With effect from 10 March 2020, virtual currency service providers, or crypto businesses, will be treated equally to financial institutions in Estonia. The introduction of stricter rules is another step against money laundering and aims to ensure a safe market in Estonia.
Virtual currencies or cryptocurrencies have recently experienced a great boom all around the world. In response to the growth of this industry, more and more countries have started to introduce new regulations for crypto businesses to control the flow of cryptocurrencies and ensure greater transparency in their sourcing and uses.
With the same goal, the Estonian Money Laundering and Terrorist Financing Prevention Act was amended in January 2020. The amendments are due to come into force on 10 March 2020. The deadline for implementing the changes is 1 July 2020 for existing virtual currency activity licence holders. To comply with the new regulations, crypto businesses in Estonia have to meet the requirements described below.
Revision of internal Anti-Money Laundering procedures
The management must determine whether new business relations are established with persons from outside the European Economic Area or with e-residents.
Data must be identified and verified with the help of information technology (separate regulation applies) where a business relationship is established with an e-resident, with a person from a country outside the European Economic Area, or with someone whose place of residence or registered office is in such a country (unless it is possible to carry out the identification face-to-face).
Appointment of a Compliance Officer
The Compliance Officer must have the competence, means and access to relevant information across all structural units of the business.
Assessment of experience and business reputation of the management
The so-called fit & proper test must also be carried out. The Financial Intelligence Unit will require documentation on the management’s level of education (at least secondary education), work experience, character and responsibilities of earlier posts, extra training, etc. The education, knowledge, experience and skills will be evaluated against the responsibilities and area of activity of the managers, in order to assess their ability to understand the risks and carry the responsibility derived from it. A business reputation is presumed to be good until proven otherwise. This is evaluated based on earlier activities such as media coverage, penalties, court dealings, participation in management of companies, etc. Reputation is deemed to be of a more permanent nature than current checks of criminal records, and therefore it is not subject to legal expiry provisions. The prerequisite for an impeccable reputation is the absence of any circumstance precluding a high reputation.
Business in Estonia
The registered office of the company, the location of the management board and the place of business must be in Estonia. Another option is that a foreign company operates in Estonia through a branch which is registered in the commercial register and has its registered office and head office in Estonia:
- The registered office of the company as seen on the commercial registry is in Estonia.
- The location of the management board is in Estonia, meaning that essential functions of management and the control of money laundering are carried out, including the continuity of functions necessary for conducting business.
- The place of business is the actual location of the business and must include the location of the Compliance Officer. This does not necessarily have to match the registered office address.
- Existence of a payment account with a credit institution, an electronic money institution, or a payment institution established in Estonia or a Contracting State of the European Economic Area providing cross-border services in Estonia or having established a branch in Estonia.
- The share capital of the company must be at least EUR 12,000.
The Financial Intelligence Unit has the legal right to revoke an existing licence if it identifies non-compliance, e.g. if crypto businesses do not carry out their activities in Estonia or their management board is not located in Estonia.