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Mongolia

Retail_Trading_Status

Allowed-Regulated Unknown
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Analysis ID
#115
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Archived
Created
2025-04-12 06:46
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Live

Executive Summary

Retail cryptocurrency trading is legal and regulated in Mongolia under the Law on Virtual Asset Service Providers (VASP Law) enacted in December 2021, with the Financial Regulatory Commission (FRC) as the primary regulator. VASPs must register with the FRC and adhere to AML/KYC requirements. Cryptocurrencies are not legal tender according to the Bank of Mongolia, but regulated trading is permitted, aiming for greater transparency and risk mitigation.

Key Pillars

  • Primary Regulator: The Financial Regulatory Commission (FRC) is the primary regulatory body responsible for overseeing VASPs.
  • Core Compliance Requirements: Registered VASPs are subject to Mongolia's Law on Anti-money Laundering and Combatting the Financing of Terrorism, mandating KYC/CDD procedures, transaction monitoring, risk assessment, and reporting of suspicious activities.
  • Licensing/Registration: Any entity wishing to provide virtual asset services must register with the FRC and obtain the necessary authorization or license.

Landmark Laws

  • Law on Virtual Asset Service Providers (VASP Law): Enacted in December 2021, came into force on March 1, 2022. Mandates registration, regulation, and supervision of entities providing virtual asset services within Mongolia.
  • Law on Anti-money Laundering and Combatting the Financing of Terrorism: Requires registered VASPs to implement robust KYC/CDD procedures, transaction monitoring, risk assessment, and reporting of suspicious activities.

Considerations

  • Cryptoassets are deemed 'virtual assets' but are not legal tender in Mongolia.
  • The Bank of Mongolia has consistently warned about the high volatility and risks associated with crypto investments.
  • VASPs must disclose risks comprehensively to investors as part of investor protection measures.

Notes

  • Prior to late 2021, the environment was largely unregulated.
  • The Bank of Mongolia has consistently stated that cryptocurrencies are not legal tender (statement as early as January 4, 2018).
  • The Law on Virtual Asset Service Providers (VASP Law) brought cryptocurrency under the regulatory authority of the Financial Regulatory Commission (FRC) from December 2021.

Detailed Explanation

Retail trading of cryptocurrencies, termed 'virtual assets' under Mongolian law, is permitted for individual citizens and residents in Mongolia, operating within a regulated framework established following a period of unregulated activity that prompted warnings from authorities concerning potential risks. The primary legislation is the Law on Virtual Asset Service Providers (VASP Law), enacted by the State Ikh Khural (Parliament of Mongolia) in December 2021 and effective from March 1, 2022. This law mandates the registration, regulation, and supervision of entities providing virtual asset services within Mongolia, intending to mitigate risks such as money laundering and terrorist financing (AML/CFT). According to the law, a 'virtual asset' is defined as an intangible digital representation of value that can be digitally traded or transferred and used for payment or investment, excluding digital representations of fiat currencies, securities, and electronic money licensed by the Bank of Mongolia. The Financial Regulatory Commission (FRC) is designated as the primary regulatory body overseeing VASPs, and any entity providing virtual asset services must register with the FRC and obtain the necessary authorization or license; operating without registration is prohibited. Registered VASPs are subject to Mongolia's Law on Anti-money Laundering and Combatting the Financing of Terrorism, necessitating the implementation of Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures, transaction monitoring, risk assessment, and suspicious activity reporting, aligning with international standards set by the Financial Action Task Force (FATF). While the VASP law focuses on providers, it aims to protect consumers by bringing the industry under regulatory oversight, requiring VASPs to inform customers about the potential risks of virtual asset trading. The Bank of Mongolia (Mongol Bank) maintains that cryptocurrencies are not legal tender and cannot be considered official money or a means of payment under laws like the Law on National Payment System and has warned about the high volatility and risks associated with crypto investments. The central bank's stance, evidenced by statements dating back to January 2018, clarifies that while trading is permitted through FRC-regulated channels, cryptocurrencies lack legal tender status. Overall, Mongolians can legally engage in cryptocurrency activities through platforms registered with the FRC that adhere to AML/KYC requirements, marking a shift from an unregulated state to a regulated one aimed at transparency and risk mitigation.

