The changes to Estonian AML Act were approved by the Parliament on 23rd of February. The new AML rules will come into effect by 15th of March 2022 and the state fee for obtaining the license will be 10 000€.

As of 8 March 2022, 394 valid licenses for the provision of virtual asset services had been issued in Estonia. These licensed service providers have until 15th of June 2022 to bring their activities into line with the new regulation. Which means modifying and submitting all existing and new supportive documentation to the Financial Intelligence Unit (FIU). Failure to do so will result in the revocation of the licenses. All the companies with valid licenses will also have to pay the state fee of 4000€ for making the changes in their license application.

Main changes are following:

1. Share capital of a virtual currency service provider must be a minimum of:

· 100 000 euros for virtual currency wallet and exchange services and for the organizations of a public or direct offer or sale or the provision of related financial services on behalf of an issuer involved in the issuance of virtual currency (including ICOs).

· 250 000 euros for transfer services. A virtual currency transfer service is a service that allows a transaction to be made at least in part electronically through a virtual currency service provider on behalf of the originator for the purpose of transferring the virtual currency to the recipient’s virtual currency wallet or account. Transfer service is considered as any kind of transfer between two wallets so if the crypto exchange offers account withdrawals off-exchange in cryptocurrencies, this transaction is also a transfer service because the funds move from wallet A to wallet B.

All service providers will be required to have a minimum of 100 000 or 250 000 euros of share capital, depending on the type of service offered, increased from the currently required 12 000 euros.

Undertakings that are issuers of virtual currency are not required to apply for a license, but only persons who provide a public or directed offer or sale organization service related to the issuance of virtual currency.

Services that require license:

Virtual Currency Wallet Service

A virtual currency wallet service is a service that creates or maintains encrypted keys for customers that can be used to store, store and transfer virtual currencies.

Virtual Currency Exchange Service

A virtual currency exchange service is a service in which a person exchanges a virtual currency for money or money for a virtual currency or one virtual currency for another.

Virtual Currency Transfer Service

The purpose of the transfer service is to transfer virtual currency from one customer to another. This means that a person does not provide a wallet or exchange service, but mediates the movement of virtual currency from one person to another. As part of the transfer service, the virtual currency service provider enters into a transaction on behalf of a natural or legal person, within the framework of which the virtual currency moves from one virtual currency wallet or from one account to another. The service includes all services that enable a person using the service to transfer ownership, possession, other control over the virtual currency or the opportunity to benefit from the virtual currency to other persons.

Issuing a virtual currency (ICO)

Issuing Virtual Currency — Virtual currency can be issued and / or transferred using spreadsheet or block chain technology. One mechanism for distributing such assets is an event commonly referred to as an ICO (initial coin offering). In an ICO, the issuer or PR engine usually offers virtual currency for sale for cash or another virtual currency. An ICO may be involved in raising money for a project. At the time of the offer, issuers or other persons associated with the ICO may allow buyers of the virtual currency the opportunity to earn income from changes in the price of the virtual currency or the execution of the project. Once issued, the virtual currency may be resold on the secondary market.

2. The following information and documents shall be submitted:

1) the amount of the share capital of the assets and the documents certifying the share capital contribution. The share capital contribution needs to be done by monetary payment to an active company bank account. This also includes updating of the Articles of Association and company information in the Commercial Registry. The share capital payment should be paid to the company bank account from the shareholders’ personal bank account.

2) opening balance sheet and overview of income, expenses, profits and cash flows and the underlying assumptions or, in the case of an operating company, the balance sheet and profit and loss account at the end of the month preceding the application for an activity license;

3) a business plan for at least two years (from the submission date).

The business plan of a virtual currency service provider shall contain a description of the nature of the proposed business activities, organizational structure and management structure and a description of the rights, obligations and responsibilities of persons involved in the provision of planned services, as well as a description, forecast and analysis:

· the amount of income and expenses by fields of activity;

· obligations related to the provision of services;

· the amount of the applicant’s assets and share capital;

· strategy, competitors and planned market share;

· the planned activities, the services provided, the products offered and the expected customers, including the expected share of customers resident in Estonia and other countries, and the volumes of the services provided;

· plans of balance sheets and financial indicators, which set out, inter alia, the income, expenses, profit and cash flows and the assumptions on which they are based;

· general principles of risk management and risk management strategy;

· intermediaries and other persons and services used in the business activities of the applicant;

4) risk appetite statement and risk assessment;

5) a description of the IT systems and other technological means and systems necessary for the provision of the planned services, including a description of the security measures used to ensure the continuity of the service and the protection of customer assets, a description of business continuity measures and the level of technical organization;

6) a description of the IT systems and other technological means used in the provision of the planned services by which the service provider ensures the transmission of information and identification of the customer and its actual beneficiaries, including the identification and immediate notification of circumstances characterizing a higher risk and suspicious transactions. There is no required format of the descriptions that must be submitted.

7) information concerning companies in which a member of the management body holds more than 20 per cent, the information includes the name, location, registry code and number of shares owned by a member of the management body.

Please keep in mind that all original documents must be accompanied by documents with an Estonian translation!

*The full list of the documents can be found in §70 of the Act.

If a service provider wants to use subsidiaries, it must submit the same information about them.

3. The own funds of a virtual currency service provider shall at all times correspond to one of the following amounts, whichever is greater:

1) the amount of share capital;

2) the amount of own funds calculated in accordance with the calculation methodology below:

· If the service provider provides only the wallet and ICO services, the own funds of the service provider shall not be less than 25 per cent of the fixed overheads of the previous financial year. Overheads are reviewed annually.

· If a service provider provides the transfer or exchange services, the own funds of the service provider shall be at least equal to the sum of the following volumes:

i. 4 percent of the part of the volume of transactions entered into within the framework of the provision of services which is up to or equal to 5 million euros;

ii. 2.5 percent of the portion of the volume of transactions entered into in the framework of the provision of services which exceeds 5 million euros but does not exceed 10 million euros;

iii. 1 percent of the portion of the volume of transactions entered into in the framework of the provision of services which exceeds 10 million euros but does not exceed 100 million euros;

iv. 0.5 per cent of the portion of the volume of transactions entered into in the framework of the provision of services which exceeds 100 million euros but does not exceed 250 million euros;

v. 0.25 per cent of the part of the volume of transactions made within the framework of the provision of the service which is more than 250 million euros.

