24
June
2022
•
Article
Crypto businesses leave Estonia after deadline to comply with new regulation passes
VASPnet data indicates crypto businesses are unwilling or unable to comply with the newly implemented Travel Rule regulation in Estonia.
Introduction
Crypto regulations in Estonia
After Estonia became one of the first jurisdictions to implement a regulatory regime for virtual assets in 2017, the country quickly established itself as a popular destination for crypto businesses seeking a regulated status. Between the years 2017 and 2019, the jurisdiction issued operating licenses to more than 1,300 virtual asset service providers (VASPs).
On 23 February 2022, as part of a wider effort among European policymakers to de-risk crypto assets, the Estonian parliament adopted a draft Money Laundering and Terrorist Financing Prevention Act that outlined stricter regulatory scrutiny for VASPs in the jurisdiction and increased capital requirements to enter the marketplace.
Set forth by the FIU, the updated Act also states that VASPs must adhere to new transparency requirements; anonymous accounts are no longer permissible and legal persons are subject to a penalty of up to €400,000. Such requirements indicate the country’s effort to comply with Travel Rule guidelines issued by the Financial Action Task Force (FATF) in 2018.
The amendments to the Act officially came into force on 15 March 2022 and indicated 15 June 2022 as the deadline for licensed entities to comply.
The deadline to comply has passed. What’s happening now?
On 1 June 2022, regulatory data from VASPnet indicated there were a total of 368 regulated VASPs in Estonia, a number that had already dramatically decreased since the beginning of the year when the country started revoking the majority of previously issued licenses. On 16 June, a day after the deadline to comply, this number had dropped to 289 indicating an overall decrease of more than 21%.
Data from VASPnet also indicates that many businesses that lost their regulated status initiated the change themselves and voluntarily rescinded their own licenses. This implies that the dramatic drop is likely due to an inherent unwillingness or inability to comply with the new regulatory regime.