The saga of a crypto license in Estonia

Contents

1. Introduction
2. 2017 – Birth of a crypto license in Estonia
3. 2018 – Estonia = Cryptocountry
4. 2019 – “Tighten the screws”
5. 2020 – “Cleansing of the Market”
6. 2021 – New horizons
7. What will happen to crypto licenses and crypto regulations in Estonia?
8. Private Financial Services – Licensing

Introduction

Back in 2017 Estonia became one of the first countries in the world which started regulating the cryptocurrency industry and started issuing crypto licenses. In more than 3 years, thousands of projects from all over the world managed to obtain a license and leave the shadow sector. Developers and investors, entrepreneurs and startups, ICO and institutional players all rushed to Estonia to find a new “cryptocurrency Klondike”. The geography of the participants was the widest – Russians, Americans, Europeans, Asians, Africans. The license opened up new opportunities for the cryptocurrency sector – made it legal, attractive to consumers, and more reliable and secure for investors.
Seeing the company’s license, banks and acquirers began to open accounts for cryptocurrency projects more willingly. Estonia began to become a cryptocurrency hub.

2017 – Birth of a crypto license in Estonia

At the end of 2017 words such as cryptocurrency and blockchain are not yet in common use in most of the planet. Bitcoin is just starting its rally, and Estonia is already introduced a law which is aimed at regulating this area. Two licenses appear: the virtual value exchange transaction license and the virtual value wallet license.
At the beginning of December, one of the first mass rallies of crypto enthusiasts from all over the world takes place – Tallinn Moontec 2017.
The first companies manage to obtain their licenses before the new year.
Crypto world is looking forward to 2018.

Stepping away from the story a little – Private Financial Services was one of the first companies that accompanied in obtaining crypto licenses.

2018 – Estonia = Cryptocountry

The end of 2017 was marked by a record growth of Bitcoin, which prompted many entrepreneurs to turn their eyes to the crypto business and many saw the colossal potential in this industry.

Some entrepreneurs chose an easier way to incorporate through offshore jurisdictions (Marshall Islands, British Virgin Islands, Seychelles and others). For a long time, island jurisdictions did not have a position and regulation in relation to cryptocurrencies and have always been famous for weaker monitoring by government authorities.
Legal entities in these jurisdictions could be established in a few days and begin their operations. Many “scam” projects, mainly related to the initial coin offering, operated precisely through offshore territories.

More far-sighted and trustworthy entrepreneurs chose a more reliable path, registered a company in Estonia and applied for crypto licenses.
This option was more expensive, the duration of the entire procedure averaged one month, however, the horizons that opened up for entrepreneurs were much wider, the costs associated with obtaining licenses were more than repaid.

Since the licensing procedure was not so complicated and expensive, and the requirements for applicants were loyal, hundreds of entrepreneurs received their licenses in 2018.

In 2018, Private Financial Services accompanied more than 70 companies and assisted to obtain the coveted licenses.

2019 – “Tighten the screws”

2018 for Bitcoin passed quite calmly, contrary to the expectations of many, new records were not set, but this did not cool the enthusiasm of crypto exchanges and ICOs, and most of them looked with optimism for 2019.

Since the beginning of 2019, the number of companies in Estonia with crypto licenses has continued to grow almost exponentially.

The regulator and the government were worried about the situation, because no one wanted new international scandals related to money laundering in the light of current news, the reputation of the state and the stability of the entire financial sector were at stake.
The number of companies with crypto licenses exceeded one thousand and it was almost impossible to control such a large volume.

In the spring of 2019, a new project of crypto regulations was developed, aimed at tightening requirements and clearing the market from unscrupulous providers.

First of all, the size of the state duty changed. If before that it was 345 euros, then in the new edition, the amount was already almost ten times higher and amounted to 3300 euros.
Primarily this was due to the fact that the supervisory authority spent a lot of effort and resources on checking the applications and the previous fee did not cover the costs associated with this procedure.
The next important change was the deadline for considering applications for obtaining a crypto license. If in the old version it was equal to 30 days, then in the new one it increased to 90 days. This was also due to the fact that now, the supervisory authority considered in more detail the statements, submitted documents, project descriptions and the “background” of the participants.
Also, requirements for the presence of an office, a member of the board, a responsible person (AML officer) in Estonia were introduced, and it was required for the company to have a current account within the EEA.
The requirement for the authorized capital of the company was also important. If earlier, licenses could be obtained by companies whose authorized capital was not even contributed, now the company had to have contributed authorized capital in the amount of 12000 Euro.