4. Service providers are required to implement real-time risk analysis.

Accounts opened with Estonian virtual assets service providers cannot be anonymous and service providers cannot offer anonymous accounts or wallets. This is a simplified version of the FATF (Financial Action Task Force) “Travel Rule”. Under the “Travel Rule”, providers must gather data on the originator of a transaction and share it with the service provider of the recipient of the transaction when completing a virtual currency exchange or transfer.

The data collected and passed along with the transaction is as follows:

For natural persons (individuals):

· Full name;

· Payment account, virtual asset wallet identifier or, if not applicable, a unique identifier of the transaction;

· Personal identification code (if available) — an Estonian unique personal identification system that derives from the date of birth;

· Date of birth, if no personal identification code is available;

· Place of birth, if no personal identification code is available;

· Name and number of their identity document (passport, ID card);

· Residential address.

For legal persons (companies, etc):

· Full legal/business name;

· Payment account, virtual asset wallet identifier or, if not applicable, a unique identifier of the transaction;

· Estonian registry code; if not applicable, a registry or identification code of the resident country;

· Address where business is conducted.

According to the regulation if the recipient’s virtual currency wallet does not have a virtual currency service provider or the recipient’s service provider is unable to receive or process data, the originator’s virtual currency service provider shall ensure real-time monitoring of transactions and risk analysis of each transaction using a dedicated technology solution. The virtual currency service provider shall store the data in such a way that it can be provided without delay upon request by the supervisory or investigating authority. That meant the companies could also use the automated crypto transaction monitoring systems for doing the real-time risk analysis. If it is not possible to share information with the recipient’s service provider, the service provider must simply store transaction data and monitor all the transactions live to stop any suspicious transactions from occurring.

The virtual currency service provider shall keep the documents, copies of documents and data related to the fulfillment of obligations for five years after the termination of the business relationship with the client.

5. More attention will be paid to the company’s connection with Estonia and the company’s actual place of business.

Place of business and management board members must be in Estonia. The FIU has the right to refuse to issue a virtual currency activity license if the information provided by the company shows that its purpose is not to operate in Estonia, or its business has no connections with Estonia other than the Estonian location and the members of the management board located in Estonia.

This requirement was added since currently most service providers licensed by Estonia have only a weak relationship with Estonia. The analysis concluded by the FIU indicated that many service providers have only a few employees, if any, in Estonia and their client base consists of a marginal share of Estonian clients.

6. The service provider’s annual reports will have to be audited.

The audit obligation applies to the virtual currency service provider’s annual reporting periods beginning on or after March 10, 2022. For the companies whose fiscal year begins earlier than March 10, 2022, the auditing obligation shall be applied from 2023 onward, but if the company’s fiscal year starts after March 10, 2022, the auditing obligation is applied right away.

The audit must be done by an association of sworn auditors or a self-employed sworn auditor. The audit firm shall verify compliance with the own fund’s requirements established by the virtual currency service provider as of the balance sheet date and submit an opinion to the virtual currency service provider and the FIU by the deadline for submission of the respective annual report of the virtual currency service provider.

Please keep in mind that internal and external audit must be provided by two different service providers!

7. The service provider shall appoint an internal auditor to perform the tasks of the internal audit activity.

The virtual currency service provider shall implement adequate internal control measures covering all levels of management and operations of the virtual currency service provider.

The requirements and legal bases for the activities of a certified internal auditor apply to the internal auditor. A certified internal auditor is a person who has passed the special part of internal auditors and the sub-part of the certification of internal auditors of the professional examination and who has been awarded the qualification of an internal auditor by a decision of the minister responsible for the area.

The internal auditor shall not perform any duties which give rise to or may give rise to a conflict of interests.

The task of the internal auditor is to check the compliance of the activities of the virtual currency service provider and its managers and employees with the legislation, precepts of the FIU, decisions of the management bodies, internal rules, agreements entered into by the virtual currency service provider and good practice.

In practice, this means that service providers must use the “three lines of defense” internal control system, required from other financial service providers as well.

State fee

The state fee for obtaining the license is 10 000 euros and a state fee of 4,000 euros shall be paid for the review of an application for the amendment of an activity license in the field of virtual currency. No state fee shall be charged for the review of an application for change if the change is limited to the change of the address data of the location of the company within Estonia.

Recent updates that are still applicable:

Currently the main requirements for cryptocurrency license holders are:

· Management board member and AML officer must reside in Estonia;

· A minimum of 12 000€ share capital;

· Passport copies and non-criminal records from all countries of citizenship;

· CV-s (resumes) and education info for all participants in the company;

· Physical presence in Estonia including the office space;

· Information about company bank account including bank name and IBAN code in the European Economic Area(EEA). The account needs to be opened at a traditional bank or e-money institution or payment service provider operating officially in the EEA and approved by the Estonian Financial Supervision and Resolution Authority(FSA);

· The description of services and the document describing management board member activities;

· AML internal procedures that are compliant with the AML regulations.

The analysis made by the FIU indicated that the legislative amendments made in 2020 did not fulfil their purpose. Therefore the authority decided to add new and stricter requirements.

Management board member

A member of the board of a virtual currency service provider must have a university degree and at least two years of professional experience.

A member of the management board may not hold the position of more than two members of the management board of a virtual currency service provider.

All management board members must be located in Estonia. The management board member is a person who will be personally responsible for the company’s activities and that is why he/she needs to have a clear background and abilities to represent your company with the FIU.

As in the previous updates, members of the management body can’t have a bad business reputation or any unexpired conviction for a criminal offense.

AML Officer

The AML officer is responsible for all reporting and communication with the Estonian FIU. Only a person who possesses the education, professional aptitude, required abilities, personal qualities and experience and impeccable reputation may be designated as an AML officer. When applying for a cryptocurrency license, an AML Officer is required for every company. The appointment of the AML officer shall be coordinated with the FIU.

Responsibility areas:

· Assuring company’s compliance with Anti Money Laundering regulations, including drafting necessary internal regulations and applications to be submitted to regulating authorities.

· The organization of the collection and analysis of information referring to unusual transactions or transactions or circumstances suspected of money laundering or terrorist financing, which have become evident in the activities of the company.

