LAW OF MONGOLIA

December 17, 2021 Ulaanbaatar city

(2022.08.15-ны өдрийн орчуулга)                                                    Unofficial translation

ON VIRTUAL ASSET SERVICE PROVIDER

CHAPTER ONE

GENERAL PROVISIONS

Article 1. Purpose of this Law

1.1. The purpose of this Law is to regulate relations in regards with registering virtual asset service provider legal entities, supervising their operations, and defining their legal rights and obligations.

Article 2. Legislation on Virtual asset service provider

2.1. The legislation on Virtual asset service provider shall consist of the Constitution of Mongolia, Law on the Legal Status of the Financial Regulatory Commission, Civil Code, Law on Anti-money Laundering and Combatting the Financing of Terrorism, Law on Combating Weapons of Mass Destruction and Terrorism, Law on National Payment Systems, Law on Conducting Settlements in National Currency, this law and other legislative acts issued in conformity with these laws.

2.2. If an international treaty to which Mongolia is a party states otherwise than what is provided in this law, the provisions of the international treaty shall prevail.

Article 3. Scope of the law

3.1. This law applies to the relations in respect to providing a virtual asset services specified in this law in Mongolia and/or from Mongolia to foreign countries by a company registered in Mongolia.

3.2. This law does not apply to the relations in respect to the disputes arising from agreements and transactions concluded between the virtual asset service provider and its customers.

Article 4. Definitions

4.1. The terms used in this law shall be understood as the follows:

4.1.1."virtual asset" means an intangible asset with digital representation of value that can be used for the purpose of payment or investment able to be digitally transferred or traded other than digital form of official currency or securities of any country, or electronic money licensed by the Bank of Mongolia;

4.1.2."virtual asset service provider" means a company engaged in activities specified in the Article 6.1 of this Law;

4.1.3."customer" means a person who receives services from a virtual asset service provider;

4.1.4."relevant person" means a beneficial owner of the virtual asset service provider, or individual, legal entity, and group of legal entities that holds five or more percent of the shares of a legal entity.

4.1.5."beneficial owner" means a person defined as pursuant to the Article 3.1.6 of Law on Anti-money Laundering and combatting the Financing of Terrorism.

Article 5. Principles to be governed in the virtual asset service

5.1. The following principles shall apply in the virtual asset service:

5.1.1. to cherish rule of law and business ethics;

5.1.2. to establish a proper governance system, and to conduct management and organization effectively;

5.1.3. to identify the risks of own operations and customers, and able to be implemented appropriate risk management;

5.1.4. to comply with the requirements specified in the law.

CHAPTER TWO

 VIRTUAL ASSET SERVICE

Article 6. Virtual asset service

6.1. The following activities shall belong to virtual asset services to be provided by an individual and/or legal entities on behalf of the participant of the contract and transaction or at their request or for the designation for them:

6.1.1. exchange between virtual assets and official currencies;

6.1.2. exchange between one and/or more varieties of virtual assets;

6.1.3. transfer of virtual assets;

6.1.4. safekeeping and managing of virtual assets or their related instruments;

6.1.5. organizing operations in connection with public offering and selling of virtual assets, participating in financial activities, and providing services.

6.2. It is prohibited to offer or trade virtual assets to the public without transferring them through  a company registered as a service provider specified in the Article 6.1.5 of this law.

Explanation: According to the Article 6.1.3 of this Law, "Transferring virtual assets" shall refer to the transferring operation of virtual assets between virtual asset accounts (addresses) on behalf of others.

Article 7. Requirements for virtual asset service provider

7.1. An applicant for registration as virtual asset service provider shall comply with the following requirements:

7.1.1. the services to be provided by the company shall be included in the virtual asset services specified in the Article 6.1 of this law;

7.1.2. the continuous and reliable operations, confidentiality and security of the information and technology infrastructure to be used for virtual asset services must be ensured;

7.1.3. information of the applicant and other related person associated with the activities stated in the request shall be clear;

7.1.4. to have a four-year business plan for the activity, an operational structure and organization, and specialized human resources to conduct the business operations;

7.1.5. to have an internal controlling and data storage systems;

7.1.6. to have an automatic controlling system and system for implementing requirements set forth in the Law on Anti-money Laundering and Combatting the Financing of Terrorism and the Law on Combating Terrorism and Proliferation of Weapons of Mass Destruction;

7.1.7. the origin of the own capital equity and shared capital should be legal;

