Estonia’s government approved legislation to increase oversight over its cryptocurrency sector, which has grown rapidly thanks to favorable regulation and a good business environment. Although the law has yet to be passed, the new legislation will establish stricter standards for service providers and prevent clients from owning cryptocurrencies or exchanging them.
Tallinn authorities 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.
In the revised draft of the Estonian law that was submitted to parliament, the new regulations require VASPs and other service providers to be able to identify customers so they can link to 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.
According to the Ministry of Finance, it will not impact individuals who hold virtual currencies through private wallets that are not hosted by VASPs. The legislation does not restrict customers’ ability to trade virtual assets or require them to give their private keys to crypto wallets. Estonian service providers are not allowed to create anonymous wallets and accounts.
According to the department, the new measures will be similar to existing rules for banking and payment transactions. Amendments to Estonian law transpose recommendations from the Financial Action Task Force on Money Laundering. These define some virtual asset services that are not defined under Estonia’s current legislation.
Estonia raises capital requirements for crypto licensees
The new regulations require companies to be licensed in Estonia and have Estonian connections. Current rules allow the resale to third parties of Estonian-licensed businesses. This is the reason for the boom in applications. 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. Estonia hopes the new threshold will help reduce dormant companies. 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. The agency had already revoked approximately 2,000 virtual asset service provider licenses, such as wallet operators and crypto exchanges.
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