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Impact of New Legal Framework on Estonian Crypto Market

Apr 29, 2020

Since the establishment of fintech as an independent banking field, crypto exchanges have tried to find the right license that will enable them to conduct business with a possibly lowest limit of regulation, at the same time still trying to comply with local framework.

Estonia is one of the most advanced digital nations and also the first country, which has implemented e-residency for global citizens, empowering them to easily set up and run a location-independent business in a trusted EU environment. Therefore, Estonia is being regarded a suitable jurisdiction for setting up a company focused on providing services of the exchange of virtual currency. Licenses that were issued up until the beginning of 2019 have founded to be the simplest license to comply with, and have operated many licenses in Estonia.

Recently market has been changed, and, considering favorable conditions for crypto exchange, Estonia has become most affected country by these changes. The EU's 5th anti-money laundering directive (5AMLD) that was supposed to be fully implemented by January 2020 in all EU Member States have taken a very heavy toll on the regulators around the Europe. The discussion over whether regulation is with positive impact or bad impact for the cryptocurrency industry has evolved over the past two years as regulation has shifted from theory into practice.

EU Member States that are not complied with 5 AMLD will be held in breach of EU Law. In regards with new regulation, few of the Member States, etc. Spain, Portugal, Cyprus, Slovenia, have already been received notifications and warnings by the EU Commission. Clearly Estonia looking to avoid such experience, but this situation has raised serious consequences to local regulators. Therefore, it is clear that Estonia, with the great amount of Virtual Currency Provider licenses that were issued till the beginning of 2020, will amend their crypto regulations and ground rules regarding this matter.

New Estonian framework introduced through the 5AMLD specially highlights AML field. Local regulator encourages Estonian crypto exchanges to adapt new requirements in order to avoid revocation of license. Companies with crypto that have obtained the license prior to the new amendments and changes will be obligated to comply with the new regulations such as local director, physical presence, local AML officer and raise in the share capital (required share capital of minimum 12 000 EUR) but in certain will also have to expect an invitation to the Financial Intelligence Unit (FIU) for further clarifications. It should be taken into account that FIU is also able to ask for additional information, documentation and proof of assimilation to the local market. This way it could be considered that every individual situation is evaluated on case by case basis. In some way it is understandable, because what will remain in the future is not only a question to the crypto companies but regulator as well. This only means that now companies and regulator have to learn to collaborate better with each other. Just like any kind of revival, this renaissance involves several obstacles for the individuals and cryptocurrency exchanges business.

It is certain that the time of easy licenses in the EU has ended, and the era of stricter regulation has begun on the shores not only of the continent but also on the realm of the FATF. Considering that regulatory landscape for businesses at risk of being involved in money laundering and terrorist financing is changing on an increasingly rapid basis, the main purpose for implementations is to avoid the anonymity associated with transactions in virtual currencies to prevent their fraudulent use. It seems like a burden for crypto exchanges companies at first, but this could be the way to make crypto exchange more reliable, respectable and prestigious in long run from the client and crypto exchange business newcomers point of view.

In order to support your intended bussiness activities, our Offshorelicense team are ready to assist our clients with crypto license obtaining in Estonia according to newest legislation requirements or acquire Estonian shelf companies with active crypto licenses.

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