Estonia Strengthens Regulations on Cryptocurrency Service Providers
Estonia, known for its advanced tech society, is implementing stricter regulations on the cryptocurrency market. The government has recently approved a bill that will subject cryptocurrency service providers to the countryโs Financial Supervision Authority starting in 2026. This move comes as Estonia aims to address the lack of targeted regulation in the industry.
Estonia Takes Control of Crypto Industry
Estonia has been planning to tighten regulations on the crypto industry for over two years. The Financial Intelligence Unit (FIU) is now intensifying its efforts to bring crypto companies under regulation, requiring them to comply with standards similar to those followed by banks.
The head of FIU, Matis Mรคeker, stated that these new rules will subject crypto companies โunder real financial supervision.โ The previous limited requirement to comply only with anti-money laundering rules made it easy for customers to be harmed in the long term. Several bankruptcies and cybercrimes have occurred in Estonia as a result.
Under the new law, operational and reporting requirements will be strengthened, and potential fines could reach up to โฌ5 million. This represents a significant increase from the previous cap of โฌ40,000 under the Anti-Money Laundering Act. The Financial Supervisory Authority is expected to issue licenses in 2025, and companies failing to comply will no longer be able to operate in Estonia.
Regulatory Journey of Estonia
Estoniaโs regulatory journey in the cryptocurrency domain began with the adoption of the Fifth Anti-Money Laundering Directive (AMLD5) by the European Union (EU) in 2018. This directive was a response to the Danske Bank scandal, where the bank forfeited over $2 billion.
AMLD5 introduced anti-money laundering (AML) and know-your-client (KYC) requirements for cryptocurrency exchanges and wallet providers across the EU. The goal was to prevent Russian money from passing through the European banking system and evading sanctions.
In March 2020, Estonia implemented amendments to the Money Laundering and Terrorist Financing Prevention Act, bringing crypto-related activities under the oversight of the FIU. These amendments mandated compliance with AML regulations, due diligence, and KYC practices, aligning with standard practices for other financial institutions.
As a result of subsequent regulatory actions, over 1,000 crypto companies had their licenses revoked by the end of 2020. Many registered companies were found to be inactive, raising concerns about Estoniaโs reputation as an offshore jurisdiction and potential economic losses.
In late 2021, Estoniaโs parliament approved amendments that prohibited Virtual Asset Service Providers (VASPs) from offering anonymous services. This move aimed to increase transparency and combat the perception of Estonia as an offshore financial haven.
Addressing Bad Actors
Despite Estoniaโs efforts to distance itself from bad actors in the crypto industry, its reputation was recently tarnished. Cryptocurrency exchange Garantex, originally registered in Estonia, was found to be operating as a โhawala network,โ assisting the Russian government in evading sanctions.
In addition, Estonia has approved the extradition of two of its citizens to the United States for their involvement in a crypto mining scam scheme. The previous extradition request was denied due to procedural errors. The suspects will now face the U.S. Department of Justice for their roles in the HashFlare and Polybius Ponzi scheme.
Hot Take: Estonia Sets Stricter Regulations on Crypto Service Providers
Estonia is taking significant steps to strengthen regulations in the cryptocurrency market. With the approval of a new bill, cryptocurrency service providers will be subject to the countryโs Financial Supervision Authority. This move aims to address the lack of targeted regulation and enhance financial supervision in the industry.
Estoniaโs regulatory journey began with the adoption of AMLD5 by the EU in 2018, and subsequent amendments brought crypto-related activities under the oversight of the FIU. However, recent incidents involving bad actors have raised concerns about Estoniaโs reputation.
By implementing stricter regulations and increasing compliance requirements, Estonia is positioning itself as a leader in responsible crypto practices. This will not only protect customers but also contribute to the overall integrity and trustworthiness of the cryptocurrency industry.
Sources:
1. Estonia introduces legislation to regulate cryptocurrency providers
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