· Reporting to the FIU in the event of suspicion of money laundering or terrorist financing.

· Performance of other duties and obligations related to compliance with the requirements of the Money Laundering and Terrorist Financing Prevention Act.

· Monitoring and implementation of an ongoing AML training program for other employees.

According to the new law, the contact person of a virtual currency service provider may not be the contact person of another virtual currency service provider or the head of a structural unit. A member of the management board of a virtual currency service provider may work as a contact person or head of the respective structural unit only in those virtual currency service providers where he or she is a member of the management board.

Non-criminal records extract

Non-criminal record should be issued by local police/authority and can’t be older than 3 months. It also needs to be certified and translated into English.

In situations where it is not possible to obtain a countrywide statement of the absence of criminal records (like it is with the US citizens), it will be possible to submit a statement under oath made at the notary in Estonia claiming that the required person is absent of criminal offences.

Transferability of activity license

The activity license shall not be transferable to another person. The activity license shall be revoked if the service provider merges with the establishment of a new entity or merges and the acquiring entity continues to operate as a service provider.

The FIU has the right to refuse to issue an activity license in the field of virtual currency if:

· a significant connection between the undertaking and another person impedes the exercise of adequate supervision over the applicant or it is impeded due to the requirements arising from the legislation of the other state with which the applicant has a significant connection or the implementation thereof;

· The business doesn’t intend to operate in Estonia or has no significant connections with Estonia (it’s not enough to have only an office space, management board and AML officer in Estonia);

· the internal rules are not sufficient, proportionate and unambiguous considering the nature, extent and degree of complexity of the activities of the applicant or are in conflict with applicable law;

· Information technology systems and other technological means are insufficient for the provision of service;

· there is doubt as to the legal origin of the share capital;

· A license previously granted to an entity or a holder of a qualifying holding was revoked.

*The full list can be found in §72 of the AML Act.

The license can be revoked if:

· Service provider is inactive longer than six consecutive months;

· The company has chosen Estonia as a place for license application and registration in order to avoid stricter AML requirements in a foreign country where it actively operates;

· Service provider publishes wrong or misleading information or advertisement about its activity;

· the amount of own funds of the virtual currency service provider does not comply with the requirements provided by law;

· A company is engaged in money laundering or terrorist financing or has violated international sanctions.

*The full list of the grounds for license revocation can be found in §75 of the Act.

If service providers don’t bring their activities into compliance with the proposed amendments and do not submit all the necessary documents, the FIU will also revoke their license.

A business, members of its management body, or holders of a qualifying holding won’t be allowed to apply for a new license within two years from the date of revocation of an existing license or refusal by the FIU to issue a license.

Submission of the application

The application can be submitted through Consumer Protection and Technical Regulatory Authority webpage.

The FIU decides whether to grant a license within 60 working days of receipt of all required documents and information.

The virtual currency service provider can no longer give notice of temporary withdrawal.

If you’re interested in obtaining the crypto license, please get in touch with us via our webpage or write directly to tallinn@comistar.com.

Cryptocurrency license requirements in Estonia (2022 updates) was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

You can also check our Youtube video with comments on the proposed changes here.

A couple of weeks ago the Estonian parliament published a new draft law for crypto companies in Estonia.

Overall, it’s a major disappointment for all industry participants. Except, perhaps, for the Estonian FIU (the liability of supervising the licensed companies would move from the Estonian FIU to the Estonian FSA). They would have less work to do.

And if you’ve ever worked as an official, then that’s the dream.

The proposed changes have caused a lot of questions and worry from license holders and (potential) license applicants. While I can’t guarantee anything, it’s likely that the law won’t be enforced quite like the first draft is proposed. Why?

Let’s examine some of the reasons for my optimism:

• The draft law was created by the old government. Many people in the Ministry of Finance have changed. My colleagues from another firm have had several meetings now with the people from the Ministry of Finance, and there’s a light at the end of the tunnel.
• Finance of Estonia, the association of FinTech market participants, ordered a lengthy analysis on the proposed changes together with more reasonable proposals from a top law firm.
• The proposed draft law was somewhere between unreasonable and moronic. Especially the proposed time-frames for existing license holders.

Hence, I would encourage all the applicants to keep the head calm. There will be changes, but it’s very likely they won’t be as bad as the first draft suggests. Moreover, if you’re interested in the license today, it’s probably the best time to get started. You’ll have enough time to obtain the license and get your business going before the new regulation takes effect.

Proposed Changes

Here are some of the most important proposed changes — it’s not an all-inclusive list, but it has the juiciest ones listed.

Under the new requirements, service providers must have/provide, among other things, the following:

• the share capital of at least EUR 25,000, or a quarter of the previous year’s fixed costs;
• a registered location and head office located in Estonia;
• the management board must consist of at least two persons;
• the management board must have an impeccable business reputation, knowledge, skills, experience, education and professional suitability for the management of the service provider. This knowledge, skills and experience must include aspects such as understanding the technology on which the service is based, preventing and avoiding risks, protection of customers’ interests, the preservation of financial stability and avoidance of illegal activity;
• a business plan;
• balance sheet and statement of income, expenses, profits, losses and cash flows and, if available, the accounts for the last three financial years (if applicable);
• internal rules corresponding to the requirements in the act;
• internal accounting rules;
• information concerning the information technology systems and other technological means and systems necessary for the provision of the planned services, including a description of the security measures used to ensure continuity of service and the level of technical organisation of activities;
• security policy, or rules and information on ensuring security, including measures to ensure cyber-security;
• internal control rules and rules of procedure which ensure the fulfilment of obligations in connection with the prevention of money laundering and terrorist financing (this requirement already applies), now including financing of the activities of the applicant;
• a description of the applicant’s organisational structure;
• a list of shareholders, with identification details (already applies today);
• information on the qualifying holding;
• information on the managers of the applicant, including identification information, details of residence, a description of their education, a complete list of jobs and positions held, and, in the case of members of the management board, a description of their area of ​​responsibility, as well as supporting documents which the applicant considers relevant (already applies today);
• information concerning companies in which the participation of the applicant or a member of its management body exceeds 20 per cent;
• information concerning the audit firm and internal auditor of the applicant;
• documents certifying the number of own funds, together with a sworn auditor’s report;
• a list of payment accounts held in the name of the service provider (already applies today).
• Application fee to decrease but annual supervision fee will apply

The application state fee will decrease from the current 3300€ to 1000€.

