Article

Ukraine challenges regulatory hurdles as blockchain industry advances

by the Crystal marketing team

January 14, 2021

Crystal Blockchain spoke with the deputy minister of the Ukrainian Ministry for Digital Transformation, Alex Bornyakov, about blockchain tech and regulatory developments happening in Ukraine, and how its partnership with Crystal advances that purpose.

The need to legalize the Ukrainian virtual asset market

Despite consistently high levels of IT expertise, as well as increasing interest and active usage of cryptocurrencies in Ukraine, the country still has not legalized the virtual asset market. In 2019, the Ministry of Digital Transformation was created with the purpose of shaping a virtual assets policy to enable the standardization of cryptocurrency regulations and procedures, and to create a legal space for Ukrainian and international VASPs to officially register their businesses.

Right now, in Ukraine, there are over 60 projects dealing with cryptocurrencies. Ukraine ranks fifth among software developers in the world. Ukraine’s potential as one of the leading countries in the field of virtual assets is huge. It is reported to be number one in the world on the index of cryptocurrency use per capita. With the interest and know-how there, the country is ripe for blockchain development and crypto adoption.

Full regulatory frameworks required to enable legalization

An effective crypto market is only possible, however, with the cooperation of a country’s regulators, and experts are needed to develop and establish a basic industry law that can be easily adopted by the market. In 2019, the Ministry of Digital Transformation, along with the Inter-Factional Union of People’s Deputies “Blockchain4Ukraine”, initiated the writing of such a legal document, to get the ball rolling on the legalization of a fully functional virtual asset market.

The expert team responsible for the creation of this document consisted of crypto market players, top lawyers, auditors, financiers, scientists, as well as a working group responsible for connecting with representatives of other ministries and government authorities in Ukraine. The bill, “On Virtual Assets”, was submitted to the parliament in June 2020, and has since received feedback from local market players and government agencies to finalize the framework.

AML financial monitoring to promote a safe crypto space

The next task is to introduce financial monitoring procedures to combat money laundering in the virtual assets market (along with a taxation framework.) Financial monitoring is a very important issue in the context of Ukraine. Due to political and economic instability over a number of years, Ukraine has a historically high level of corruption in its traditional financial systems. This is something that the Ukrainian government is working hard to eliminate.

The virtual asset market may offer an opportunity for Ukraine to eliminate corruption in its financial and economic systems, as blockchain transactions promote transparency, but only with the necessary procedures in place to monitor virtual asset transactions. These various legal frameworks will all work in tandem to establish a fully functioning and well-regulated market where VASPs can confidently and safely do business and manage their exposure to risk.

Industry experts working together with governmental agencies

The Ministry notes that the virtual asset market, and the development of regulatory frameworks around that market, require both deep technological understanding and blockchain industry expertise. For this reason, the Ministry has chosen to work with, amongst other experts, Crystal Blockchain in order to develop its AML and CFT financial monitoring systems for virtual assets.

Through this partnership, members of the Ministry for Digital Transformation will receive ongoing specialist training from the Crystal Blockchain team in order to understand and utilize best practices for transaction monitoring to combat money-laundering involving cryptocurrencies. Financial monitoring enables transaction verification and is a crucial component in creating a regulatory framework for the Ukrainian virtual asset market.

Implementation of crypto AML policies to combat financial corruption

Policies for AML and CFT, when effectively implemented, mitigate the adverse effects of criminal economic activity and promote integrity and stability in financial markets. Through this work to develop regulatory frameworks, along with expert training in monitoring illicit activities, the ministry can encourage a safe space for the industry to develop, and enable Ukraine to be an innovative environment for local and international crypto players to develop their business.

“I deeply believe that effective regulation will benefit the crypto industry in Ukraine in the long run. Financial monitoring procedures are a key element of clear and actionable regulatory guidance in order to increase market transparency and truly achieve mass adoption. Crypto companies, as well as financial institutions, seek a legally protected environment to conduct business.
The Ministry of Digital Transformation of Ukraine, in close cooperation with Crystal Blockchain, is working on building a legal framework that will offer new standards and economic opportunities for all players in the Ukrainian crypto jurisdiction, as well as create a transparent and stable regulatory environment for the world’s leading blockchain companies.”

— Alex Bornyakov, Deputy Minister for Digital Transformation, Ukraine

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