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Ministry of Finance is exploring the possibilities to regulate cryptographic assets

20. November 2019 - 15:52

Ministry of Finance has published a consultation paper how to regulate cryptographic assets.

„In Estonia, more and more capital is raised by using innovative technology-based solutions which are often based on cryptography. However, these methods of engaging capital are largely unregulated and investor’s rights are not adequately protected. For this reason the Ministry has initiated this proposal,“ said Märten Ross, the Deputy Secretary-General of the Ministry of Finance.

A business model in which an entrepreneur accepts investments in an official currency or in virtual currencies and, in return, issues units inscribed on a blockchain (i.e. tokens), is referred to by multiple terms (ICO, STO, TGE). These types of novel assets may be collectively referred to as cryptographic assets.

Estonia is a well-known for its e-Governance solutions and has a positive image as an IT centered country and this has led to multiple foreign crypto-service providers to register their business activities in Estonia.

New technologies may ease the intermediation of capital, but these technologies also include a number of risks. For example, consumers and investors are at a risk of fraud due to lack of clear rules. Further, money laundering and terrorist financing risks are also prevalent, since cryptographic assets may enable to transfer funds without identifying the parties to the transaction.

The consultation paper drafted by the Ministry of Finance focuses on the following aspects:

• how cryptographic assets should be defined;
• which information should be disclosed to investors that invest in cryptographic assets;
• which rules should apply to transacting with ang registering cryptographic assets;
• which requirements should apply to crypto service providers.

One key issue is to assess whether the supervision over crypto or virtual currency service providers should be excercised by the Financial Supervision Authority, or if such supervision would be obligatory from exceeding a certain threshold of assets or number of clients. Currently virtual currency service providers must obtain a license from the Financial  Intelligence Unit, but supervision over the business activities of such entities is excercised in a limited capacity.

The Ministry of Finance is looking for feedback on the consultation paper from the Ministry of Justice, the Ministry of Economic Affairs and Communications, Financial Supervision Authority, Estonian Bank, Estonian Crypto Association, MTÜ FinanceEstonia, Estonian Banking Association, Estonian Bar Association, and from others.