The time-frame increases to up to 6 months (assuming all documentation is provided as required).

The most questionable aspect of all the proposed changes is the time-frame. The first draft requires the current license holders to update their documentation by the 1st of October, 2021. This, of course, is completely ridiculous, considering, that the act was proposed to come into force on July 1, 2021.

In essence, if the EFSA processes applications within six months, then you’d need to submit the new documentation latest on April 1st, 2021. But the new regulation would take effect on July 1st, 2021. I.e, the EFSA has no law to process the submitted documents before the 1st of July. So it’s impossible they would process the licenses by the 1st of October. Go figure.

What Will Happen?

I know what you’re thinking.

You’re thinking that everything you just read is too much. Too uncertain.

It is.

What the authorities have proposed is a copy-paste regulation from the Investment Firms Act. But Investment Firms are totally different beasts and provide different services. And this has been the main point which the law firms and market participants have highlighted.

Bitcoin isn’t a security. If you buy bitcoin, it doesn’t mean you’re buying securities or equity. It’s the same as currency exchange. It makes no sense that exchanging fiat to crypto or vice versa is regulated in the same way as investment firms.

Another big thing is the time-frame. In whichever form the new law will be adopted, there should be at least a 2-year transfer period for current license holders, considering, that many of them just went through the licensing process in 2020. This is one of the areas where we will have improvements.

There are other more and less important objections around this new proposed law.

The downside is that there will be changes. And it will create a certain level of uncertainty going forward.

The upside is that lawyers, associations and market participants are actively working to make the new changes reasonable. And it seems we have more ears in the ministry now than we had before.

We’ll see a number of changes to the act before it’s passed.

There is a light at the end of the tunnel.

New Crypto Regulation Changes In Estonia? was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article was first published on our blog.

Unless your freelancing is based on writing as a service, it’s likely that you don’t spend too much time honing your writing skills.

Most freelancers aren’t good at copy (neither am I, but doing my best to get better). It’s because your main expertise lies in a different domain. You’re either an IT consultant, software developer, UX designer, etc.

So even if you wanted to, it’s difficult to find the time to practice your copywriting skills. Unless it’s an absolute priority for you.

And maybe it should be.

A good story enables your audience to relate with you. A good story evokes emotions. A good story sells.

And even if you aren’t that good at writing, you can use formulas. And these formulas can make all the difference to the effect your copywriting has.

In this article, I want to highlight 5 different copywriting formulas you can use to structure your copy.

But as with anything, it’s you that has to grab the shovel and dig in. I am not doing the digging for you. I can’t.

The DIP

The DIP formula is pretty simple. And there are a variety of similar formulas that can be used. The DIP formula means that you first describe where you’re today, then you go back and describe the low point of the journey (your own or your client’s if you’re telling a story of your client), and then you tell the transformation (how did you climb out of the hole).

Today — Low Point — Transformation

Here’s a short and simple example (completely fictional):

I am a founder of an 8-figure SaaS company serving hundreds of thousands of clients..,

But it wasn’t always like that. You see, when I was 20, I was lost, addicted to weed, and planned to steal metal to have money to eat…

But then, I met Jake. Jake was different, he was actually listening to me. Jake was willing to give me a shot and teach me…

The DIP formula is probably the formula I use the most. It’s dead simple, and everyone has a story to tell.

The Four U’s

This isn’t exactly a formula. It’s what you have to pay attention to when you’re trying to write a convincing copy. It’s also one of the things that I learned when I bought the $5000 Todd Brown’s E5 marketing course.

This principle works well for your social media marketing copy. Because it’s possible to hit all four U’s with just a few sentences.

Useful — Be useful to the reader

Urgent — Provide a sense of urgency

Unique — the main benefit is somehow unique (a unique mechanism)

Ultra-specific — Be ultra-specific

Last call! Webinar about the two new EU VAT rules that will affect your Amazon e-commerce business in 2021. Only 3 seats left!

Useful — there will be changes to the EU VAT rules that will affect my business.
Urgent — these changes are taking place in 2021, and 2021 is around the corner.
Unique — a webinar that tells you all about it (and how to comply).
Ultra-specific — VAT changes for Amazon e-commerce businesses in Europe.

Objections

If you’re writing a copy to sell something, then your audience always has objections. Even if they don’t voice them. And there are common objections:

1. I don’t have time.

2. I don’t have money.

3. I don’t think it works for me.

4. I don’t trust you.

5. Why do I need it?

Think about all the objections that your clients may have around your offer. Then write them down. Then put them in a hierarchical order. Once you’ve done that, write down answers to these questions.

For example, one of the objections could be “I don’t trust you”. Then your job is to provide proof points of your track record. And why you’re an authority in this field. And why they should trust you because you’ve done XYZ and worked with Will Smith. Etc.

And once you’ve done that, switch these questions to headlines. “I don’t think it works for me” → “How UX designer grew her business from $10k/month to $148k/month using our Offer Exclusivity Formula”. And in the copy, you can write how it works for every industry and tell different client success stories. To kill that objection.

Awareness — Comprehension — Conviction — Action (ACCA)

This type of copy is more of a diagnosis. Telling how some problem that they have is affecting them.

Awareness — Bring attention to the problem.

Comprehension — Describe the different ways of how this problem affects them. And present a solution.

Conviction — Give examples of how you’ve helped to solve that problem for real clients. Create conviction and desire.

Action — Ask your prospect to act on your offer.

It’s one of these formulas that is used in one form or another. If done right, it can be very effective.

Paint A Picture Of Their Life

If you know the problem that your market has, then this is one of the most powerful ways to engage your audience. You can paint a very clear picture of the pains that they have. And this picture should focus on emotions that the prospect feels. There are some powerful emotions like shame, guilt, envy and anger. These negative feelings are some of the most effective ones.

You can show the feeling and the way out of this feeling. And sometimes, it’s possible to turn these feelings around. You can show how your neighbour is envious of you because you’re doing great (as a result of using my product). Or think about the feeling of shame of not being able to provide proper food for your family. Especially for men, it hits right to the gut.

Paint a picture with strong emotions. And then show them the light.

