Consolidated Observations and Proposals on the Application of the Law “On Crypto Assets”

Dear Representatives of the Central Bank,

Given the strategic importance of the sector for the Republic of Armenia — in terms of technological innovation, attracting investment, and exporting services — we hereby present our observations and recommendations for refinement, aimed at ensuring the achievement of three key objectives: legal predictability, competitiveness, and consumer/state protection.

1) Centralization of Oversight

Issue. Under the draft, the Central Bank becomes the sole licensing and supervisory authority in the sector, whereas the crypto ecosystem also encompasses non-financial technological components (blockchain infrastructures, software services).

Why this is problematic. Excessively broad powers concentrated in a single authority increase the administrative burden, exacerbate transitional risks, and reduce flexibility in technologically innovative segments.

Proposal.
– Establish a decentralized model.
Central Bank — in cases where a crypto asset is effectively a security/financial instrument.
Specialized unit/commission (under the Ministry of Economy or the Ministry of High-Tech Industry) — licensing of technological/operational services unrelated to securities (e.g., platform operation).
– Introduce a permanent mechanism for issuing joint guidelines to ensure the market receives consistent and non-contradictory interpretations.

2) Legal Certainty and Boundaries of Delegation

Issue. A significant part of the key criteria is left to by-laws (capital requirements, information security, refusal/suspension/revocation).

Why this is problematic. Rules should be enshrined in the law itself, not in amendable regulations, otherwise the risk of arbitrariness and investment uncertainty increases.

Proposal.
– Enshrine directly in the law: minimum capital thresholds by type of service, objective “fit-and-proper” criteria for managers, clear grounds and procedures for refusal/suspension/revocation of licenses, and a supervisory response scale (supervisory ladder).
– Limit by-laws to methodologies and technical guidelines only.

3) Economic Normative (capital, liquidity, reserves)

Issue. Thresholds are absent or deferred to future acts, adding uncertainty.

Why this is a problem.
– Excessively high thresholds may monopolize the market.
– Excessively low thresholds may endanger customer interests.
– For small/start-up companies, the entry barrier becomes insurmountable.

Proposal.
– Establish proportionate thresholds by service type, e.g.:
• intermediaries — low,
• exchange platforms — medium,
• custodial services — high.
– Ensure thresholds safeguard client funds and interests.

4) “Fit-and-Proper” Criteria for Managers

Issue. Terms such as “negative reputation” or “unrealistic business plan” lack legal precision and may be applied subjectively.

Why this is problematic. The absence of measurable criteria leads to arbitrary interpretation, litigation, and investment risk.

Proposal.
– Enshrine measurable indicators in the law: criminal conviction, major disciplinary violations, undisclosed conflict of interest, culpable misconduct.
– Assess business plans using a clear methodology (stress test, risk matrix, profitability benchmarks).
– Establish a clear procedure and deadlines for appeals.

5) Law on Cashless Payments

Issue. Mandatory routing of all transactions through bank accounts/in cashless form contradicts the P2P nature of crypto, restricts tourists and the offline OTC segment, since banks often refuse to service such flows or impose high fees.

Why this is a problem.
– Costs increase and transfers slow down.
– The core value of crypto — speed and accessibility — diminishes.
– A “de facto” ban arises via refusal to open accounts or unjustified rejections by banks.

Proposal.
– Introduce threshold exemptions for P2P/cash operations with risk-based AML/KYC:
• ≤ USD 5,000 — simplified identification,
• USD 5,000–25,000 — full KYC, source of funds verification, mandatory reporting,
• > USD 25,000 — enhanced due diligence, Travel Rule (VASP↔VASP).
– Allow crypto-ATMs/OTC points with simplified licensing, separate reporting regime, and daily/monthly limits.
– Guarantee banking access: mandatory substantiated response to account opening/servicing requests within 15 business days; in case of refusal — written justification with clear legal references.
– Clarify terminology: apply “cashless” only to bank settlement transactions, regulate on-chain P2P transfers separately through AML/KYC threshold rules.
– Transparency: open APIs/reporting formats for P2P/OTC points, use of “white/black” lists, transaction log retention in line with personal data protection standards.

6) AML/CFT and Sanctions Compliance (brief)

Proposal.
– Tiered AML/KYC based on transaction size/frequency (simplified → standard → enhanced).
– Minimum blockchain analytics standard (risk scoring, sanctions screening), prompt alert review, log retention ≥ 5 years.
– Travel Rule (VASP↔VASP): standard data package, API connection, logging; for unhosted wallets — address ownership confirmation.
– White/black lists of trusted platforms and high-risk addresses, regular updates and automated checks.
– Reporting: prompt STR/SAR, monthly AML summary to regulator, annual independent audit.

7) Refusal, Suspension, and Revocation of Licenses

Issue. Formulations such as “in the reasoned opinion of the Central Bank…”, “material breach”, “proper service delivery” are vague and subjective.

Why this is a problem. Without measurable thresholds, they grant overly broad discretionary powers.

Proposal.
– Establish clear and measurable grounds:
• “material breach” = ≥ 2 identical violations within 12 months, or ≥ Y dram direct damage, or ≥ Z clients affected;
• “disruption of proper service delivery” = outage ≥ X hours with significant impact (e.g., ≥ 10% of clients).
– Before suspension — mandatory “hearing” (within 10 business days), remediation plan with specific steps and ≤ 60 days deadline.
– Transparency/appeal: mandatory publication of decisions with references to applied norms, expedited appeal (30 days administrative, 30 days judicial).

8) Transitional Provisions (sandbox)

Issue. The approach “one year to apply, but operations are prohibited” undermines market continuity.

Why this is a problem. Existing businesses face the risk of complete income loss due to closure or client outflow.

Proposal.
– Introduce a sandbox regime for up to 24 months (or until a final licensing decision, whichever is earlier) for companies operating legally before 2025.
– Within the sandbox, allow operations subject to periodic reporting, restrictions on high-risk services, and mandatory minimum AML/KYC package.
– Eligible participants — both legal entities and individual entrepreneurs (considering local challenges with bank account opening).

Conclusion

We support regulations that balance innovation and protection. The above refinements will reduce legal uncertainty, ensure a competitive environment, foster the growth of the legal market, and safeguard the interests of consumers and the state without excessive bureaucracy.

We stand ready to participate in working group sessions, provide technical/operational details, and share sandbox testing data.

Thank you for your attention.

Respectfully,
Armcoincrypto.am