A new bill on virtual assets

On December 2, the Ukrainian parliament has passed in a first reading a bill on virtual assets that shall provide legal status for virtual assets, put virtual assets into civil circulation and establish grounds for the acquisition of property rights to virtual assets.

Passing a bill in the first reading by Ukrainian legislators has surprisingly coincided with the unseen before record on the Bitcoin price. Who would think…

After the bill is passed, the jurisdiction of Ukraine shall earn a spot in the club which is being jointly shared with Canada, Norway etc., where cryptocurrency is legislatively defined as an asset.

Therefore, we shall consider briefly the main provisions of the bill, which will be undoubtedly modified before the final reading but not to the extent that could possibly change the whole concept of the bill.

First of all, the bill gives a definition for a virtual asset, digital wallet, virtual asset service provider (VASP), secured and unsecured virtual asset. Let’s consider a bit in detail what stands for a secured virtual asset.

A secured virtual asset stands for a virtual asset that provides its owner with a right of claim regarding the assets being used for the securitization of the virtual asset.

The security for a virtual asset will be determined by the transaction under which the virtual asset is created, and the right of claim to the relevant asset will be transferred to the acquirer of such virtual asset.

Regarding the titles, the bill provides that the property rights to the virtual asset can occur due to the creation of the virtual asset, by virtue of the provision of law, court ruling or under the transaction with the virtual asset.

The bill also provides the participants of the virtual asset market with the right to use a bank account for the transaction with the virtual asset; use court protection in case of violations committed by the other market participants; right for data protection; right to exchange the virtual assets; right to transfer them etc.

A state policy regarding the virtual asset turnover will be performed the Ministry of Digital Transformation of Ukraine (the “Ministry”).

Worth to say that Ministry of Digital Transformation will also regulate the activity of virtual asset service providers after they successfully pass the registration with the Ministry.

The whole procedure for registration will be drafted and approved by the Ministry in a separate regulation. But according to the bill, a potential VASP will have to disclose its corporate structure allowing to identify its beneficiaries and to have right directors “on board” with the credible reputation in the eye of AML legislation of Ukraine.

The Ministry will also be maintaining a registrar for VASP and will be entitled to apply financial sanctions to those in breach of the law for the virtual asset turnover.

In general, a bill is supposed to be applied to cases when a virtual asset service provider is either registered in Ukraine/has a permanent representation in Ukraine or a person carrying a transaction with a virtual asset will at her own discretion define that a transaction shall be regulated under Ukrainian law.

In the end, we would like to notice that the current reading of the bill does not cover the issue of taxation for the transactions with virtual assets nor it provides an option to use the virtual asset as a payment instrument.

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