Conclusion

There are many other copywriting formulas you can find. And they are very helpful in structuring your copy. But they are not magic bullets. You still have to be able to write the words that move the prospect. Or you have to have money to hire a copywriter. But I do think that the benefit for your freelancing career can be tenfold.

5 Copywriting Formulas For Freelancers was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

The EU market for crowdfunding is currently underdeveloped as compared to other major world economies. One of the biggest hurdles faced by crowdfunding platforms seeking to offer their services across borders is the lack of common rules across the EU. This raises compliance and operational costs and prevents crowdfunding platforms from expanding.

Why is EU crowdfunding legislation necessary?

Currently, the regulation of crowdfunding in the EU is still primarily based on national legislation. To fix the problem of crowdfunding platforms having to comply with different regulatory regimes based on national legislation, the Commission suggested an optional EU licensing regime, where platforms must deal with only one set of rules in both their home market and the other Member States without further authorization.

The current lack of uniform crowdfunding rules across the EU results in legal uncertainty and discourages investment in projects in a different country. This has limited opportunities for companies that could benefit from investments by a large number of people, especially when they operate in smaller markets.

What is crowdfunding?

Start-ups and innovative companies often have difficulty accessing funds via traditional means such as bank loans. Crowdfunding platforms enable them to connect to and raise funds from multiple small investors. Crowdfunding is a growing alternative form of financing that connects those who can give, lend or invest money directly with those who need financing for a specific project.

Crowdfunding is split between four main types of crowdfunding:

• Lending-based crowdfunding (peer-to-peer lending/crowdlending)
• Equity-based crowdfunding (also referred to as investment-based crowdfunding)
• Reward-based crowdfunding
• Donation-based crowdfunding

The new regulation is aimed at crowdfunding services that provide a financial return for investors, which means that the crowdfunding types affected are lending-based crowdfunding and equity-based crowdfunding.

What changes will the new regulation bring?

Crowdfunding platforms operating in more than one EU country will have to comply with a single set of basic rules instead of different rules in each country. The directive aims to broaden access to finance for small companies.

The two main objectives of the new regulation are to:

1. Enable European Crowdfunding platforms to scale up by making it easier for crowdfunding platforms to operate across the EU.
2. Increase investors’ trust to engage in platforms operating across borders by increasing transparency and strengthening the integrity of platforms.

Main changes are:

• A single set of rules will apply to crowdfunding services in the EU, up to EUR 5 000 000
• Strict rules to protect investors from financial losses
• Member states are responsible for authorizing and supervising crowdfunding providers

The new rules aim to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU, by providing for a single set of rules on crowdfunding services.

The uniform set of criteria will apply to all European Crowdfunding Service Providers (ECSP) up to offers of EUR 5 000 000, calculated over a period of 12 months per project owner.

How will the new rules protect investors?

One of the major risks of crowdfunding is that investment decisions are often not based on data and may be influenced by emotions. Small companies going bankrupt or delays in delivering goods are among the most common problems that investors do not predict.

The objective is that crowdfunding service providers must provide investors with clear information about intrinsic risks and charges they may occur, including insolvency risks and project selection criteria. Investors will be provided with a “key investment information sheet” (KIIS) crafted by the issuer for each crowdfunding offer or at the platform level to maintain transparency and boost investor protection.

When will the rules enter into force?

As there was no proposal to reject the Council’s positions and no amendments tabled, the text of the crowdfunding legislation has been adopted. The European Parliament approved new rules on 5 October 2020. The new rules will start to apply one year after its publication in the Official Journal of the EU.

The new rules seek to help crowdfunding services to function smoothly in the internal market and to foster cross-border business funding in the EU. The rules will apply to all European Crowdfunding Service Providers (ECSP). ECSP’s will be able to compete across the European Union and provide cross-border crowdfunding services via a notification procedure.

How will the supervision be carried out?

Supervision will be carried out by national competition authorities and with the European Securities and Markets Authority (ESMA) coordinating cooperation between EU member states. A crowdfunding platform seeking approval under ECSP would need to request authorisation from the national competent authority (NCA) of the member state in which they are established but will be able to provide their services cross-border into other EU member states.

New EU Rules for Crowdfunding platforms (2020) was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This post was first published on our blog at e-resident.me

In the spring this year Estonia changed its crypto regulations.

Like everything in 2020, this as well has been a chaotic and unpredictable process.

How can it be unpredictable, considering, that all requirements are public and written in the law?

Because regulations can be interpreted in different ways. And, not only by us, lawyers and consultants helping out clients. Also, officials within the FIU interpret different requirements in a different way.

And as you can already assume, this has caused a lot of difficulties and confusion among applicants. And some court cases with the Estonian FIU.

It’s rather understandable when there’s a transition from old regulation to new regulation done at a rapid pace. There’s always some confusion. But it’s also an unpleasant experience for applicants. And to us, the advisors.

But I am not here to scare you off and tell that it’s all bad. Actually, we’ve now completed numerous successful license applications under new regulations, and it’s clear what needs to be done. And I want to conclude the main points for you.

How Not To Screw Up Crypto Licensing Process

First, we’ve been successful in licensing our clients because we were clear about the need to do things correctly. The regulations were changed with a purpose — to be able to supervise license holders. And this is what we’ve been communicating to our clients.

From the crypto business point of view, it’s an additional burden. But consider it from the angle of your future client. They are much more ready to use your services knowing that the company handling their precious crypto and fiat is properly supervised. I definitely don’t want to use the services of a bank that has a very low threshold of requirements to operate.

So, what do I mean by “you have to do things correctly”.

It means no shortcuts. No dubious firms offering you members of the management board and AML officer for a few hundred euros per month.

Let me ask you — would you be on the board of a crypto company for a few hundred euros per month? Or let me rephrase: would you be willing to assume all the risk of the company activity operating in crypto space and providing financial services?

You probably wouldn’t. And if someone offers you services in that price range, they’re either offering a person who sits on a board of numerous companies (which is a red flag for the FIU) or someone who is incompetent. And if that incompetent person goes to the FIU interview, the card house falls apart.

That’s why it’s extremely important to lay down a good foundation first. Recruit suitable person, who can actually understand legal requirements for crypto business and benefit the company. Who can do the actual work?

Finding and hiring a good and competent person to manage your crypto business here in Estonia is the most important challenge you have to overcome. If you nail that, your application process gets a lot easier.

