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Estonia Approves Crypto Service Provider Regulations

Last Updated March 22, 2024 12:21 PM
Eddie Mitchell
Last Updated March 22, 2024 12:21 PM
By Eddie Mitchell
Verified by Peter Henn

l Key Takeaways

  • Estonia is pushing to introduce new regulation standards for crypto firms.
  • It comes just a few years after numerous crypto scandals in the country.
  • In mid-2021, Estonia was home to almost have of all virtual currency providers in the world.

The Estonian government is moving forward with a new bill that aims to bring cryptocurrency companies under the purview of the Financial Supervision Authority (FSA).

Although it still needs to pass in parliament to see it enshrined in law, the effort could help align Estonia with the European Union’s (EU) sweeping Markets in Crypto-Assets (MiCA) regulations.

“Cleaning up the Environment”

The new bill seeks to enhance safeguarding measures for consumers and businesses against financial crimes, bankruptcies, and cyber thefts in crypto markets.

Financial Intelligence Unit (FIU) head, Matis Mäeker, said :

“What will change is that they will now come under real financial supervision. They used to only deal with anti-money laundering requirements and that’s part of the whole problem.”

At present, providers register with the FIU, and have to comply with anti-money laundering (AML) regulations. Currently, fines for AML violations go as high as €40,000 EUR ($43,269). If this bill passes, companies will be liable for fines up to €5 million ($5.4 million).

Mäeker notes that should the bill pass, firms will essentially have to handle client assets the way banks take deposits. The funds need to be readily available whenever the customer wants them back.

One of the pioneering nations when it came to integrating cryptocurrencies and making crypto-friendly laws for firms in 2017, Estonia became a hotspot for thousands of crypto businesses, although it wasn’t an entirely smooth ride.

Troubled Times for Estonia Crypto Industry

As per the report , Estonia was home to several thousand registered crypto companies. This made up almost half of the world’s crypto service providers. However, the FIU reduced this to around 50.

Unfortunately, there were some notable instances of fraud in the Estonian crypto space. For instance, in 2020 , a total of 100 crypto firms licenses were revoked amid a $220 billion money laundering investigation.

More recently, Polybius Bank was found to have defrauded victims out of $575 million in 2022 . Furthermore, a major 2023 investigation  analyzed 300 Estonian-registered crypto companies, only to find that swathes of the nation’s crypto industry took part in wide-scale fraud, money laundering, illicit financing of organizations, and sanctions evasion.

Adjusting Policies

Economic analyst, Peeter Koppel, told reporters that the legalization of crypto markets doesn’t make the industry or technology more credible. He also said that he thought that “you cannot invest in crypto. It is only speculation.”

Therefore, Koppel believes the new rules will only bring little improvements to the industry. They will not make any fundamental changes to the validation of crypto as a concept, he said. Koppel added:

“It is simply a step towards cleaning up the environment. It does not change the substance of anything,”

Arguably, the ongoing battles in the United States between crypto firms such as Ripple (XRP) and the US Securities and Exchange Commission (SEC) are an example of how regulation could be conceptually transformative for crypto.

It also makes sense to say that you can actually invest in crypto. This is highlighted by institutional investors clamoring for highly regulated crypto investment products.

As one of the earliest beacons of crypto adoption in Europe, Estonia’s move to bring more appropriate rules and regulations could signal yet another, more sustainable, rise for the once-dominant Estonian crypto sector.

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