The Legal Status of Virtual Assets
The legal framework for blockchain-based activity in Georgia is defined at the state level, and at its centre stands the concept of the virtual asset. Under the Organic Law of Georgia on the National Bank, a virtual asset is not a lawful means of payment. The same law prohibits making payments with a virtual asset, except in those cases determined by a legal act of the National Bank of Georgia which are necessary for the provision of virtual asset services. This means that the use of cryptocurrency in everyday payments is restricted as a general rule and is allowed only within supervised services. At the same time, the law treats virtual asset services as a distinct type of financial activity, so a person operating in this field is guided by a special legal regime rather than by general commercial rules. Such an approach allows the state to bring the development of new technologies into harmony with financial stability and the protection of consumers.
The Supervisory Powers of the National Bank
Supervision over providers of virtual asset services is exercised by the National Bank of Georgia. Supervision covers the registration and deregistration of a provider, its inspection and regulation, the issuance of written instructions, and the imposition of additional requirements, restrictions and sanctions. The National Bank is entitled to request and receive information about the sources of the origin of the provider's capital, as well as about the direct owners and beneficial owners of its significant share; to inspect, on site or remotely, its compliance with legislation or with the Bank's own requirements; to conduct an audit and receive any information, including confidential information. In addition, the National Bank may set standards for the storage of virtual assets and for the management of risks, including operational and cyber-security risks, and require a general risk management framework and effective internal control.
The Registration Obligation and the Boundaries of Activity
A provider of virtual asset services is obliged to register with the National Bank and to satisfy its requirements; the rules of registration, deregistration and regulation are established by a normative act of the National Bank. It is inadmissible to provide virtual asset services by a person that is not a provider registered with the National Bank or a representative of the financial sector endowed with the corresponding authority. A provider is prohibited from carrying out any activity other than the provision of virtual asset services, auxiliary activity necessary for that service, and the exchange of its own virtual asset. In case of violation, the National Bank imposes a sanction, including a monetary fine, on the provider and its administrator, and the amount of the fine is directed to the state budget. The National Bank also defines suitability criteria for the provider's administrator, the supervisory capital and the method of its calculation, as well as the liquidation procedure of the provider.
Measures of Influence in Case of Risks
Regulation is not merely a set of administrative procedures: where risks emerge, the National Bank may react operationally. It may suspend or limit the carrying out of particular activities or operations by a provider of virtual asset services or by a corresponding representative of the financial sector, including by types of virtual asset, as well as business relations with other providers, where this creates increased risks connected with money laundering and the financing of terrorism, the risk of evasion of international financial sanctions, hinders the traceability of transactions or supervision. The National Bank also determines the accompanying information that must accompany a transfer of a virtual asset, which creates the basis for the transparency of transactions. For the protection of consumers' rights the National Bank also issues corresponding legal acts.
Frequently Asked Questions
Is cryptocurrency a lawful means of payment?
No. A virtual asset is not a lawful means of payment, and making payments with a virtual asset is prohibited, except in the cases determined by a legal act of the National Bank which are necessary for the provision of this service.
Who regulates virtual asset services?
Supervision is exercised by the National Bank of Georgia: it registers providers, inspects them, issues written instructions and, in case of violation, imposes restrictions and sanctions, including monetary fines.
May an unregistered person provide these services?
No. Providing virtual asset services is inadmissible by a person that is not a provider registered with the National Bank or a representative of the financial sector with the corresponding authority.
What activities may providers carry out?
A provider is prohibited from carrying out any activity other than the provision of virtual asset services, auxiliary activity necessary for that service, and the exchange of its own virtual asset.
How We Help on Legal.ge
The team of Legal.ge will help you navigate the legal framework of blockchain: we assess the compliance of your project with the current requirements, plan the registration process with the National Bank, prepare internal control and risk management documentation, and represent your interests in relations with the supervisory authority. Contact us — a sound legal basis is the precondition for the success of a technological project.