Crypto License in Estonia

CRYPTOCURRENCY LICENSE IN ESTONIA

Obtaining an Estonian virtual asset service provider license (VASP)

We are a team of professional consultants, lawyers, and accountants with a great deal of experience in commercial law and finances. We have been providing support services for crypto companies and blockchain projects in Estonia and the EU since 2017. Since then, we have supported over 300 of our clients in obtaining a crypto license and helped their crypto projects enter the legal framework of the EU. We are always up to date with the latest trends in cryptocurrency and blockchain fields and are competent in solving the most complex problems.

• Regulator:
  • Financial Intelligence Unit (FIU)
• Legal acts:
  • Anti-Money Laundering and Prevention of Terrorism Financing (RahaPTS)
  • Directive 2015/849 of the European Parliament (4th Anti-Money Laundering Directive, 4AMLD)
  • Directive 2018/843 of the European Parliament (5th Anti-Money Laundering Directive, 5AMLD)
  • EP and the EU Council draft regulation 2020/593 (Cryptoasset Markets Regulation, MiCA)

VIRTUAL ASSET AND CRYPTO REGULATION IN ESTONIA

On 27.11.2017, Estonia enacted the Anti-Money Laundering and Terrorist Financing Prevention Act (RahaPTS) based on Directive 2015/849 of the European Parliament and the EU Council. Under the above-mentioned legislative act, the definition of “virtual assets” was introduced:

• virtual currency or virtual asset is a form of a digital asset that can be traded, stored, transferred, and accepted as payment by individuals and legal entities even though it is not a monetary or legal tender of any state.

According to the definition stated above, cryptocurrencies and various tokens (security tokens, asset-backed tokens, some utility tokens, and unique non-fungible tokens) can be classified as virtual assets.

CRYPTO LICENSE IN ESTONIA AND ITS ADVANTAGES

Services you are permitted to provide based on a VASP (virtual asset service provider) license:

• Virtual currency exchange service

  Exchange cryptocurrency and other virtual assets in person or do it remotely through cryptocurrency exchangers or exchange. Based on a cryptocurrency license, you are allowed to provide the following exchange services:

  • Crypto vs. Fiat Exchange
  • Fiat vs. Crypto Exchange
  • Crypto vs. Crypto Exchange
• Virtual currency wallet service

  The virtual currency wallet service provides the client with encrypted keys that can be used to store, manage, and make virtual asset and currency transactions.

• Virtual currency transfer service

  Make any crypto transactions or transfers of assets at the client’s request or on their behalf from one virtual wallet to another. It does not matter whether this transfer happens internally or externally and whether it is a transfer to a third party or the client himself.

• Arranging of virtual currency public or targeted offering or sale (ICO, Initial Coin Offering)

  Organize public or targeted offers and sales that are related to issuing or initial offerings of virtual assets like cryptocurrency, tokens, etc. Or provide any financial services related to those activities. It can all be done at the virtual asset issuer’s request or on their behalf.

• Full-featured cryptocurrency exchange

  A combination of services mentioned above and the availability of the necessary infrastructure and interaction algorithms will allow you to create and introduce your own crypto exchange to the market.

CRYPTOCURRENCY PROJECT REQUIREMENTS

The current Estonian legislation holds crypto companies and other representatives of the blockchain industry to a high standard and has special requirements when it comes to the share capital, qualifications of directors and other employees, internal AML/CFT algorithms, IT and payment solutions, as well as other internal processes and business-related activities.

Thus, the version of the AML Act, which entered into force on March 15, 2022, subjects crypto companies to the following requirements:

• The share capital of a crypto company
  • 100 000 EURO, if the services provided are “virtual currency exchange”, “virtual currency wallet”, and/or “ICO and arranging of virtual currency offer”;
  • 250 000 EURO, if the service provided is just the “virtual currency transfer” or in combination with the services mentioned above.
• Management and beneficiaries
  • The board, as the governing body of the company, must be located in Estonia;
  • Directors, shareholders, and beneficiaries (UBOs) of the company must have a flawless business reputation and a clean criminal record;
  • All board members must have higher education (in any field) and at least two years of experience in areas such as finance, law, accounting, auditing, IT, public or administrative management;
  • A board member does not have the right to hold this position in more than two crypto companies at the same time;
  • A board member has the right to be an AML officer, but only in those companies where they simultaneously hold the position of a board member.
• AML officer (compliance officer)
  • An AML officer must have a flawless business reputation and the necessary competence, knowledge, and experience in the AML/CFT field;
  • It is required to check the candidacy of the AML officer with a regulator (FIU), who has the right to invite the candidate for an interview to verify their competence;
  • An AML officer position can be taken only by candidates whose permanent place of work is in Estonia;
  • An AML officer has the right to hold his position only in one crypto company.
• Place of activity and office
  • The cryptocurrency company’s place of business or the main office must be in Estonia;
  • The company office must correspond to the nature and scope of the services provided;
  • VASP is obliged to ensure access of the supervisory authorities to the stored data and documents at the company’s office.
• IT systems and solutions
  • The VASP must provide the regulator with information about IT systems and other technological tools and solutions necessary for carrying out business activities and providing core services; including a description of the security measures that ensure the protection of the client’s assets, as well as a list of solutions that guarantee business continuity and levels of technical organization of the company;
  • In addition to the above-mentioned information, the supervisory authority must be provided with a description of IT systems and other technological solutions by which VASP ensures compliance with the requirements of the “Travel Rule”, as well as identifies the client and their actual beneficiaries; determines the risk levels; screens and monitors activities; follows and applies the international sanctions, and monitors business relationships with clients.
• Audit control
  • Crypto companies are required to conduct audits of their annual report to ensure the reliability and transparency of financial information provided to public institutions;
  • The company must appoint an auditor from among the sworn auditors of the company or make an agreement with an auditing company authorized to provide relevant services.
• Internal control and audit
  • The VASP is obliged to conduct internal audits to ensure that the activities of the company, its managers’ and employees’ are not going against the current legislation, regulator’s instructions, internal rules, ongoing contracts and agreements, as well as general business traditions;
  • To conduct an internal audit, the company must appoint an internal auditor with the necessary competence. An internal auditor does not have to be an employee of the company and can be a third party.
• Crypto company business plan
  • Planned activities, services, products, and their expected volumes;
  • A business strategy, main competitors, and estimated market share;
  • Prospective customers, including the estimated number of those who are residents of Estonia and from other countries;
  • Estimated income and expenses, distributed by areas of the company’s activity;
  • Personal funds and share capital of the company;
  • Obligations arising in the process of providing services;
  • Planned balance sheets and financial indicators, including income, expenses, profits and cash flow, as well as justifications for the said indicators;
  • Risk assessment, as well as the basic principles and strategies of risk management;
  • Partners, intermediaries, or third-party services used by the company as part of its business activities;
  • Other important moments and exceptions.

