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Draft legislation on stricter requirements for virtual currency activity licences passes first reading in parliament

30. May 2019 - 13:05

The Estonian parliament has passed the first reading of a draft law that constricts regulations of issuing the activity licences of virtual currencies to service providers who purchase and sell virtual currencies as well as provide virtual wallet services.

According to Minister of Finance Martin Helme, this is an important step towards preventing money laundering in the cryptocurrencies industry but it cannot remain the last one.

“The problem that the proposed legislation solves is the exponentially increased number of licence applications in a situation where the Estonian Financial Intelligence Unit cannot substantively assess the suitability of the activity licence applicant and cannot realistically check the activities of owners of activity licences in Estonia. In 2018, the number of licence applications submitted to the Financial Intelligence Unit was 1,430. A total of 1,182 applications were submitted for activity licences in regard to providing services related to virtual currencies, of which 629 were applications for the exchange of virtual currencies for money, and 553 applications for activity licences related to virtual wallet service providers,” Minister of Finance Martin Helme said while introducing the draft law in parliament.

According to the Finance Minister, dangers related to virtual currencies have been highlighted by institutions involved in preventing money laundering as well as the Government Anti-Money Laundering Committee. “This draft constitutes the first package of measures to regulate this industry more strictly. This will definitely have to be followed by more exhaustive steps. Preventing money laundering is one of the priorities of this government and I intend to pay close attention to it,” Helme affirmed.

The draft legislation makes stricter the requirements for receiving activity licences for the provision of virtual currency and wallet services in order to decrease the risk of money laundering and terrorist financing offences related to those services.

Pursuant to the draft legislation, the Financial Intelligence Unit, while processing virtual currency activity licence applications, will examine the background and suitability of board members of companies. In the future, board members will be required to be of an impeccable reputation.

In addition, according to the draft legislation, the registered address, location of the board and the permanent establishment of the company must be in Estonia. If the company is from a different country, it will have to open a branch in Estonia in order to apply for an activity licence.

In addition, the amendment increases the state fee for issuing an activity licence from 345 euros to 3,300 euros. The process of granting an activity licence or refusing to do so increases from 30 working days to three months.

During the session of the Finance Committee of the Estonian parliament on Tuesday, market participants and other parties from the industry presented exchanged ideas about the draft legislation. According to Toomas Vapper, Head of the Entrepreneurship and Accounting Policy Department of the Ministry of Finance, the purpose of the amendments is not to stop virtual currency trading in Estonia but to make the supervision more efficient in order to ensure that virtual currencies are not used for money laundering.

“It is of critical importance to regulate this industry more strictly in order to be more efficient in preventing and impeding dangers related to money laundering. Estonia must have control over who is issued licences in the virtual currency industry as well as over their future activities,” Toomas Vapper explained.

An application for a virtual currency service provider license must be submitted if the company wishes to provide the exchange of virtual currency for cash or vice versa. The activity license for a provider of a virtual currency wallet service is required if the company wishes to offer its clients a virtual currency storage service.

A virtual currency is a digital currency (such as Bitcoin) that can be digitally transferred, stored or traded, and which traders accept among themselves as a medium of payment, however, at the same time it is not a legal tender of any country. Pursuant to the draft legislations, the companies that already have an activity license are given time until 31 December of this year to bring their activities into line with the requirements of the act and to provide the Financial Intelligence Unit with additional data.

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