Partner / Head of Banking and Finance
Senior Legal Advisor / Banking and Finance
On 21.09.2021, the Estonian Ministry of Finance published a draft bill to amend the Estonian Money Laundering and Terrorist Financing Prevention Act (MLTFPA). The main goal is to reduce the risks arising from virtual currencies, virtual currency service providers and their activities.
The draft law is in a consultation phase, but is scheduled to enter in force on 01.01.2022. It has already created a lot of controversy, but if it enters into force as planned, then:
- The holders of a virtual currency service provider activity licence must bring themselves in compliance with the new requirements and submit relevant material to the Estonian Financial Intelligence Unit (EFIU) latest by 18.03.2022. Otherwise EFIU shall revoke their license;
- The persons offering new virtual currency services (please see below) must obtain virtual currency service provider licence. The relevant deadline is unfortunately not provided (hopefully it will be specified soon), but considering the maximum length of the authorisation proceedings, they should start preparing the material as soon as the deadline is published.
The following are the 12 most important changes that both the new entrants and the existing virtual currency service providers must take into account if the draft bill enters into force as planned:
- New virtual currency services: under the current MLTFPA only a virtual currency wallet service and a virtual currency exchange service qualify as virtual currency services. The new draft law proposes to add: 1) virtual currency transfer service; and 2) issuance of a virtual currency, the organization of its offer or sale, or provision of related financial services.
- The minimum capital requirement: will be raised from 12,000 euros to 350,000 euros.
- Additional due diligence measures: virtual currency service providers must start implementing the "travel rule" requirement. This means that when starting a transaction, data on the originator and recipient of the virtual currency transfer must be collected. The due diligence measures must be applied every time when providing a virtual currency service as an occasional transaction outside the business relationship if the value of the transaction exceeds 1,000 euros or an equivalent in other currency (in one or several related payments).
- Additional information and documents to be submitted together with an application for an activity license: the following information and documents must be additionally submitted to EFIU:
- more detailed financial information;
- two-year business plan;
- details of the IT systems and other technological tools and systems;
- business continuity procedure;
- information on the applicant's (financial) auditor and internal auditor;
- information and documents on persons with a qualifying holding in the applicant. The persons holding a qualifying holding must comply with the fit and proper requirements.
- Acquisition and increase of a qualifying holding must be notified to the EFIU in advance to obtain an approval from the EFIU.
- Additional requirements to board members: 1) must have at least a higher education; 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 activity license shall not be transferable to another person. The activity license shall be revoked 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.
- 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 EFSRA may extend the period to 120 days.
- 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. The EFIU has the right to revoke an activity license, if the service provider has suspended its operations.
- State Fee: will be increased from 3,300 euros to 10,000 euros.
- Supervision Fee: 1% of the share capital and 0.035% of the total amount of initiated and accepted transactions.
- Cross-border activities: the procedure for providing Virtual currency services in other countries is specified and much more detailed.
We will keep you updated on the progress so stay tuned!
For further information and advice, please contact: firstname.lastname@example.org