During September of 2021, the Ministry of Finance of the Republic of Estonia has published its proposals to amend the Estonian Money Laundering and Terrorist Financing Prevention Act (MLTFPA), the law regulating the licensing of Cryptocurrency. The proposed changes will directly impact Estonian cryptocurrency license Holders through the imposition of stricter requirements and regulations. These changes are a result of the Estonian Government’s efforts to be a step-ahead of the European Commission in its endeavors to regulate the security of virtual currency service providers.
What are the main changes proposed?
- Activity License with Additional Information
Companies offering cryptocurrency services may not operate unless they are in possession of a Virtual Currency Service Provider license. The below documents must be submitted to the Estonian Financial Intelligence Unit (EFIU) together with a fee of €1,000. However, the deadline for submission of the below documents and application is not yet established in the proposed bill;
- More detailed financial information
- A business-plan forecasting a period of 2 years
- A detailed description of the IT system in place with any technological tools being utilized in the operation of the company
- Business continuity procedure
- Information on the applicant’s financial auditor
- Information on the applicant’s internal auditor
- Information and documents on persons with a qualifying holding in the applicant company, establishing that such person is compliant with the ‘fit and proper’ requirements.
NB: The activity license cannot be transferred to another entity. If a service provider merges with a newly founded entity or merges and the acquiring entity continues to operate as a service provider, the activity license will be revoked, thus a license application would have to be re-submitted.
- Raising the minimum capital threshold to €350,000
Cryptocurrency start-ups establishing their business in Estonia must now raise the minimum capital from €12,000 to €350,000 in order for the Company to become in line with the regulations.
- The Travel Rule Requirement
Cryptocurrency license holders will be required to collect data on the originator and recipient of the virtual currency transfer upon the execution of a transfer, whenever the service is being provided as an occasional transaction outside the business relationship whenever the value of the transaction exceeds €1,000. This additional due diligence measure is subject to transfers executed in one or several related payments.
- Approval for an increase of Qualifying Holding
Acquisition and increase of a qualifying holding must be notified to the EFIU in advance to obtain an approval from the EFIU.
- Board Member Requirements
The amendments to the MLTFPA will impose additional requirements for board members of companies holding an activity license;
- Successfully completed higher education
- May be a member of the board for only 2 other virtual currency service providers
- May be an EFIU contact person in another virtual currency service provider only if he is also a member of the board in that other service provider.
- New Grounds for refusal/revocation of Authorisation
The EFIU has the right to refuse authorization if the compliance officer appointed by the virtual currency service provider also works as a contact person or as a head of unit for another virtual currency service provider. The EFIU has the right to revoke an activity license, if the service provider has suspended its operations.
Licensing Procedure as per the new Amendments
- Approval or Refusal of authorization to occur within 60 days after the receipt of all appropriate documents and information (currently it is 60 days from the filing but is dependent on the volume of additional data and documents to be processed)
- The EFSRA may extend the period to 120 days.
- The requirement for an Entity to notify the Police and Border Guard Board that it has authorization of a provider of the service of exchanging virtual currency against a fiat currency, remains unchanged.
- Payment of State Fee to increase from €3,300 to €10,000.
- Payment of Processing Fee of €1,000
- Payment of Supervision Fee amounting to 1% of the share capital and 0.035% of the total amount of initiated and accepted transactions.
- The proposed legislation is scheduled to come into force as of the 01/01/2022
- Companies who are already in possession of a licence have to implement the necessary changes and submit the required documentation till the 18/03/2021
- The Estonian Financial Supervision Authority is bound to make a decision to issue an operating license or to refuse it within 6-months after all the necessary documentation and data have been received