Estonia tightens control over cryptocurrency licenses

How did it begin?

Estonia was one of the first European countries to show interest in blockchain technology. It began the gradual introduction of blockchain back in 2008 and has actively incorporated the use of this technology in many areas of its government. Estonia does not bypass the crypto-assets but recognises it as legal tender in their territory. In 2017, amendments were adopted to the legislation on countering the legalisation of proceeds from crime.

Providers of crypto-currency services, such as crypto-currency exchanges and stock exchanges, have been able to legalise their business in Estonia. At the end of 2018, more than 800 licenses were issued to "Providers of a service of exchanging a virtual currency against a fiat currency" and "Providers of a virtual currency wallet service". In this connection, this jurisdiction is categorised as the most favourable environment for crypto-currency start-ups.

However, this has entailed abuse by license recipients and has resulted in widespread criticism from the media, experts and regulators of neighbouring countries. The main drawback pointed out by critics is the lack of license verification during the issuing process and reduced control over licensed companies. The Estonian regulators dropped many of the provisions stipulated in law during the crypto-currency license issue processes. Attempts to amend the existing legislation and tighten control on the issue of the crypto-currency license were rejected by parliament.

What has changed

May 2019 has ushered in a new era for the regulators as a developed system for decisions involving the crypto-currency license issue has been implemented for a more thorough and expanded control over licenses issued for "Providers of a service of exchanging a virtual currency against a fiat currency" and "Providers of a virtual currency wallet service". The standard policy will get tighter as the development process is still taking shape. 

Currently, the legislation includes the following provisions implemented since May:

1. Consideration of an application for a license is up to 30 days. In practice, earlier decisions made much faster.
2. More attention is paid to the verification of company documents and responsible persons. In addition to a certificate of non-conviction, additional data and materials may request.
3. Documentation on AML / KYC procedures and their implementation are subject to a thorough study. All transaction above 15,000 EUR must be made after KYC.
4. Higher requirements apply to the company's AML officer. He should have wholesale, skills and a positive reputation in this field. This person may be called for an interview directly with the Bureau.
5. Now the regulator pays attention to the presence of an actual office in Estonia. If it is not stated when applying, or there are suspicions about its availability, a field check can be arranged. Such tests are also carried out for companies that already have licenses.

What is Planned To Implement

1. In the future, Estonia plans to check for the presence of the substance in Estonia. In addition to having an actual office, there may be demands on conducting activities in the territory of Estonia, finding an active management body in Estonia. Also, most of the clients must come from Estonia.
2. An increase in the size of the state fee for applying for a license up to 3000 EUR is forecasted. Following it, the total cost of maintaining a crypto-currency company in Estonia will increase.
3. It is possible to increase the time for consideration of the application for up to 3 months.
4. It is also possible to introduce additional checks against license holders.
5. Strengthening control over compliance with the GDPR at the time of obtaining a license.

The prospects for tightening the requirements for Estonian licenses have not yet determined precisely enough to speak confidently about them. Currently, only a small part of the proposed measures has implemented, and perhaps many of the proposed rules will be cut off again in the future. The Law and Trust International team monitor the current situation in the licensing of crypto-currency companies in Estonia.

To be fully prepared for changes in Estonia, you can contact the specialists of the Law and Trust International team. We will tell you more about the changes and help you conduct comprehensive training. You can order from us such services as:

• The actual office or workplace in Estonia;
• Services of AML officer with a visit to the Bureau during interrogations or interviews;
• Maintenance of the turnkey verification;
• GDPR introduction;
• Preparation of AML and KYC policies;
• Carrying out KYC for your clients;
• opening corporate accounts;
• opening merchant accounts etc.

If you already have a license

We have compiled an infographic for you, where we collect all of the most critical changes in the regulation of crypto-currency licenses in Estonia.