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Changes in Estonian AML law for crypto companies

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Changes in Estonian AML law affecting crypto companies

On March 10ᵗʰ 2020 the updated Estonian AML law came into force, which affects all companies holding crypto licenses (e.g. exchange and/or wallet license) in Estonia and all new license applications. These amendments also apply to companies holding the financial institution license. Any company holding the licenses in Estonia should begin arranging compliance as soon as possible!

The deadline for all Estonian companies holding the crypto license(s) to comply with the new regulations is latest by July 1st 2020 (or the licenses will be revoked). It is the companies responsibility to submit all necessary documentation to the regulator FIU and comply with the new requirements. Our team is available to provide full assistance for compliance with the new regulations.

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Business days to comply with new requirements for licensed companies

Currently licensed companies in Estonia need to comply by July 1st 2020

Any company that holds an Estonian crypto license (exchange and/or wallet) or financial institution license will have to comply with the new regulation latest by July 1st  2020. This means submitting all supportive documentation to the regulator FIU and setting up an on-site office and management. Failure to do so will result in revocation of active licenses. In our view the minimum timeframe for setting up compliance should be considered 1-2 months. We can assist in providing all the necessary support for compliance with the new legislation and providing information to the regulator.

The main requirements to comply with according to new legislation for current license holders are as follows:

The share capital of the company has to be increased to 12 000 euros
Comment: Most companies have the standard share capital of 2500 euros. Increase to 12 000 euros is required by monetary payment to an active company bank account in European Economic Area (EEA). This includes also updating the articles of association and registry information by providing a certificate from the bank.

Non-criminal record and certified passport from all countries of citizenship have to be submitted
Comment: In case one holds more than one citizenship it is required to disclose all information and certified documentation from all countries which applies to all persons in the company structure inc. shareholder(s), management board member(s) and UBO(s).

Fit-and-proper requirement for management board member(s) and compliance officer
Comment: member(s) of the management board and compliance officer must provide supportive documentation including: level of education (e.g. certified diploma), full CV (resume), proof of trustworthiness and good business reputation. The compliance officer must have an impeccable reputation. Further a specific field of responsibility has to be allocated for each management body member.

Company bank account in European Economic Area
Comment: The company must have a bank account in a credit institution (bank), e-money institution (EMI) or payment institution which is registered in European Economic Area and provides cross-border services in Estonia or has established a branch in Estonia. The company must submit a list of accounts data to the regulator.

Updated AML and KYC internal procedures to comply with new requirements
Comment: AML and KYC compliance requirements are now equal to those of financial institutions. This means reviewing and amending the company rules of procedures and internal control rules to comply with the new legislation. For example it is prohibited to provide any services that can be used without identifying the person participating in the transaction and without verifying the submitted information. Also the name and structure of licenses are also changing, there will be one umbrella license “virtual currency service provider” which will cover various activities in the field (for exchange and wallet service providers). The current licenses will be combined and the company has to specify its field of activities.

Requirement to have physical presence in Estonia including office, local management board member and local compliance officer
Comment: The company registered office, place of business and location of company management has to be in Estonia. Please see below for an overview:

What does physical presence in Estonia mean?

The place of business of a financial undertaking is the place where the essential functions and control mechanisms of anti money-laundering and terrorism financing prevention are fulfilled, including where the provision of financial services takes place, i.e. the continuity of necessary functions of business activities is ensured. Unlike a location of business, the place of business is not determined legally but factually meaning that there must be actual presence that the regulator may check. We can provide a solution for this requirement.

What does local management mean?

The regulator has stated that it is difficult for them to effectively supervise companies when the management board is located outside of Estonia. Thus, the special requirement of § 72 of the Money Laundering Act is that the seat of the management board must be in Estonia (local resident). This also covers the compliance officer to be located in Estonia while being also able to speak Estonian. The compliance officer has to be aware of full client cycle and be part of the daily business activities. We can provide a solution for this requirement.

Frequently asked questions

Below we have listed some of the frequently asked questions and answers.

What will happen if I don't comply by the deadline?

If the company does not submit all necessary documentation and proof of compliance to the regulator FIU latest by July 1st 2020 the license(s) will be revoked. It is the companies responsibility to comply with all new requirements and submit proof in doing so.

If I have e-Residency do I comply with local management requirement?

The answer is no. e-Residency card is only for digital identification and it will also help in administering the company. However we strongly recommend to apply and to obtain the e-Residency card, because it will simplify the on-going administration of the company. See more: https://www.maxcorp.eu/eng/knowledge-center/estonian-e-residency/

What is the cost for on-site office, management and compliance officer?

There is no universal answer to this question as it depends on the company activities, volume of transactions inc. work-load etc. In our view it should be considered that the starting fees are approximately 3500 euros per month to cover office lease in Estonia and salary to on-site Estonian residents personnel (management board and compliance officer), but this may vary depending on the exact case. We can support in finding the best solution for your case.

What to expect how regulator will check compliance?

The ongoing enforcement by the regulator includes but is not limited to:

  • Demanding any kind of proof, conducting interviews etc.
  • Conducting raids and visits to the office, copying documents, monitoring on-site work process
  • Starting misdemeanour procedures (fines up to 400.000 euros)

The on-site Estonian resident management board member(s) and compliance officer must be part of the business cycle and be fully aware and active in the company activities.

What changes for new license applicants from March 10ᵗʰ 2020

Summary of main changes from March 10ᵗʰ 2020 for new license applications (differences to old license application requirements that were valid until March 2020).

  • Application review time by FIU increased from 30 days to 60 days (with right to prolong up to 120 days)
  • The state fee for license application increases from 345 eur to 3300 eur
  • The size of the required share capital increases from 2500 eur to a minimum of 12 000 eur
  • Requirement for physical presence (office) in Estonia inc. local management in Estonia and compliance officer in Estonia (have to be Estonian residents)
  • Non-criminal records extract for all participants in the company from all countries of citizenship
  • Crypto-to-crypto exchange needs a license (previously only crypto to fiat and fiat to crypto)
  • The name of the licenses is changed, there will be one umbrella license “virtual currency service provider” which will cover exchange and wallet service providers
  • For company opened bank account / fintech bank account in an EEA country

The text to the law in English can be viewed here.

How do I comply? What do I need to do?

The first step is to contact us so we can review your case and assess which activities need to be carried out in in which order. Information about the company structure, activities (business plan), transactions volumes, financial forecasts etc. will be required. An NDA can be signed for protection of confidential information. Please also note the company should consider its monthly budget availability for on-site office and management prior to preparing a plan for compliance engagement.

How do I comply? What do I need to do?
The first step is to contact us so we can review your case and assess which activities need to be carried out in in which order. Information about the company structure, activities (business plan), transactions volumes, financial forecasts etc. will be required. An NDA can be signed for protection of confidential information. Please also note the company should consider its monthly budget availability for on-site office and management.

Further information to comply with new regulations

We have solutions available for all currently licensed companies for full compliance as well as for new license applicants. For more information please contact us through the contact form below with your company information and we will contact you shortly with more information.