Summary Points

Here's a bullet-point summary of the report on Retail Cryptocurrency Trading in Mongolia, designed for clarity and quick understanding:

Retail Cryptocurrency Trading in Mongolia: Regulatory Status

  • Overall Status: Allowed - Regulated

I. Key Regulatory Bodies and Their Roles

  • Financial Regulatory Commission (FRC):
    • Primary regulatory body overseeing Virtual Asset Service Providers (VASPs).
    • Responsible for registration, authorization, and supervision of VASPs.
  • Bank of Mongolia (Mongol Bank):
    • Central bank of Mongolia.
    • Position: Cryptocurrencies are not legal tender.
    • Issues warnings about the risks and volatility of crypto investments.
    • Does not ban trading through regulated channels.

II. Important Legislation and Regulations

  • Law on Virtual Asset Service Providers (VASP Law):
    • Enacted December 2021 by the State Ikh Khural (Parliament).
    • Came into force on March 1, 2022.
    • Purpose: To register, regulate, and supervise entities providing virtual asset services.
  • Law on Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT Law):
    • VASPs are subject to this law.
    • Mandates KYC/CDD procedures, transaction monitoring, risk assessment, and reporting of suspicious activities.

III. Requirements for Compliance

  • Registration with FRC:
    • Any entity providing virtual asset services (exchanges, trading platforms, custody) must register with the FRC.
    • Operating without registration is prohibited.
  • AML/KYC Compliance:
    • VASPs must implement robust Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures.
    • Transaction monitoring and reporting of suspicious activities are required.
  • Investor Protection:
    • VASPs must inform customers about the potential risks associated with virtual asset trading.
    • Disclosure of risks comprehensively.

IV. Notable Restrictions or Limitations

  • Cryptocurrencies are Not Legal Tender:
    • The Bank of Mongolia does not recognize cryptocurrencies as legal tender.
    • They cannot be considered official money or a means of payment under existing laws.
  • Trading Only Through Registered VASPs:
    • Individuals are expected to buy, sell, and hold cryptocurrencies through FRC-registered platforms.

V. Recent Developments or Changes

  • Shift from Unregulated to Regulated Market (2021-2022):
    • Prior to the VASP Law, the environment was largely unregulated.
    • The VASP Law established a regulated framework for virtual asset services.
  • Emphasis on Investor Protection (2024):
    • The VPSP law emphasizes investor protection, ensuring crypto platforms disclose risks comprehensively.

Full Analysis Report

Okay, here is the detailed report on the current status of Retail Cryptocurrency Trading in Mongolia, structured as requested.Report on the Current Status of Retail Cryptocurrency Trading in Mongolia

Topic: Retail_Trading_Status

1. Current Status: Allowed-Regulated

2. Detailed Narrative Explanation:

Retail trading of cryptocurrencies (referred to as 'virtual assets' in Mongolian law) is legally permitted for individual citizens and residents in Mongolia, but it operates within a regulated framework established relatively recently. Prior to late 2021, the environment was largely unregulated, leading to warnings from authorities about potential risks. However, recognizing the growing interest and the need to mitigate risks like money laundering and terrorist financing (AML/CFT), Mongolia moved to formalize the sector.

The key legislative development was the enactment of the Law on Virtual Asset Service Providers (VASP Law) by the State Ikh Khural (Parliament of Mongolia) in December 2021. This law officially came into force on March 1, 2022. The primary purpose of this law is not to ban crypto activities but to register, regulate, and supervise entities providing virtual asset services within Mongolia.

Under this law:
* Definition: A "virtual asset" is defined as an intangible digital representation of value that can be digitally traded or transferred and used for payment or investment purposes. This definition explicitly excludes digital representations of fiat currencies, securities, and electronic money licensed by the Bank of Mongolia.
* Regulatory Authority: The Financial Regulatory Commission (FRC) of Mongolia is designated as the primary regulatory body responsible for overseeing VASPs.
* Registration Requirement: Any entity wishing to provide virtual asset services (including operating exchanges, facilitating trading, transfers, custody, etc.) must register with the FRC and obtain the necessary authorization or license. Operating without registration is prohibited.
* AML/CFT Obligations: Registered VASPs are subject to Mongolia's Law on Anti-money Laundering and Combatting the Financing of Terrorism. This mandates the implementation of robust Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures, transaction monitoring, risk assessment, and reporting of suspicious activities. These requirements align with international standards, particularly those set by the Financial Action Task Force (FATF), which Mongolia aimed to meet partly through this legislation.
* Investor Protection: While the VASP law primarily focuses on registering and monitoring providers, it also implicitly aims to protect consumers by bringing the industry under regulatory oversight. VASPs are required to inform customers about the potential risks associated with virtual asset trading.

