Since the war in the East began, Georgia has faced difficult economic conditions. Ukraine and Russia were two of the country’s largest trading partners, and the conflict has disrupted those ties. In an interview with Finchannel, Koba Gvenetadze, Governor of the National Bank of Georgia (NBG), said the bank plans to establish a regulatory framework for cryptocurrencies.
Cryptocurrency trading in Georgia
It is not yet clear how many people will be affected by the proposed measures. According to Gvenetadze, precise figures on crypto activity in Georgia are not currently available.
“However, the 5th Mutual Evaluation Report on Georgia, published in September 2020, estimated that foreign exchange transaction volumes could range from GEL 3.5 million to GEL 5 million per month (approximately €1 million to €1.5 million),” he noted, describing that as the most reliable existing estimate.
The exact shape of any new regulation remains unknown, especially pending further involvement from international organizations such as the Financial Action Task Force (FATF) and the International Monetary Fund (IMF).
Crypto traders labeled high-risk
Gvenetadze said the NBG has already taken measures toward managing crypto-related risks, viewing cryptocurrencies as a significant threat to the financial system. The bank has banned Georgian financial institutions from offering crypto services directly.
In addition, the NBG has required that individuals or entities engaged in crypto transactions be treated as high-risk clients by financial institutions. Those clients must therefore be subject to “enhanced and proportionate” preventive measures. For many Georgian investors, this designation is likely to make access to traditional banking services more difficult.
Support from anti-money-laundering bodies
When asked whether the country intends to regulate the crypto market, Gvenetadze answered simply: yes. While regulation can help legitimize an industry, it also imposes rules and controls that market participants must follow.
To design these rules, he said the government will rely on the assistance of international organizations. The proposed amendments to crypto legislation are being drafted in line with FATF recommendations. The FATF is the global organization that sets policies to combat money laundering and terrorist financing.
Gvenetadze commented, “It should be noted that prior to the introduction of the proposed regulations, the NBG has already implemented several measures. In particular, financial institutions are prohibited from providing virtual services for the exchange and transfer of assets. Additionally, those engaged in virtual asset-related activities should be classified by financial institutions as high-risk customers and be subject to appropriate and enhanced preventive measures.”
IMF involvement in shaping rules
In addition to FATF guidance, the IMF will also assist Georgia in developing its regulatory framework. The IMF has historically advised some countries against adopting certain crypto policies, and its involvement may indicate stricter controls for crypto investors.
Currently, IMF support focuses on designing legal amendments that include registration and licensing requirements, compliance testing to ensure systems work as intended, and anti-money-laundering (AML) rules for market participants.
It will take time to clarify and implement regulations that are not yet in force. Nevertheless, Georgia’s banking authorities appear determined to maintain strict oversight of crypto-related activity within the country.
Countries in the Caucasus region are among the few seeking to regulate the crypto sector without driving businesses away. For example, in 2019 several former Soviet states enacted laws that removed VAT on certain crypto-related services as part of broader efforts to support the industry while introducing controls.