The Estonian government is working intensively on tightening licensing regulations for companies operating in the cryptocurrency industry. Changes will include both the licensing requirements and the application process. Changes are anticipated to come into force at the turn of the 1st and 2nd quarter of 2019.
Estonia has become one of the most dynamic and modern economies. This success is due to a commitment to low red tape, the rule of law and investment in technology. Estonian politicians understood early on that opportunities in cryptocurrency area are vast and business activity is plentiful. Establishing a regulated business on the cryptocurrency market in Estonia is easier than in any other country, but it should be noted that full compliance with all legal norms and legal acts is required. At present, Estonia is recognized as a European alternative to jurisdictions Malta and Switzerland because of lower costs and simpler administration.
At the end of 2017 Estonia was one of the few countries in Europe to introduce legal regulations on trading in cryptocurrencies. Companies operating in this market can apply for 2 types of licenses. One of them allows for running a transaction platform for exchanging cryptocurrency into fiat and also crypto to crypto. The other one allows for providing virtual currency wallet services. There is no requirement of minimum share capital of the company that applies for any of the licenses. However, the company has to be registered in Estonia. The company does not need to be previously registered for a minimum time and it can apply right away upon registration in Estonia.
Licenses are issued by the Estonian Financial Intelligence Unit (FIU), which is an independent structural unit of the Estonian Police and Border Guard Board. Each of them requires submitting a separate application to the FIU as well as undergoing Anti-Money Laundering and Know Your Customers procedures.
So far, the FIU has issued over 1000 licenses, and this number has been gradually increasing. This shows that large companies related to cryptocurrencies are looking for a stable and legal framework for their activity. Estonia is seen as crypto-friendly country not only due to the licenses, but also its favorable tax policy (without VAT) and low operating costs. The new regulations will increase official fees, maximal time for issuing a decision and what is interesting, the requirements for board members and shareholders. It is therefore the last chance to apply for licenses on the old terms.
There are two main reasons. Firstly, Estonia cares about being seen as a credible country which fights money laundering proactively and sets new standards in that area. Establishing a regulated business on the cryptocurrency market there is easier than in other European jurisdictions, however it requires full compliance with all legal and regulatory standards. Secondly, it is related to the fifth EU Anti-Money Laundering Directive. However, it should be borne in mind that the Estonian government has attached great importance to AML and KYC procedures since the beginning.
The Estonian government will pay particular attention to all people related to the company applying for licenses. They will have to prove appropriate knowledge and skills, confirmed by their previous experience. The Authority wants to be sure that they have the necessary competences to properly manage a company operating in this area. Estonian state officials will also monitor their reputation. Negative feedback from the media about someone involved with the company may make it difficult or even impossible to obtain a license. It is a major change in checking board members, shareholders and UBO. Before they only had to provide a certificate confirming their clean criminal record.
In addition, the waiting time for the decision will also change. Under the current law, the decision to grant or refuse a license by the Estonian FIU is 30 working days. After the new regulation enters into force, this period will be extended to 3 months (90 days). In the case of more complex cases, FIU may extend this time up to 6 months. Moreover, official fees for licenses will also increase.
Companies which already have a license will be required to adapt their procedures to the new regulations within a certain period of time. It is also possible to introduce the obligation of periodic reporting by the management boards of companies to FIU. Until now, this was only necessary in the case of suspicions of money laundering.
Estonia has become one of the most dynamic and modern economies. This success is due to a commitment to low red tape, the rule of law and investment in technology. Estonian politicians understood early on that opportunities in cryptocurrency area are vast and business activity is plentiful. Establishing a regulated business on the cryptocurrency market in Estonia is easier than in any other country, but it should be noted that full compliance with all legal norms and legal acts is required. At present, Estonia is recognized as a European alternative to jurisdictions Malta and Switzerland because of lower costs and simpler administration.
Licenses for cryptocurrency businesses in Estonia
At the end of 2017 Estonia was one of the few countries in Europe to introduce legal regulations on trading in cryptocurrencies. Companies operating in this market can apply for 2 types of licenses. One of them allows for running a transaction platform for exchanging cryptocurrency into fiat and also crypto to crypto. The other one allows for providing virtual currency wallet services. There is no requirement of minimum share capital of the company that applies for any of the licenses. However, the company has to be registered in Estonia. The company does not need to be previously registered for a minimum time and it can apply right away upon registration in Estonia.
Licenses are issued by the Estonian Financial Intelligence Unit (FIU), which is an independent structural unit of the Estonian Police and Border Guard Board. Each of them requires submitting a separate application to the FIU as well as undergoing Anti-Money Laundering and Know Your Customers procedures.
So far, the FIU has issued over 1000 licenses, and this number has been gradually increasing. This shows that large companies related to cryptocurrencies are looking for a stable and legal framework for their activity. Estonia is seen as crypto-friendly country not only due to the licenses, but also its favorable tax policy (without VAT) and low operating costs. The new regulations will increase official fees, maximal time for issuing a decision and what is interesting, the requirements for board members and shareholders. It is therefore the last chance to apply for licenses on the old terms.
Why is Estonia tightening the rules?
There are two main reasons. Firstly, Estonia cares about being seen as a credible country which fights money laundering proactively and sets new standards in that area. Establishing a regulated business on the cryptocurrency market there is easier than in other European jurisdictions, however it requires full compliance with all legal and regulatory standards. Secondly, it is related to the fifth EU Anti-Money Laundering Directive. However, it should be borne in mind that the Estonian government has attached great importance to AML and KYC procedures since the beginning.
What exactly will change?
The Estonian government will pay particular attention to all people related to the company applying for licenses. They will have to prove appropriate knowledge and skills, confirmed by their previous experience. The Authority wants to be sure that they have the necessary competences to properly manage a company operating in this area. Estonian state officials will also monitor their reputation. Negative feedback from the media about someone involved with the company may make it difficult or even impossible to obtain a license. It is a major change in checking board members, shareholders and UBO. Before they only had to provide a certificate confirming their clean criminal record.
In addition, the waiting time for the decision will also change. Under the current law, the decision to grant or refuse a license by the Estonian FIU is 30 working days. After the new regulation enters into force, this period will be extended to 3 months (90 days). In the case of more complex cases, FIU may extend this time up to 6 months. Moreover, official fees for licenses will also increase.
Companies which already have a license will be required to adapt their procedures to the new regulations within a certain period of time. It is also possible to introduce the obligation of periodic reporting by the management boards of companies to FIU. Until now, this was only necessary in the case of suspicions of money laundering.