In 2017, Estonia became amongst the first countries in Europe to provide a legal framework for business activities involving virtual currencies. Since then, the Baltic country has emerged as a preferred destination for crypto entrepreneurs to launch their businesses.
In a space of three years, Estonia licensed more than 1,400 entities, but as part of a crackdown on financial crime, regulators recently stripped more than 500 of their permits this year, Bloomberg reported in June.
So far, the crackdown has targeted companies that failed to start operations in Estonia within six months of getting a permit, Madis Reimand, who heads Estonia’s Financial Intelligence Unit (FIU), told the media outlet.
He added that more than a half of the remaining 900 crypto companies are now at risk of losing their licenses as they have no operations in Estonia and their managers are outside the country.
Last year, the Estonian parliament approved stricter licensing rules for crypto businesses after warnings from supervisors about rising fraud risks.
The new rules, which came into force on March 10, 2020, include an extended application processing time from 30 days to up to 120 days, an increased license fee of EUR 3,300, from EUR 345 previously, as well as know your customer/anti-money laundering (KYC/AML) compliance requirements.
Companies with existing licenses had to bring their operations in compliance with the new requirements by July 1, 2020.
Cryptocurrency license requirements
Estonia’s crypto license allows businesses registered in the Baltic state to provide wallet services, as well as exchange services.
To obtain a license, the business and its key executives must meet a number of requirements regarding capital, business location, expertise, and more.
In particular, the persons serving key management roles in the company must be appropriately qualified and experienced, and have an immaculate reputation. All participants in the company will be required to provide passport copies and non-criminal records from all countries of citizenships as well as a full set of certificates, resumes, and other documents confirming their education and relevant experience.
There are also requirements involving business location. The legal entity must have a physical presence in Estonia including office and management board members residing in Estonia. The company must also operate in the Baltic state.
In terms of capital, there is a minimum share capital requirement of EUR 12,000, from EUR 2,500 previously, that must be paid in money equivalent.
The company must also have a payment account at a credit institution, e-money institution or a payment institution in Estonia, or in any other member state of the European Economic Area.
Licensed providers of virtual currency services must follow the same KYC/AML compliance requirements as financial institutions, including setting up appropriate internal AML rules of procedure, appointing a compliance officer, undertaking KYC of all customers, and monitoring their business relationships with customers.
The license is granted by the FIU, which is part of the Estonian Police and Border Guard Board.