The Estonian Financial Intelligence Unit (FIU) issued 529 virtual currency wallet service provider licenses and 595 virtual currency exchange service provider licenses in 2018, according to an e-mail received by Abacus Legal from the FIU.
The FIU estimates that the majority of the licenses were issued to foreign businesses. In addition, the FIU estimates that the majority of the firms applied for and received approval for both types of licenses simultaneously.
Few Applications/Licenses Rejected or Revoked by the FIU
In 2018, the FIU rejected 24 virtual currency wallet service provider applications and 34 virtual currency exchange service provider applications. The FIU did not provide the reasons for the not approving the applications. Estonian law permits the rejection of applications if the applicant fails to submit the necessary documents or a member of the management body, procurator/agent, beneficial owner or owner was convicted of a criminal offense.
The FIU also revoked 12 wallet service provider licenses and 17 exchange service provider licenses.The FIU did not provide the reasons for the revocation of the licenses. Estonian law permits the revocation of a license if the applicant intentionally submitted incorrect information; the firm repeatedly fails to follow the precepts of the supervisory authority; or the firm has not commenced operation within six months.
Legal Certainty and Location Independent Business Practices Attract Virtual Currency Firms
Virtual currency companies find Estonia an ideal jurisdiction to conduct business for a wide-array of reasons. Estonia is one of the few European Union (EU) member states that have enacted legislation to explicitly regulate virtual currencies. This has provided virtual currency businesses with a high degree of legal certainty.
The ease of establishing a company through the e-residency program, minimal documentation requirements for the licensing of a virtual currency firm, and expeditious licensing process also provide foreign businesses with a favorable domicile to establish an EU-wide presence.
Draft AML Legislation Will Increase Operating Costs
Foreign virtual currency firms considering establishing a presence in Estonia should take into account an AML bill currently being drafted. The draft law imposes additional licensing requirements; requires firms to enhance customer due diligence procedures; and extends the application review process from 30 days to as much as six months.
The draft law also requires companies registered in Estonia to have their place of business and head office in Estonia and companies not registered in Estonia are required to establish a branch in the country.
After the legislation is enacted, a virtual currency firm that already has a license will be given six months to meet the new requirements. The FIU will revoke a firm’s license if it does not meet the requirements in six months.