.

• Consumer Protection: Lack of regulation can expose users to fraud, market manipulation, or operational failures.

• Financial Stability: Unregulated large-scale operations could pose systemic risks.

Recognizing these challenges, international bodies like the Financial Action Task Force (FATF) have issued clear recommendations, urging countries to regulate VASPs for AML/CFT purposes. Regional initiatives, such as the European Union's MiCA (Markets in Crypto-Assets) regulation, further set a global standard for comprehensive crypto asset regulation.

Georgia's Proactive Stance: New VASP Regulations from the National Bank of Georgia

Georgia has taken a significant step in establishing a comprehensive and modern regulatory framework for VASPs, primarily driven by the National Bank of Georgia (NBG). This proactive approach underscores Georgia's commitment to fostering a secure and compliant digital asset ecosystem, while also aligning with international standards.

The new regulations, largely rooted in the Law of Georgia on Facilitating the Suppression of Money Laundering and Terrorism Financing and specific NBG resolutions, mandate a clear pathway for VASPs operating within or from Georgia. Key aspects of the Georgian VASP regulatory framework include:

• Licensing and Registration: All VASPs must obtain a license from the NBG to legally operate. This involves a rigorous application process, demonstrating financial soundness, robust AML-CFT governance, and a clear business model.

• AML/CFT Obligations: At the core of the regulations are stringent Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) requirements. VASPs must implement robust customer due diligence (CDD) procedures, monitor transactions for suspicious activity, and report to relevant authorities. This includes adherence to the "Travel Rule" from the end of 2027, ensuring originator and beneficiary information accompanies virtual asset transfers.

• Governance and Risk Management: VASPs are required to establish sound governance structures, internal controls, and comprehensive risk management frameworks to address operational, technological, and financial risks.

• Capital Requirements: There are no capital requirements, but the information about the financing and source of funds are mandatory at the application stage. 

• Consumer Protection: There are no consumer protection requirements, market regulates itself.  

• Reporting and Oversight: Licensed VASPs are subject to ongoing AML-CFT supervisory oversight by the National Bank of Georgia, including quarterly reporting obligations and potential on-site inspections.

This framework aims to integrate the virtual asset sector into the broader financial system while mitigating associated AML-CFT risks. The NBG's deep understanding of the intricacies of these emerging technologies, driven in part by insights from international engagements, has been crucial in developing this forward-looking regulation.

What This Means for VASPs in Georgia. For existing VASPs, these regulations mean a period of adaptation to ensure full compliance. For new entrants, it provides a clear, regulated path to market, offering legal certainty and enhancing credibility for both businesses and their customers. Ultimately, a well-regulated VASP sector fosters greater trust, encourages legitimate innovation, and attracts responsible investment into Georgia's digital economy.

Clarsen's Expertise in VASP Compliance

At Clarsen, we recognize the complexities and opportunities presented by Georgia's new VASP regulations. Our team, with its unparalleled insight into both local regulatory nuances and the "source code" of international standard-setting bodies (including direct involvement in shaping Georgia's crypto framework), is uniquely positioned to guide you.

We provide expert advisory services for VASPs on:

• Licensing and authorization support: Navigating the complete NBG application process.

• Designing and implementing robust AML/CFT frameworks: Tailored for digital assets, including KYC protocols and preparation of compliance with Travel Rule requirements.

• Governance and operational readiness: Establishing resilient internal controls and risk management.

• Regulatory engagement: Strategic communication and ongoing liaison with the National Bank of Georgia.

• Continuous compliance: Staying ahead of evolving supervisory expectations and digital asset trends.

Clarsen as a strategic partner, brings competitive advantage on the regulated market, VASPs can ensure they not only meet regulatory expectations but also build a foundation for sustainable, compliant growth in Georgia's dynamic virtual asset market.