The National Bank has effectively recognised the cryptocurrency market as part of Kyrgyzstan’s financial system

The National Bank of Kyrgyzstan is proposing, for the first time, to regulate in detail the activities of commercial banks involving virtual assets. The relevant draft resolution has been put out for public consultation and provides for the introduction of a comprehensive system for monitoring cryptocurrency transactions within the framework of legislation on combating money laundering and terrorist financing.

Until now, the National Bank’s requirements have contained only general financial monitoring standards. The new document sets out in detail, for the first time, the procedures for risk assessment, customer verification and the monitoring of transactions involving virtual assets. In effect, the regulator is proceeding on the basis that the cryptocurrency market has already become part of the country’s financial ecosystem and requires separate regulation.

According to the draft, banks will be required to adopt a risk-based approach when dealing with clients involved in virtual assets, as well as to collect and verify information on the senders and recipients of crypto-assets. Particular attention is paid to the origin of virtual assets and the sources of clients’ funds.

The National Bank also proposes allowing banks to use blockchain analytics tools to track transaction chains, identify links to sanctioned wallets and analyse the origin of crypto-assets. In the absence of sufficient information on the origin of funds or where there are signs of increased risk, banks will be able to refuse to carry out transactions.

A separate set of requirements is dedicated to transactions that the regulator considers potentially risky. These include transfers via unregulated virtual asset service providers, the use of anonymous wallets, services designed to conceal the origin of funds, and P2P transactions without the involvement of licensed intermediaries.

In addition, banks will be required to develop internal procedures for dealing with cryptocurrency clients, establish a risk assessment framework, set up mechanisms for monitoring transactions, and retain information on virtual asset transfers.

In its explanatory note, the National Bank notes that the need for these changes stems from the growing number of clients whose activities involve virtual assets, as well as the development of digital financial technologies. The draft has been developed in line with the recommendations of the Financial Action Task Force (FATF).