The government of Estonia has approved legislation tailored to improve oversight of its crypto sector which expanded rapidly due to favorable regulations and business climate. The new law, which is yet to be adopted, will introduce stricter requirements for service providers without preventing their clients from owning or exchanging cryptocurrencies.
Authorities in Tallinn Draft Stricter Rules for Crypto Service Providers
The executive power in Estonia has prepared and approved draft legislation designed “to more effectively regulate virtual asset service providers (VASPs).” The main goal, the Finance Ministry explained on Sunday, is to mitigate the risk of financial crime through the crypto platforms registered and operating out of the Baltic nation.
The new regulations, which come in the form of a revised draft law submitted to the Estonian parliament, require VASPs to identify their customers in a way that would link them to their transactions. The regulations expand upon the ban on open anonymous virtual accounts introduced in 2020 after Estonia’s crypto-friendly regulations attracted numerous license applicants.
The Ministry of Finance pointed out that the legislation will not affect individuals who own virtual currency through a private wallet that is not provided by a VASP. It does not prohibit customers from holding and trading virtual assets and does not require them to share the private keys to their crypto wallets. At the same time, Estonian service providers will not be allowed to offer anonymous accounts or wallets.
The department emphasized that the measures are similar to the rules applied to payment and banking transactions. The amendments transpose the recommendations issued by the Financial Action Task Force on Money Laundering (FATF) into Estonian law. These define some virtual asset services that are not defined under Estonia’s current legislation.
Estonia to Raise Capital Requirements for Crypto Licensees
An important aspect of the new regulation is the requirement for companies to operate or be connected to Estonia in order to obtain its licenses. The boom in applications was largely due to the current rules allowing the resale of Estonia-licensed companies to third parties. The supervision of such entities has proved unfeasible and authorities noted that under the new rules, the country’s Financial Intelligence Unit (FIU) will be able to decline such applications.
Furthermore, regulators will raise share capital requirements for VASPs from €12,000 to €125,000 or €350,000, depending on the type of services. The Estonian government hopes that the threshold will reduce the number of dormant entities. The Finance Ministry also said the average annual turnover of licensed VASPs is now around €80 million euros.
Estonia announced it’s working on the new legislation in October, when the head of FIU, Matis Mäeker, revealed in an interview that only one in 10 licensed crypto companies has a bank account in the country, adding that the regulator is considering revoking all previously issued licenses to restart authorization. By that time, the agency had revoked around 2,000 licenses of virtual asset service providers such as crypto exchanges and wallet operators.
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Do you expect Estonia to adopt the stricter regulations for its crypto industry? Tell us in the comments section below.
Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.
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