The second point of conflict with the FIU and the applicants has been the office space. It’s another upkeep cost. And as a result, a place to cut expenses.

However, it’s not fine to rent an office in a distant city next to the Russian border. Or an apartment, where one corner is made for the office.

Yes, it’s possible to argue with the FIU about that as there are no specifications in the law. But do you want to spend months on arguing with the FIU or obtain the crypto license? The difference in cost is a few hundred euros on a monthly basis — we recommend to lease a real office in Tallinn, so you eliminate all potential objections.

And if you check the boxes of the requirements as they have to be done, then the confusion disappears.

The licensing becomes a formality, and you’ll succeed.

Key Updates On Estonian Crypto Licensing was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article was first published at e-resident.me blog.

Remote work is a concept familiar to everyone now. It was a thing long time ago, but in 2020 in became a necessity.

And if you can already work remotely from your home, should you really work only for one big corporation?

Yup, the next thing on your mind is starting a freelancing career and provide services that you know how to do. This is a different level of freedom and possibilities that are opening up now.

To make things tax-efficient and legitimate, you’ll form an LLC. And if you’re really clever, you’ll form your LLC in Estonia (consult with an advisor as it’s always circumstantial). This is what e-residency is made for.

You’ll do well, your business grows, and you need to hire people who can help you. As you’re a free spirit who likes to travel and work from home, you’re going to hire someone remotely.

In one year, you end up hiring five remote workers.

This is the time you need to become more structured on how you manage your employees. You need communication tools and to-do lists.

Weekly Habits

There has to be predictability and habits that you implement. For example, weekly sync to bring everybody up to date with developments within the company. Every week, at the same time. Why? Because the remote team needs to understand that they are part of the team, and this team is moving together to a mutual goal.

And this weekly sync has to be structured as well. You have to have an agenda — whether it’s going through what each of the team members has been up in the previous week, updating everybody with the sales numbers, product updates, etc. Whatever is applicable to your business.

You can also set up one on one calls with team members at the beginning of the week to go through the things that need to be achieved for the week. Or it’s a reflection meeting on Friday. And this also has to be a habit that is taking place each week.

Not everybody is as good at structuring their work as you are. Not everyone has the discipline to do so. And if you don’t have these conversations, they lose connection. You have to keep that fire burning for them. And they have to see that you’re there, every week, doing what’s needed.

This is probably the most important point of this article. Frequent communication with clear structure is the key.

Tools To use

There are a million options out there. Essentially, it’s whatever works for you. Here are some well-known options to consider.

Slack for communication. Slack has become a major tool for businesses to manage communication and for a reason. It’s so intuitive to use, you can create different channels for different teams and topics, and you can integrate Slack with many other well-known apps. You can also use it for free. It’s a no-brainer.

Asana, Trello, and Ora.pm. Asana and Trello are both well-known to-do apps. I have used both, and I think they’re both easy to use and I have no problem recommending them. However, for some reason, Ora was the one that sticks with me. I’ve been using Ora mostly for my personal weekly plans and to-do lists, but you can also manage team assignments there. That said, all of them work well, and there are many alternatives on the market. But you do need a to-do app to track and measure the progress of your team.

Video Calls — Zoom or Google or Teams or Skype? I’ve used Skype, Zoom and Google Meetings a lot. You will likely use the one that you’ve used most, because we’re reluctant to change things that work, and they all work. I was a big Zoom proponent before, but as we have a remote team with BankApply and we’re always doing meetings on Google, it’s become my go-to tool for video calls. It doesn’t hurt that everybody is using Google Calendars and when you send out an invite for a meeting, you can automatically add Google Meetings link.

Conclusion

Running a remote team is the same as running any team. You have to show that you’re there, doing the work. Leading by an example is the ONLY way of leading. You have to communicate what needs to be done, what is important, and why it’s important. These are the same qualities that are needed regardless of the setup of the company.

Ready to start your business with a remote team? Get in touch with us at estonia@comistar.com and join Zero To Scale.

How To Manage A Remote Team? was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article was first published at the e-resident.me blog.

Have you checked out the e-Residency official Facebook group?

If you have, you probably know that there’s a lot of noise, promotion, and little quality in terms of conversations.

For six and seven-figure e-residents, there’s little value in this group.

There’s a big difference if you’re just applying for e-Residency and looking for a business idea, versus having a working and growing business. You have different questions, you want to have different conversations, and you need different advice.

Therefore, we decided to start a Facebook group for active, successful, and growing e-Residency entrepreneurs.

In this group, I and my colleagues are giving regulatory advice, as well as posting quality content about entrepreneurship. We hope to bring on external mentors and entrepreneurs once the group grows.

And most importantly, we hope that community members will feel comfortable asking and sharing their concerns and wisdom to other e-residents in the group. Never know where you meet the next person that will open a door for you to take the next step.

If you have e-Residency company that is making at least 200 000€ in revenue or more, come and join us. Or, if you’re starting out, but your LinkedIn profile indicates vast entrepreneurship experience, don’t hesitate to apply as well.

Link to the Facebook Group by clicking here.

E-Residents Making Over 200 000€ Revenue Per Year was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This post was first published at e-resident.me

Once you become an e-resident and start looking into service providers who can help you, it can get overwhelming pretty quickly.

By now, there are quite a few different providers. Some service providers are focused on concrete geographical markets, and some are focused on concrete industries.

And then, we have providers who do not have a concrete focus at all. Their main tactic is to lure people in with an attractive entry price and provide a “generic” service.

In this article, we’re going to compare Xolo and Comistar. Why Xolo and us? For one, it’s Comistar’s blog, so it makes little sense to leave us out of the comparison. Xolo, or formerly named LeapIn, is the leader of the market.

Background of Xolo

Xolo was founded in 2015, and the business was built on the e-Residency program. Xolo was a breath of fresh air, and the way they presented their service made all the difference. On the big picture, they did what every other consulting company had been doing for years — helping with company registration and accounting.

But Xolo was not a consulting company like all other companies providing similar services. Xolo was a tech company providing a tech platform to manage your e-Residency business. And the way they framed their services enabled them to raise money from the investors.

This money was used to hire more developers, improve the platform, and invest heavily in marketing. Total, Xolo has raised 8 million euros.