7.1.8. risk assessments of the money laundering and financing terrorism related to such products, services and technologies must be conducted;

7.1.9. to have an action plan to be undertaken to manage and reduce the risk of the money laundering and financing of terrorism;

7.1.10. to have an action plan to be taken in case of a decision to terminate or liquidate its activities have been issued;

7.1.11. to be registered as a taxpayer with the General Department of Taxation and have a taxpayer number;

7.1.12. reference from the General Department of Taxation confirming that it has no overdue tax debt;

7.1.13. to use equipment that meets the standards specified in Article 28.2 of the

General Law on Taxation;

7.1.14. to pay the state Stamp duty and regulatory service fees set by the Financial Regulatory Commission (hereinafter referred to as "the Commission");

7.1.15. to meet the requirements specified in the Article 7.2 of this Law;

7.1.16. If the Commission deems it necessary, to be conducted activities and successfully existing in the Sandbox in accordance with the procedure set forth in the Article 6.1.12 of the Law on the Legal Status of the Financial Regulatory Commission;

7.1.17. others specified in the law.

7.2. The executive management of virtual asset service provider and its competent officials specified in the Article 84.1 of the Law on Company should meet the requirements below:

7.2.1. to have no overdue debt under a loan, guaranty, and/or guarantee agreement;

7.2.2. to not have been found guilty of committing money laundering crimes and other crimes investigated in connection with money laundering, the financing of terrorism, and the proliferation and financing weapons of mass destruction;

7.2.3. his/her ethical and business reputation shall not be adversely affected in conducting of such business;

7.2.4. to be specialized in one or more areas of finance, economics, law, information technology, and corporate governance;

7.2.5. others specified in the law.

7.3. The Virtual asset service provider shall have its own capital equity and the amount of own capital equity shall be determined by the Commission.

7.4. The own capital equity specified in the Article 7.3 of this Law, shall not include assets registered in abroad.

7.5. The relevant person shall meet the requirements set forth in the Articles 7.2.1, 7.2.2, 7.2.3 and 7.2.5 of this Law.

7.6. It is prohibited to provide virtual asset services by a person who is not registered in accordance with this Law.

7.7. The virtual asset service provider is prohibited from engaging in activities other than those specified in the Article 6.1 of this Law.

Article 8. Obligations of virtual asset service providers

8.1. The virtual asset service providers shall have the following obligations:

8.1.1. to work by fully meeting the requirements set forth in this Law, and additional requirements set by the Commission, prior to starting their operations and while providing their services;

8.1.2. to properly protect interests of customers, and communicate with the customer fairly, clearly, and without creating a confusion;

8.1.3. to notify the customer information in respect to the risks specified in Articles 9.1.8, 9.1.9, 9.1.10, 9.1.11, 9.1.12 and 9.1.13 of this Law, before entering into the contract with the customer;

8.1.4. to continuously provide with conditions and opportunities for its customers to transact, transfer, exchange, keep, and manage the virtual assets and monetary assets related to such services;

8.1.5. to be liable for damages caused by non-fulfillment of obligations specified in the Article 8.1.4 of this Law;

8.1.6. to work  by replacing  the monetary and virtual assets account /address/ of the customer separate from the account of the virtual assets of service provider;

8.1.7. to have notify the business plan specified in the Article 7.1.4 of this Law to the Commission in the case of any changes be made;

8.1.8. If a person specified in the Articles 4.1.4 and 7.2 of this Law will be changed, the virtual asset service provider shall make a formal request in advance and get approval as stated in the procedure approved by the Commission;

8.1.9. If operation of the virtual asset service provider is suspended or deregistered by the Commission, it shall be notified immediately to its customers.

8.2. The virtual asset service provider, and its person and officials specified in Articles 4.1.4 and 7.2 of this Law shall provide complete and accurate documents and information without any hindrance as demanded by the Commission and its supervisors within the scope of their powers granted by law, and shall provide with conditions to conduct the supervising activities independently and promptly.

8.3. If there are not available any documents, information and data which were requested by the Commission and its supervisors within the scope of their powers granted by law, a person described in the Article 7.2 of this Law shall be obliged to provide an explanation regarding this by official letter.

8.4. Only customers or authorized representative under the power of attorney issued by the costumer shall have a right to dispose the customer's monetary asset and/or its assets in the accounts /address/ of virtual assets.

8.5. Virtual asset service provider shall be prohibited from disposing the customer's monetary asset and/or costumer's assets in the accounts /address/ of the virtual asset for purposes other than those providing its virtual asset services.

