New Changes To The Estonian Crypto Licenses
In April 2019 the Estonian authorities issued a new draft law for crypto licenses. As expected, the idea was to make the licensing process stricter and more expensive. We understand that 100%, as it’s mandatory that Estonian authorities would have the capacity to supervise these licensed companies. In April, the first reading in the parliament was successful, and there wasn’t any news until last week when the second reading was successfully completed. We hoped that the lawmakers will re-think some of the proposed changes, and they really did that. They made it even stricter! Some proposed changes are quite ridiculous, while the rest is just utter nonsense. Let’s go over the main amendments step by step with our comments.
1. The applicant should have the IBAN account at the time of applying for the crypto license.
Comments:
We can see in the market that banking entities are asking for the license before they open the account for the crypto company. Now, we have a situation where you can’t get a crypto license before you have the IBAN in the European banking institution. So you can’t get one without the other, and it applies both ways. Catch-22 type of situation. The only way to approach this is to open an account before applying for the crypto licenses, but at the time of applying you should only state that you’re going to do software business or developing blockchain solutions (but not gonna deal with crypto per se).
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2.US citizens can obtain licenses.
Comments:
We’ve covered this before — currently, a US citizen can not obtain the Estonian crypto license because of the wording on the FBI checks. In the future, that will be possible, if the person provides an additional statement given under oath. This is actually positive — in theory. I am not sure how possible the actual procedure is.
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3.Additional information on the provided services.
Comments:
Currently, you do not need to provide any further explanations about your plans with the crypto business. According to the new law, you will need to provide additional details about the business. In our opinion, that’s a completely reasonable requirement.
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4. Processing time of the license will increase.
Comments:
At first, it was proposed that the Estonian FIU will have a processing time of 90 days instead of the current 30 days. With the latest proposal, the processing time will be 60 days, but the FIU can make a decision to extend the licensing to 120 days if they wish. Remains to be seen how often that will happen. 4 months is quite a long time, nevertheless.
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5.Local operations in Estonia.
Comments:
The new proposal stipulates that the management has to reside in Estonia. This one, in our humble opinion, is the worst requirement by far. It’s also a contradictory one — on the one side the country is promoting e-residency and positioning itself at the forefront of digital innovation and technology, and on the other hand, the authorities are requiring you to locate to Estonia. What will be the result of this? Many companies looking to appoint nominee board members. Which makes it even worse for the authorities (I doubt the excel-sheet of the lawmakers even consider these effects).
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6. Share capital requirement introduced.
Comments:
The new draft proposes the new required share capital to be 12 000€, fully paid in. We have not formed a concrete opinion on this, but it seems excessive, as the scope of the license is pretty narrow. Why 12 000€? What’s the calculation behind that?
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7.State fee increase.
Comments:
Currently, the state fees are 345€ per license. The new law proposes to increase the state fee to 3300€. Why 3300€? No clue. Also, the Estonian Financial Supervisory Authority proposed the state fee to be 20 000€. Where that number comes from is not clear (that proposal was rejected, thankfully). The EFSA (license is issued by the FIU, not the EFSA) would cancel the issuance of the licenses to remove any AML risks if they could. It’s understandable after completely screwing up with the Danske bank and other Scandinavian banks who laundered Russian money in Estonia. One more stain on their CVs would dampen the outlook for the career bureaucrats.
These were the main proposed changes. The third reading is already next week, 11.12.2019. If it’s passed, then the law will be enforced starting from 10.03.2020 for all new applicants. All current license holders will have a grace period until the 1st of July, 2020.