The early focus on e-residents focus on technology, and the story that differentiated Xolo from everybody else, has made Xolo the market leader.

Background of Comistar

Comistar was founded in 2012 and started its operations in Estonia in 2013.

In the first 4 years, the focus of Comistar was on Scandinavian entrepreneurs and advising on tax structures. Comistar was the traditional consulting company, which market Xolo disrupted (though companies never targeted the same types of clients).

Only at the end of 2017 we at Comistar started to look into e-Residency, as the program was getting more and more traction. Comistar became a partner of e-Residency service providers marketplace early 2018.

With the rise of the crypto industry, Comistar made e-residents operating in the crypto space as one of its core focus points and tailored its services for e-residents. With extensive experience in taxation matters and working with bigger companies, Comistar started to onboard e-residents with different and often more complex needs.

Clients of Xolo & Comistar

Xolo

To make its software work, Xolo set very clear boundaries to the type of clients they will onboard. Because accounting & possible reporting needs of clients can differ a lot, it’s difficult to provide a fixed pricing plan for all e-residents. Xolo (and Comistar as well) is a hybrid of software and manual service. On the back-end, accounting is still done by the accountants, though the bulk of the work is automated.

But automation needs boundaries to the input that’s coming into the system. Thus, Xolo needs to be able to estimate the amount of work one client generates, so the pricing would cover the cost of the manual work required.

And it’s not only automation of accounting, but it’s also to reduce the AML risks and to be able to find banking partnerships who can have a clear expectation on the type of clients Xolo is bringing in.

As a result, Xolo is focused on one-man companies or the so-called solopreneurs. And these one-man companies must operate in the digital world selling digital services and products.

Additionally, not so long ago, Xolo introduced a service for freelancers who do not want to own a company at all. They enable operating on Xolo platform and provide services, while all the invoicing is done by Xolo. Opening this line of business started a court case between Xolo and Rimuut. Rimuut is a former client of Xolo and they accuse Xolo of stealing their business idea, as Rimuut provides a very similar service.

Comistar

Comistar has been attracting very different types of clients to Xolo. For years, we prided ourselves for the level of expertise we can bring to the table, instead of automation or fancy software.

But as the world changes, we have adjusted our views on the market. We are now heavily focused on providing a software — powered experience to the clients. This focus has resulted in multiple standalone apps for niche markets, as well as the birth of Zero To Scale.

Zero To Scale is a software to manage your Estonian business with advanced features and usability. But we haven’t forgotten our strengths, and we don’t provide generic plans to the clients. There are no one-size-fits-all solutions to the types of clients we generally on-board. For each client, the custom subscription plan is created and agreed on.

Still, Comistar serves many one-man companies as well, together with multiple shareholder companies, licensed activities, physical products, and so forth.

To conclude, Xolo is operating as a startup with a single focus on growth and scale, using the investor’s money. Comistar, on the other hand, operates as a business and tries to tailor its services according to the individual need of each client, with a focus on sustainability.

Pricing

For new e-residents, pricing is obviously one of the major factors. It’s also something that’s a bit difficult to compare if companies are providing services for different types of clients and needs.

Xolo Pricing

Xolo charges 220€ for on-boarding to Xolo Leap, which is a subscription service for e-Residency companies. This amount includes the state fee paid to the Estonian government.

Monthly subscription starts at 69€, and two other tiers are at 119€ and 199€. All plans include tax filing and reporting, while the 119€ and 199€ plans come with a personal accountant as well.

Xolo also has a service subscription for freelancers called Xolo Go. In this case, you won’t own a company, and you won’t have any startup costs. Instead of a monthly subscription, you’ll be charged 5% on each sale. This can be a good way to start your freelancing career.

Comistar Pricing

Comistar has different tiers to pricing as well. The simplest plan (S Plan) starts at 25€/month, but this plan does not provide you with tax reporting and filing. S Plan is meant for companies that won’t need VAT reporting or any other monthly accounting support. For example, small investment funds.

The first “active company” plan starts at 89€/month and includes everything you need, including monthly accounting, VAT and EORI registrations, legal document templates, as well as consulting. The actual subscription price is determined during the consultation session, where Comistar experts learn about your business and needs.

The on-boarding with Comistar is more expensive than it is with Xolo, and you need to pay 350€ one-time fee (includes the state fee 190€).

The most expensive plan with Comistar starts at 159€/month.

As the screenshot doesn’t enable to capture the whole pricing data, please click here to check the pricing table with all its features.

To conclude, then both service providers are in a similar bracket when it comes to pricing, and your choice should really depend more on your concrete needs than on pricing.

Which One is For You: Xolo or Comistar?

Honestly, we think very highly of Xolo and what they’ve done in the space. They’ve built a great product, spend a lot on advertising the e-Residency concept, and provide a good service.

Hence, there are two occasions when we recommend to check Xolo out before anything else on the market: a) if you are a freelancer and don’t really need a company; and b) if you plan to open a one-man company and sell only digital services/products, without nuanced tax or accounting needs.

If you have more than one shareholder, you plan to invest in real estate or cryptocurrencies (even if as a side activity), require more complex tax advice or any activity licenses, or sell physical products, then check out Comistar’s Zero To Scale subscription.

Xolo vs Comistar — The Comparison was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This post was first published in our blog at e-resident.me

We work a lot with Fintechs and crypto companies. Crypto companies do fall into the Fintech category in my opinion, but it’s also a whole separate category by its own. With the recent changes to the crypto regulations and the wide variety of required support for Fintechs, we re-branded our licensing services to FinTech Launchpad.

The next obvious question is “What is FinTech Launchpad?”.

In this article, I am going to make a conclusion of the Fintech Launchpad and what it entails. As a result, you’ll have a better overview of what we can do for you.

Licensing documentation

This is an obvious one. Any payment services, e-money services, investment services or crypto services usually require a license. The requirements on licensing documentation are pretty technical, must me presented in a concrete form, and tend to be overly lengthy.

The common misconception here is that a law firm will prepare the documentation without any input from the client. That’s not true. The client has to know and give information about the planned business. Whether it’s a description of the IT-systems, flow of funds, risk-assessment, types of clients, marketing plans, etc, etc.

Not all licenses require these things, but many do. The point here is that clients have to be ready to spend time on the licensing documentation as well. It’s not going to be “pay and forget” type of service.

