Today, on 15th of March 2022, new changes to the Estonian Money Laundering and Terrorist Financing Prevention Act (MLTFPA) regarding virtual currency services will enter into force.
This means that virtual currency service providers who already have a license must bring themselves in compliance with the new requirements and submit relevant material to the Estonian Financial Intelligence Unit (EFIU) latest by 15th of June 2022. Otherwise EFIU shall revoke their license.
The companies offering new virtual currency services (please see below) and currently not holding a virtual currency service provider license must obtain one. Unfortunately, the law does not set a separate deadline for entities who offer new virtual currency services and are not yet licensed. Therefore, these entities should not continue offering virtual currency services until they have obtained a license.
We wrote about the upcoming changes to the MLTFPA already in the fall of 2021. However, additional changes were made to the initial draft bill during the process and, thus, we consider it necessary to sum up the most significant changes relevant to both new and existing virtual currency service providers:
- Virtual currency services: 1) virtual currency transfer service (new!); 2) issuance of a virtual currency, the organization of its offer or sale, or provision of related financial services (new!); 3) virtual currency wallet service; and 4) virtual currency exchange service.
- The minimum capital requirement: raised from 12 000 euros to 125 000 up to 350 000 euros, depending on the specific virtual currency service(s) offered.
- Changes in providing virtual currency services:
- The virtual currency service provider is prohibited from providing services outside the business relationship and opening an anonymous virtual currency wallet;
- The amendment sets a minimum requirement for the data to be collected upon identifying a customer and providing virtual currency transfer or exchange service;
- Virtual currency service providers must start implementing the "travel rule" requirement. This means that when starting a transaction, the data on the originator and the recipient of the virtual currency transfer must be collected etc., and the virtual currency "payment" must travel with the name of the transfer originator, unique identifier, payment account or virtual wallet identifier, personal identification code, name and number of the identity document or date of birth, place of birth and residential address.
- Additional information and documents to be submitted to the EFIU together with an application for an activity license: more detailed financial information;
- Two-year business plan;
- Details and description of the IT systems and other technological tools and systems;
- Business continuity procedure;
- Information on the (financial) auditor and internal auditor of the applicant;
- Information on persons with a qualifying holding in the applicant (it was decided not to include fit & proper requirements for the persons who hold a qualifying holding in the applicant).
- Audit: virtual currency service providers are required to audit their annual financial reports and submit auditor's opinion on compliance with the own funds' requirement once a year. Those already holding a license must submit the first auditor’s opinion latest on 1st of January 2023.
- Additional requirements to the board members: 1) must have a higher education and at least two years' professional experience; 2) may be a member of the board for only 2 other virtual currency service providers (three, if authorized by the EFIU); and 3) may be an EFIU contact person in another virtual currency service provider only if he is also a member of the board in that other service provider.
- Transferability of activity license: the license shall not be transferable to another person.
- Length of licensing procedure: due to the volume of additional data and documents, the decision to grant or refuse authorization will be taken within 60 days after the receipt of all appropriate documents and information. Currently it is 60 days from the filing. The EFIU may extend the period to total 120 days. As an exception, the EFIU may extend the amendment of authorization procedure (companies currently holding a valid license) for up to 150 days to bring the activities of the virtual currency service provider in compliance with the new requirements.
- New grounds for refusing or revoking an authorization: the EFIU has the right to refuse authorization if the compliance officer appointed by the virtual currency service provider also works as a contact person or as a head of unit for another virtual currency service provider. Furthermore, the EFIU has the right to revoke an activity license if the service provider has suspended its operations or if the service provider merges with the establishment of a new entity or merges and the acquiring entity continues to operate as a service provider.
- State Fee: the state fee for application for an activity license will be increased from 3 300 euros to 10 000 euros. The state fee for the change in the existing activity license is 4000 euros.
- Supervision Fee: the supervision fee for virtual currency service providers was excluded – partly because the supervision of virtual currency service providers is planned to be transferred to the Estonian Financial Supervision and Resolution Authority in the coming years.
- Cross-border activities: the virtual currency activity license obtained in Estonia does not restrict the provision of virtual currency services in another EU country or third country. If a company registered in Estonia operates across borders, it must be taken into account that the law of a specific country of destination applies to such activities.
For further information and advice, please contact:
Partner, Attorney-at-Law, Head of Banking and Finance
Senior Legal Advisor / Banking and Finance