Position of the Bank of Mongolia (Mongol Bank): The central bank has consistently stated that cryptocurrencies are not legal tender in Mongolia and cannot be considered official money or a means of payment under existing laws like the Law on National Payment System. It has issued warnings about the high volatility and risks associated with crypto investments, advising citizens to exercise extreme caution. However, these warnings and the clarification on legal tender status do not constitute a ban on trading itself, which is now permitted through FRC-regulated channels.

In summary, individual Mongolians can legally buy, sell, and hold cryptocurrencies. However, they are expected to do so through platforms (VASPs) that are registered with the FRC and comply with national regulations, including AML/KYC requirements. The market has shifted from an unregulated state to a regulated one, aiming for greater transparency and risk mitigation.

3. Specific Relevant Text Excerpts:

  • Source: Mongolian Law Blog (LehmanLaw Mongolia) - January 6, 2023

    • Excerpt: "In Mongolia, cryptocurrency trading and exchanges are legal, and the country implemented the Law of Mongolia on Virtual Property Service Providers (VPSP law) which came into force on December 17, 2021... The main objective of the VPSP law is to register cryptocurrency exchanging and trading providers, monitor their activities, and determine their legal rights and obligations. The VPSP law brought cryptocurrency under the regulatory authority of the Financial Regulatory Commission from December 2021, and imposed a requirement from cryptocurrency service provider companies to register and obtain a special license."

  • Source: Elliptic - Mongolia Country Guide - November 23, 2022

    • Excerpt: "Legal status. Legal: Regulated... the Parliament of Mongolia – the State Ikh Khural – adopted the Law on Virtual Asset Service Provider[s] in December 2021. The purpose of this law is to regulate the registration of legal entities that provide virtual asset services, monitor their activities, and determine their relevant rights and obligations... Cryptoassets are not legal tender in Mongolia. They are deemed to be virtual assets, and the provision of virtual asset services is regulated under the Law on Virtual Asset Service Provider[s]. The Financial Regulatory Commission (FRC) registers only exchanges or platforms..."

  • Source: Law on Virtual Asset Service Provider (Official Text Summary/Translation) - December 17, 2021

    • Excerpt: "4.1.1 'virtual asset' means an intangible digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. This does not include digital representations of fiat currencies, securities, and electronic money licensed by the Bank of Mongolia... 7.6 A national or legal person who is not registered in accordance with the law shall be prohibited from providing virtual asset services."

  • Source: Montsame News Agency (Reporting on FRC) - March 7, 2022

    • Excerpt: "The Law on Virtual Asset Service Provider and accompanying laws... entered into force from March 1, 2022... Accordingly, legal entities shall not provide virtual asset services without registering with the Financial Regulatory Commission of Mongolia."

  • Source: Mongolian Law Blog (LehmanLaw Mongolia) - August 29, 2024 (Update)

    • Excerpt: "Under the law, crypto service providers must register with the Financial Regulatory Commission (FRC) and adhere to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) policies. The VPSP law also emphasizes investor protection, ensuring crypto platforms disclose risks comprehensively."

  • Source: Montsame News Agency (Reporting Bank of Mongolia Statement) - January 4, 2018 (Historical Context/Stance on Legal Tender)

    • Excerpt: "First and foremost, Mongolbank does not recognize any kind of cryptocurrency as money. Cryptocurrency can not be considered a legal means of payment... Based on the research, we warn against the purchase of blockchain-based currencies as a form of investment." (Note: This predates the VASP law but establishes the central bank's consistent view on legal tender status and risk).

4. Direct URL Links to Sources:

This report reflects the regulatory landscape as established by the 2021 VASP law, which remains the primary framework governing retail crypto trading in Mongolia.

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