More stringent requirements for cryptocurrency undertakings

Triniti

Riigikogu has finished the first reading of new draft Money Laundering and Terrorist Financing Prevention Act (MoneyLPA) and draft State Fees Act Amendment Act (8 SE I), which should be considered by so-called cryptocurrency undertakings authorised to operate in the area of providing services of exchanging a virtual currency against a flat currency or providing a virtual currency wallet service, or undertakings applying for such authorisation.

Equivalent to financial institutions

While the providers of services related to aforesaid virtual currencies are not considered financial institutions pursuant to section 6 of currently valid MoneyLPA, the draft act prescribes treating them as financial institutions. According to the explanatory memorandum, this is due to the fact that according to case-law, the providers of alternative payment service (i.e. those who allow payment in virtual currency) are deemed equivalent to classical financial institutions. There has also occurred a dramatic increase in the risk level of money laundering and terrorist financing prevention with regard to significant interest of non-resident cryptocurrency undertakings in Estonian cryptocurrency authorisation.[1] In terms of MoneyLPA, this means in particular that as financial institutions, the so-called cryptocurrency undertakings are required to ensure that their internal rules of procedure comply with the guidelines of Estonian and EU supervisory authorities, appoint a compliance officer established in MoneyLPA, terminate relationships with shell banks and identify customers in accordance with the provisions of MoneyLPA.

New requirements

Pursuant to the draft act, additional requirements shall be established for cryptocurrency undertakings:

  • Requirement of place of business – registered seat, seat of management and place of business of cryptocurrency undertakings must be in Estonia (foreign companies are required to register a branch in Estonia);
  • Requirement of reliability and good repute – similar to financial institutions, the authorisation will be granted provided that the undertaking has both skills and knowledge and good repute. Upon applying for the authorisation, the latter will be verified, inter alia, by applicant’s documents proving the level of education and professional skills and official certificates issued by applicant’s all countries of nationality, certifying the absence of a penalty for an offence against the authority of the state or a money laundering offence or another wilfully committed criminal offence.
Former authorisation holders

According to the draft legislation, in 2019 the former cryptocurrency undertakings holding the authorisation are required to prove their good repute and professional eligibility and bring the seat of their management and place of business in Estonia, otherwise their authorisation will be revoked.

[1] see article „Krüptoreeglid ei jõua e-riigi mainele järele“ [Crypto rules cannot keep up with e-state reputation]. Äripäev 10.07.2019

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