8.6. Virtual asset service provider shall comply with international financial reporting standards when maintaining accounting records, and shall submit its financial statements to the Commission upon auditing it by an auditing legal entity registered with the Commission annually.

Article 9. Virtual asset service contract

9.1. It shall be certified that the following terms and conditions must be included and agreed in the contract and transaction concluded between the customer and the virtual service provider:

9.1.1. operation termination plan in case virtual asset service provider encounters difficulty to run its normal operations;

9.1.2. measures to be taken in case of deregistration of the virtual asset service provider and termination of its operations;

9.1.3. disclosure of the fact that virtual asset is not legal currency, and it will not be certified by the Central bank and the Government;

9.1.4. disclosure of the fact that virtual assets are not subject to deposit insurance or any other insurance to protect investors of securities;

9.1.5. conditions that virtual asset transactions shall be deemed to be made when it is registered in a registration system, regardless of the period when the customer made the transaction;

9.1.6. rights and obligations of virtual asset service providers and their customers;

9.1.7. conditions for the issuance of monetary assets or transferring virtual assets related to the customer's virtual asset services at the customer's initial request;

9.1.8. information about the risk of sudden changes in virtual asset service and its value   subject to international norms and domestic legislation regarding virtual assets;

9.1.9. information about the consequences to be arisen from that the virtual asset transactions be irreversible, fraudulent or due to erroneous transactions, as well as the risk of non-reimbursement;

9.1.10. information about the risk on getting a loss due to the value fluctuations since the value of virtual asset is determined by the demand and needs of market participants;

9.1.11. information about the risk of virtual assets and virtual asset services being exposed fraud or cyber-attacks;

9.1.12. information about the risk that customers will not be able to use or possess their own virtual assets in the case of technological difficulties experienced by the virtual asset service provider;

9.1.13. information about the risk that assets owned and possessed by the virtual asset service providers may not be sufficient to fully recover all losses incurred to customers.

9.2. The terms of the contract other than those specified in the Article 9.1 of this Law may be reflected in the contract by the parties in accordance with the legislation.

CHAPTER THREE

REGISTRATION, MONITORING, DOCUMENT STORAGE, SECURITY AND CONFIDENTIALITY OF VIRTUAL ASSET SERVICE PROVIDERS

Article 10. Registering and monitoring virtual asset service providers

10.1. A company which aims to provide virtual asset services specified in the Article 6.1 of this Law shall request to register with the Commission.

10.2. The Commission shall decide whether to register within six months after receiving the request specified in the Article 10.1 of this Law and the complete documents that meet requirements.

10.3. The Chairman of the Commission may extend the period specified in the Article 10.2 of this Law for a period of up to six months, if necessary.

10.4. If the documents submitted by the applicant are incomplete, the Commission shall notify the applicant, and the applicant may re-apply for registration upon completion of all documents stated in this Law within 30 working days after receiving the notification.

10.5. If the complete document is not submitted within the period specified in the Article 10.4 of this Law, the request shall be returned and considered not to have been made.

10.6. The Commission shall not register a company that does not comply with the requirements set forth in the Article 7.1 of this Law as virtual asset service provider.

10.7. Information about the company which was registered as the virtual asset service provider and its services to be provided shall be transparent and open to the public. In case of changes in the registration, the Commission shall update the information in a timely manner.

10.8. The Commission may obtain an opinion from the related professional association on whether the applicant complies with the requirements set forth in the Articles 7.1.2, 7.1.5, and 7.1.6 of this Law, and the applicant shall be responsible for the expenses related to obtaining such opinion.

10.9. The Commission shall exercise the following powers in relation to virtual asset services:

10.9.1. to approve a procedure to determine the requirements for registration, proper governance, operation, statements and reports of the virtual asset service provider; to determine a proper person of the virtual asset service provider to conduct operation; determine and amend the amount of share capital and capital equity of the virtual asset service provider; to set restrictions on and suspend operations of virtual asset service providers; to conduct off-site and on-site supervision; to register a legal entity to conduct auditing, and to set conditions and requirements on registration of them; and to set requirements for professional associations specified in the Article 10.8 of this Law;

10.9.2. to determine the amount of regulatory service fee to be collected by the virtual asset service providers;

10.9.3. to monitor and regulate activities specified in the Article 6.1 of this Law, and to ensure the implementation of its obligations set by the law;

