Possible amendments and changes related to the regulation of Estonian cryptocurrency companies

22.10.2021 14:29

The Ministry of Financial Affairs of Estonia has published a draft legislation of the Anti-Money Laundering and Terrorist Financing Prevention Act (MLTFPA) and an explanatory memorandum involving changes in the regulation of the virtual currency service providers, commonly referred to as cryptocurrency companies.

The draft is scheduled to enter into force starting from January 1st 2022. According to the explanatory memorandum the undertaking shall have three months starting from the date of entry into force to bring their activities in line with the set requirements. It will be required to provide additional data to the Financial Intelligence Unit (the FIU) verifying that the requirements derived from MLTFPA are met. The FIU has the right to revoke a valid licence upon a failure to provide the required data by the corresponding date.

In conclusion the amendment involves extension of the list of virtual currency services, enhancement of due diligence measures, additional prudential requirements and establishment of reporting obligation. The most essential and particular amendments that shall affect the virtual currency service providers are as follows:

1)      List of virtual currency services within the scope of MLTFPA is supplemented with two new services – transfer of virtual currencies and sale/issuance of virtual currencies;

2)      Establishment of a „travel rule“ that involves a requirement to collect relevant info about the payer and payee to identify the participants of the transfer and monitor the movement of funds between the participants.

3)      Submission of more detailed information such as a business plan which serves to purpose to evaluate company’s sustainability in fulfilling the corresponding requirements within the first two years starting from the grant of licence; data providing to evaluate systemic risks of service delivery system and safety measures of data protection of investors and clients; compulsory submission of audited annual accounts; data related to undertaking’s and board member’s economic connections;

4)      The undertaking may re-apply only after two years in case of a rejection decision of a licence application provided that such decision has entered into force;

5)      The minimum share capital requirement shall be raised from 12 000 euros to 350 000 euros. The share capital contribution is required to be monetary only;

6)      The board member is expected to be with relevant experience, skills, qualification which must be proven with corresponding evidence (information about level of education, list of previous jobs and positions etc). A person is limited to participate in the board of no more than two companies providing virtual currency services (in three with a relevant exception provided by the FIU) and can act as an compliance officer only in the company where the person is also a board member;

7)      Cross border service provision has to be coordinated with the FIU by providing required information about planned activities;

8)      Acquisition of a qualifying holding ( ≥ 10%) must be coordinated with the FIU. The person acquiring or owning a qualifying holding must have impeccable reputation, strong financial capacity and must be capable of ensuring a reliable management of the company;

9)      Establishment of a supervision fee: 1% of the share capital and 0.035% of the total sum of initiated or accepted transactions;

10)  State fee for the licence application shall be raised from 3 300 euros to 10 000 euros.

The introduction of particular amendments within such a short period may seem more than questionable from perspective of legality and legitimate expectation, in a broader sense from the perspective of the rule of law. In spite of the legislators aim to manage and decrease anti-money laundering and terrorist financing risks derived from the misuse of the licence, it inevitably results in partially killing off lawful entrepreneurship, i.e. service providers which don’t have the resources in hand to fulfil the planned requirements within such a short period. The adoption may ultimately cause a breach of freedom of establishment and therefore may not be align with constitutional freedoms and rights.

It is important to mention that further developments regarding the adoption in the currently presented way could not be specifically determined as the draft legislation is still being coordinated and discussed. We’ll keep you informed about the relevant developments in the most important procedural steps.

 

Gert-Omar Tamuri

Lawyer


Facebook LinkedIn Skype