STAGES OF OBTAINING A LICENSE TO WORK WITH CRYPTOCURRENCIES

For a project to obtain a crypto license and get support throughout the whole process until the application gets approved, the regulator must be subject to strict conditions specified in the current legislation, comply with the requirements of regulatory authorities, and be attentive to various details and nuances.

The procedure for obtaining a cryptocurrency license can be divided into the following stages:

• Company formation in Estonia

  Company registration is the first step toward fulfilling the intention of obtaining a crypto license in Estonia. A company can be registered in person or remotely through a power attorney or an e-Residency card. The legal entity establishment procedure takes up to 5 business days.

• Setting up an administrative account

  A crypto company needs an administrative account (IBAN) to deposit the share capital and conduct business activities. You can set it up at a bank or through a payment system (EMI or PSP) registered in the EU.

• Share capital registration and deposit

  The amount of share capital (€100 000 or €250 000) must be deposited into the company’s current account by the owners. The bank or payment system must confirm the money transfer by issuing an appropriate document with a signature and seal. The next step is to register the share capital contribution in the Estonian Commercial Register.

• Finding an office

  When applying for a crypto license, the regulator has to provide a copy of a lease agreement for the office space that complies with the business model of the cryptocurrency project and the expected volume of services provided.

• Appointing a local director

  The current legislation requires that the board members of a crypto company should be located in Estonia, which means that there must be at least one local member (director). If relocation is not a rational decision for the management of your crypto project, you should involve a board member who is a resident of Estonia. We will assist in finding a suitable candidate that meets all the requirements of the regulator.

• Preparation of all internal documentation and implementation of AML/CFT algorithms

  The fundamental component of VASP activity is strict adherence to the international principles and AML/KYC standards. The company must develop a comprehensive set of rules and AML/СFT algorithms that meet the business model. Those rules should also include the procedure for client identification, the procedure of screening and monitoring client activities, risk assessment, risk management policy, a description of the company’s risk appetite and internal control procedures, etc. To ensure the effective and uninterrupted application of AML/CFT measures, the company must implement appropriate IT solutions that will allow automated client identification, as well as screening and monitoring of transactions and circumstances related to the company’s clients.

• Infrastructure preparation

  For the functioning of the business and the execution of cryptocurrency exchange transactions, it is required to prepare and configure the appropriate infrastructure: set up an administrative account at a bank or create one through a payment system (SWIFT, SEPA), sign up a corporate account on a credible cryptocurrency exchange platform, configure automated accounting of transactions, ensure the collection and secure storage of information about customers and their transactions, implement a CRM system that meets the business model of the company and establish communication channels with the customers. Also, work out other aspects related to the expected business flow of the company.

• Recruitment of specialists

  To fulfill the law requirements and ensure the transparency of the blockchain project’s activities, the company needs to hire a certified auditor/auditing company and a third-party internal auditor. Also, it is worth considering hiring junior office employees (AML specialists, customer support, etc.) who are Estonian residents.

• License application and regulatory authorities

  The final step in establishing a cryptocurrency company in Estonia is applying for a license at the Financial Intelligence Unit and close monitoring of the review process.

Our consultants and lawyers will support and assist you in each of the above-mentioned steps, finalize your crypto startup for obtaining a license, and continue assisting you throughout the whole process.

CONTACT US

Thanks to our experience and competence, we can move your blockchain startup into the legal framework of Estonia and the EU in the shortest possible time. Our consultants and lawyers offer legal help and support in obtaining a license for exchange, transaction, and storage of virtual assets, as well as help you with the procedure of registering a legal entity in Estonia.

For one-on-one counseling or advice on obtaining a crypto license in Estonia, please contact us by phone, e-mail, or the feedback form on our website.

We will offer the best solutions for your cryptocurrency business or blockchain startup.