10.9.4. to assign to take measures in improving and building capacity of the structural organization, operations, risk management and internal monitoring of virtual asset service providers;

10.9.5. to refuse to register a request for providing virtual asset services in accordance with the Article 10.6 of this Law;

10.9.6. to obtain necessary documents, information and data from the virtual asset service provider and a person specified in the Articles 4.1.4 and 7.2 of this Law, and conduct risk-based supervision;

10.9.7. to conduct the supervision specified in the Article 10.9.6 of this Law in cooperation with the competent authority, if necessary;

10.9.8. to be assigned or to be resolved to dismiss, suspend or change a competent official of the virtual asset service provider from the position;

10.9.9. to restrict or temporarily suspend the virtual asset service providers' operations or deregister it.

10.9.10. to register the auditing legal entity specified in the Article 8.6 of this Law.

10.10. The Commission may impose restrictions on the sending and receiving of transactions, on the costumer or scope of the customers, the foreign country or specific legal entity in which the transaction to be made, or the attraction of investment from foreign countries, and other activities by virtual asset service providers, in accordance with anti-money laundering and combating the financing of terrorism.

10.11. If necessary, the Commission may cooperate with external experts based on an agreement when inspecting the activities of a virtual asset service provider.

10.12. If required by the Commission, the virtual asset service provider shall be audited in a specific area and shall be responsible for the related costs.

10.13. Registration of a virtual asset service provider shall not be considered as a guarantee for the virtual asset and the State shall not be liable for any damage caused as a result of activities related to the virtual asset service.

10.14. According to the procedure set forth in the Article 10.9.1 of this law, it shall be prohibited to the Commission to grant powers to itself other than those specified in this law.

Article 11. Imposing restrictions on operations of virtual asset service provides and deregistration of them

11.1. If a virtual asset service provider fails to comply with the requirements of this law or the additional requirements set by the Commission, the Commission shall restrict and temporarily suspend operations, and deregister depending on the specific characteristics of its operation and the nature of the violation.

11.2. In case of deregistration of the virtual asset service provider, the right to conduct operations specified in Article 6.1 of this Law shall be terminated.

11.3. The Commission shall notify the State Registration Authority in case of deregistration of the virtual asset service provider.

Article 12. Document storage and preservation

12.1. The virtual asset service provider shall store and preserve paper and electronic documents created in the course of its activity for at least 10 years from the date of receipt or creation.

12.2. The virtual asset service provider shall comply with the Law on Archives and Records in their record keeping and archiving activities.

Article 13. Information confidentiality

13.1. The Commission, its officials and/or employees shall not disclose the confidential documents and information obtained during the course of their duty stated in this law, except in the following cases:

13.1.1. when executing his/her duty stated in this law;

13.1.2. when executing request submitted by the relevant authority in the course of investigation proceedings of crime and examining and resolving proceedings of a violation;

13.1.3. when the intelligence department is investigating an information related to the financing of terrorism, financing and/or proliferation of weapons of mass destruction;

13.1.4. when evidence material/document are required by the order of court and judge;

13.1.5. when court's decision becomes effective;

13.1.6. when complying with Mongolia's obligations in international treaties;

13.1.7. others stated in law.

13.2. The provisions set forth in the Article 13.1 of this law shall apply to virtual asset service providers similarly.

Article 14. Stamp duty and regulatory service fee

14.1. The virtual asset service provider shall pay the stamp duty specified in the law and the regulatory service fee set by the Commission.

CHAPTER FOUR

MISCELLANEOUS

Article 15. Cooperation

15.1. In order to protect the public interest, Mongolia's economy and the financial sector's stability, the government authority which registers, supervises and investigates the virtual asset service providers may cooperate with other government organizations, individuals, legal entities, foreign authorities with similar function and same level of confidentiality, and international organizations within the framework of the legislation.

Article 16. Liabilities for Violations of the Legislation

16.1. An individual or a legal entity that have violated this law shall be subject to liability specified in the Criminal Code or the Law on Violations.

Article 17. Transitional arrangement

17.1. No company shall be registered by the Commission as a service provider specified in Article 6.1 of this law within four months from the date of entry into force of this law.

17.2. A person, who provided virtual asset services before the effective date of this law, shall register with the Commission upon meeting the requirements set forth in the Article 17.1 of this law, within three months after the expiration of the four- month period specified in Article 17.1 of this law.

CHAIRMAN OF THE STATE GREAT KHURAL OF MONGOLIA G.ZANDANSHATAR