This news prompted many entrepreneurs to obtain a license before the new changes took effect, and the number of authorized corporations increased significantly.

In December 2019, these amendments were approved by the parliament and there were literally a few months left before they entered into force. Along with the amendments, the structure of licenses was also changed, now instead of two licenses, one was issued, which included all the same services but under a different name.

At the same time, the supervisory authority began to conduct an in-depth study of the market and players by sending mandatory questionnaires to the licensed corporations.

To summarize, by the end of 2019, only the lazy did not know about the crypto license in Estonia. Banks and payment institutions were already skeptical about this license, and many called it “trashy”.
The new amendments came in handy.

2020 – “Cleansing of the Market”

The beginning of 2020 was marked by a cleansing of the market. Those who for some reason did not start their activities within 6 months from the date of obtaining the license, lost it. This requirement has existed since 2017 but has not been applied en masse. For some reason, many entrepreneurs either did not know about this requirement or forgot.
Those companies that did not bother to provide answers to the questionnaires also lost their licenses. The “cleanup” process has been launched.
On March 10th, the new amendments took effect. The operating companies had 4 months to bring their activities in line with the new regulations. The market was in chaos.
Most of the crypto companies managed to reorganize before the deadline, those who did not have time, applied for an extension or suspension of their licenses. There were also those who managed to sell their companies without informing the new owners of the necessary requirements.
Those who did not take any action lost their licenses.
The crypto license market in Estonia has been “cleaned up” and the regulator has successfully achieved its goals.

It is also worth mentioning that Brexit and the end of the transition period have also left their mark on Estonian crypto companies. Many crypto companies in Estonia opened current accounts in the UK, but due to the fact that the United Kingdom left not only the EU, but also the European Economic Area, the requirement for an Estonian crypto company to have a current account within the EU or EEC was violated, which entailed additional complications and expenses.

2021 – New Horizons

Elon Musk’s loud statements about cryptocurrency, Visa and Master solutions, Ether rally, Coinbase IPO, NFT tokens. Cryptocurrency and blockchain are firmly rooted in the global economy and the minds of the population. The post-COVID world will become even more digital.
All these factors make blockchain and cryptocurrency even more popular.
Regulations regarding crypto companies are now not only in Estonia. Switzerland, Austria, Malta, Gibraltar, Singapore, only a small part of the countries that have taken the path of regulating virtual values is listed. Such significant players as Great Britain, Ireland, UAE, Canada, USA are on the way. The EU and the IMF also do not stand aside, and the world will never be the same again.

What will happen to crypto licenses and crypto regulations in Estonia?

The year 2021 kicked off with Rahapesu andmebüroo (also often referred to as RAB, Financial Intelligence Unit, FIU, Bureau of Anti-Money Laundering and Terrorist Financing, Financial Intelligence) transitioned to the Financial Supervision Authority. Previously, it was in the department of the Police and Border Guard Board. This means that in the future, the supervision of the cryptocurrency business will become stricter.

Also, at the beginning of the year, the composition of the government in Estonia changed, but “covid” problems are clearly now more important and significant for society than cryptocurrency.

A pan-European directive on crypto assets and the implementation of 6 AMLD are on the way. Changes are likely to come again for crypto companies, but not so large-scale. It is difficult to say whether they will be in 2021 or 2022, but they will clearly happen and will be aimed at tightening requirements and conditions.

At the time of writing this article, April 2021, there are 443 operating companies with crypto licenses in Estonia.

Private Financial Services – Licensing

If you are interested in obtaining a crypto license in Estonia or other countries, reactivating a crypto license, opening current accounts for crypto projects, preparing internal policies and procedures, obtaining licenses for electronic money, obtaining licenses for investment activities or any other “legal” activity, you can feel free to contact us! Our team consists of international professionals. During our existence, we have received more than 500 different licenses (of which more than half are related to cryptocurrency and fintech), in more than 20 jurisdictions.
We can help to obtain a license only, but also we can provide a complete turnkey solution.
Ready-made companies with licenses are also available.

NB! Preliminary consultation is provided absolutely free!