The quality of the final documentation depends on both the lawyer and the client.

One more thing to note is that licensing time is usually longer than you’ll expect. There are surprises now and then, but it’s better to include a buffer period into your business plan and go-to-market timeline.

Legal Analysis Of The Business Plan

Financial services are nuanced, and so are the licenses. Small differences in the provided services can change the capital requirements and licensing process. These are not trivial matters. It’s especially true with investment services. We get many enquiries about starting a fund, and often there’s no clear plan about how the service is actually performed. And how it is performed, can make a big difference.

Hence, it’s advisable, if there are any doubts, to first do the legal analysis on the business. It costs money, but a lot less money than applying for the wrong license, as the regulator will reject the application. This means lost time as well.

In years, we’ve analyzed a considerable amount of white papers and business plans for different kinds of services, including capital raises, payment services, investment services, etc.

Setting Up The Local Office For A Fintech in Estonia

Most financial licenses require setting up a local office. It’s because the supervisory authority issuing the license needs to have an overview of the operations. Same applies for capital raises.

We’ve had our fair share of requests for registering a prospectus in Estonia. A prospectus is the investment document highlighting the details about the offering. Usually, the idea is to set up an SPV (special purpose vehicle) in Estonia to raise money. Then, the money should be transferred to the company that actually needs the money for the operations. Like a shoe factory in Poland.

The issue here is that Estonian FSA does not have any capacity to supervise that shoe factory in Poland. They don’t have any operations in Estonia. Hence, although possible, it’s going to be very difficult to register such offering with the Estonian authorities. The same principle applies to all other Member States as well.

Setting up the local office means finding suitable office spaces according to the requests, reviewing the spaces and making the lease agreements.

Recruiting Personnel

Again, most financial licenses require you to recruit local personnel. It’s usually a requirement to have at least one Estonian resident on the board of the company. It does not have to be an Estonian citizen, but someone who resides in Estonia.

Please continue reading on our website by clicking here.

FinTech Launchpad In Estonia was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.

This post was first published at e-resident.me

Like all other startups, “e-Residency companies” need to grow and make sales in order to be sustainable. Sales is a lifeblood of any business. And to get sales, you need to find leads. Which means you have to give a considerable effort to do marketing.

Marketing, if done well, makes sales easy. Good marketing takes you 75% of the way. And while marketing as a theme is too wide to cover here, we’re going to bring out 6 tactics you can use to grow your e-Residency business. These tactics were shared by Julian Shapiro in the Trends community.

1. Cost-Effective YouTube Sponsorships

You’re usually charged based on the number of subscribers, but what’s actually important is the video views. There’s a disconnect, and you can get a good deal. Find YouTubers with low subs, whose their videos actually get a lot of views. This is because they’re talking about something that’s timely and viral.

As they don’t have a high number of subs yet, they haven’t priced in their popularity. Ideally, it’s someone who is on the verge of breaking out. If you use YouTube, you probably know some guys who should have a lot more subs that they have.

Ask your ad to be shown early in the video, as the statistics tell that ads shown in the first minute of the video significantly outperform the ads shown later in the video.

2. Blog visitors into leads

You can have a great blog with good traffic numbers, but if you’re not turning these visitors into leads, it’s a waste. There are couple of good email capture techniques to try out.

Guides — put together a high-quality PDF, and give the first few pages as a teaser. If the visitor wants the whole guide, they can get it against providing you their email. Add social sharing options.

Quiz — You can create a quiz for your visitors, and once they’ve completed the quiz, they want to see the results. In order to see the results, they need to provide you with their email.

Collecting the emails of the visitors is a great way to create direct communication with the otherwise “lost” visitors.

3. Pre-targeting via LinkedIn

Planning to do some cold-emailing and connecting with potential clients?

Wait a sec.

What if we can make the leads a bit warmer? And increase the chances of hearing back from the leads we are connecting with.

The idea here is to run ads to the specific target group on LinkedIn before getting in touch with them. What you have to do is to take a list of emails you planned to connect with, and upload them to LinkedIn ads.

Then, you can advertise to these people with a very targeted and specific message (not in a creepy way like “Hey John, I know you’re seeing this, I will send you an email soon”). Something more vague about what you do.

And finally, after a few weeks, when you send out your emails, they know your company. They’re familiar with the name of the company. It’s a huge win as a first step!

4. Newsletter Unsubscribers

Someone unsubscribed. This happens. To all of us. The person doesn’t want to receive your emails.

This doesn’t mean they’re not a buyer. Perhaps they want the new product or service you’re bringing to the market next month?

The possibility here is to create a custom audience by uploading their emails to Facebook Business Manager (includes Instagram), LinkedIn, and even Pinterest and Snapchat. And then direct ads to these people.

Bring back those lost leads. They’re still potential clients.

5. Avoid agressive CTAs

CTA stands for call-to-action. Essentially, it’s the copy on the button that asks the lead to take action. To register, buy, click, etc.

If people don’t know you, and they’re just first-time visitors on your website, you can scare them away by asking them to make a purchase-decision right-away.

It’s a bit like dating — you first have to flirt a bit and create a connection before you ask for any kind of action.

It’s better to have a good copy and describe what you’re doing before you ask for anything that requires a credit card number. People have to be excited to make a payment.

Using “gentle” CTAs like “Continue”, “Try it for free”, “Get started”, are likely to be more successful to get leads into the funnel.

6. Break-even ads

If the ad isn’t turning in profit, we often cut it. Same for us at Comistar.

But there’s an opportunity to increase the brand awareness, if the ad is breaking even. Big companies spend millions to increase the brand awareness. If you can do it on the cost-basis, it’s actually a great success.

I remember when we did a really targeted advertising a while ago on Google and social media. We did not make a lot of money, but just enough to cover the ads.

Yet, several leads said that you guys are everywhere and must spend a ton on marketing. We did not spend a ton. Far from it. But we kept our ads showing and it benefited the brand awareness.

Conclusion

These are some of the tactics you can use to grow your e-Residency startup. There are many more, but we’ll keep something for the next blog posts. If you’re planning to start your business in Estonia, get in touch with us at estonia@comistar.com.

6 Growth Marketing Tactics For Your e-Residency Startup was originally published in Comistar on Medium, where people are continuing the conversation by highlighting and responding to this story.