The Estonian government has approved a bill to regulate cryptocurrency service providers. It is still subject to a decision in parliament.
The providers would be liable for overseeing the Financial Supervision Authority (FSA) following the legislation. Currently, the Financial Intelligence Unit (FIU) manages the registration of cryptocurrency service providers and mandates their adherence to Anti-Money Laundering (AML) regulations.
FIU license holders would be required to apply for FSA licensure by the end of 2025 when the FSA would commence issuing licenses. Mart Värklaev, the finance minister of Estonia, stated:
“I believe that anyone who takes this seriously and wishes to provide a service will also be able to obtain a new license from the Financial Supervisory Authority.”
AML violations are punishable by a maximum sanction of 40,000 euros ($43,450) under national law. The new legislation may impose penalties of up to 5 million euros ($5.2 million).
Volalev declared last week that he had submitted the measure to the government, which remains untranslated into English. Before consideration by the Riigikogu, the unicameral Estonian parliament, for a vote, the measure must receive government approval.
The proposed legislation aims to align Estonia with the Markets in Crypto-Assets (MiCA) regulations of the European Union. Additionally, it would modify the requirement for a securities prospectus.
A comprehensive prospectus, which was previously a time-consuming and costly undertaking, is no longer required of companies seeking to raise capital in the form of shares or bonds worth more than 5 million euros. Increasing the threshold to 8 million euros ($86.9 million) would accomplish this differently.
Estonia established itself as a crypto-friendly nation in 2017 by enacting legislation that favored cryptocurrency firms and facilitated registration, including e-residency. The country implemented stringent regulations on cryptocurrency firms in 2020 due to a significant corruption scandal not associated with cryptocurrencies.
Estonia revoked the licenses of 500 FIU-issued cryptocurrency companies in 2020 for failing to launch within the country within six months of registration. The number of licensed crypto firms in Estonia decreased from 1,234 at the end of 2019 to 353 in September 2020, following months of police scrutiny.
The FIU contemplated relicensing all cryptocurrency businesses and revoking their licenses in October 2021. The end of 2021 saw the implementation of more stringent AML regulations. Following the 2023 amendment to that law, nearly 400 virtual asset providers ceased or voluntarily ceased operations.
