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Estonia's Toughened Crypto Regulation Causes Uproar

May 22, 2019   Bitcoin

It appears that the time when many blockchain projects pinned high hopes on Estonia as a new crypto haven are over. Once being considered as one of the few forward-thinking countries in Europe, the government of which kept an open mind with regard to blockchain startups and their initiatives, Estonia seems to have abandoned this course.

Eesti Consulting raises the alarm

A case in point is an indignant report released by Eesti Consulting OU, a consulting company that provides assistance in acquiring cryptocurrency license and legal entity formation for both domestic and foreign startups.

The report claims that the emerging blockchain projects, which display interest in registering in that particular jurisdiction, are now facing an unprecedented bureaucratic resistance due to the recent toughening of regulation concerning the issuance of cryptocurrency (virtual currency activities) licenses.

Eesti complains that the introduced measures are only several steps short of being draconian, and that they had already crippled the image of Estonia that makes effort to become a highly competitive European economy through the creation of an appealing digital business environment for foreign investors, for instance, initiating the e-Residency program.

The reasons for regulatory toughenings

The controversial amendments to the cryptocurrency regulations were introduced on March 3, after the Estonian government passed the bill on virtual currency activity licenses and virtual currency wallet services. The purpose of this bill was to bring the country’s legislation in conformity with the Fourth Anti-Money Laundering Directive adopted by the member states of the European Union.

The official explanation had it that such stiffening of regulation was required to mitigate the risks of occurrences of money laundering and other financial wrongdoings associated with this area of digital entrepreneurship. 

Martin Helme, the Minister of Finance of Estonia, praised this legislative initiative, claiming that the country had drawn the necessary conclusions from the similar challenges in the banking sector and intend not to repeat the mistake with cryptocurrencies.

What it means for crypto projects

Under this bill, the Estonian Financial Intelligence Unit is obliged to conduct a thorough background check of all domestic and foreign legal entities that apply for the corresponding license. Moreover, the crypto companies that obtained this permit even before the bill came into force would also have to comply with its requirements and provide additional information to the law enforcement agencies until December 31, and fulfill other statutory requirements. Failure to do so may result in the revocation of a license by the state financial market regulator.    

The new regulations also stipulated that the processing period for all new applications to be extended from 30 to 90 days. The state fee for the license issuance was increased almost tenfold, from 345 euro to 3330 euro per permit. To add salt to the injury, the bill demands all crypto companies be either incorporated in Estonia or operate as a branch office of a foreign entity. Such an enterprise must also have a registered office, as well as the board of directors, operating on the territory of the country.

Eesti Consulting OU insists that a lot of promising blockchain startups have already abandoned the idea of applying for a license in Estonia, which will certainly have a disastrous impact on that sector of the economy.

Author: Alex Paulson for Crypto-Rating.com

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