Almost 200 crypto exchanges in Estonia have withdrawn applications after the introduction of a new Money Laundering and Terrorist Financing Prevention Act.
The country’s Financial Intelligence Unit (FIU) rejected a similar number of applications for poor translations and board members with questionable credentials. Many exchanges could not verifiably demonstrate ties to Estonia.
Strict Compliance Requirements May Have Accelerated Estonian Exit
FIU director Matis Maeker questioned whether these applications genuinely sought to serve Estonians or establish a presence for illegal transactions.
Companies had until June 3 to renew their licenses. Now, laws tightening consumer protection and money laundering compliance have seen at least 200 companies voluntarily rescind renewal applications.
While the reasons for the departures are not explicit, smaller exchanges may have found it difficult to comply with startup, minimum capital, and compliance requirements.
The new laws, enacted in March 2022, compel virtual asset service providers to hold capital reserves commensurate with their services, from a minimum of $137,255 to $384,314.
Virtual Asset Service Providers (VASPs) must also comply with KYC requirements and cannot open anonymous accounts.
The Transfer Rule in Europe’s Markets in Crypto-Assets bill requires exchanges to identify entities at both ends of a crypto transaction. Fines for breaches can reach $440,000.
In addition, firms must pay over $50,000 to establish a company and pay about $11,000 monthly.
The 2022 laws add to 2017 requirements for only a compliance officer, an Estonian director, and a physical presence. A 2020 revision called for a resident director, a local office, and a $3,700 fee. The 2020 revisions saw many firms exit.
The government stated in January 2022 they would release new crypto regulations to lessen crime risk. It had reported increased queries and requests from international law enforcement about money laundering and scams.
Big Exchanges Still Offer Services in Estonia
According to Chainalysis’ 2021 Geography of Cryptocurrency Report, Estonians mainly transact in ETH or wrapped ETH.
Estonian laws distinguish between companies providing fiat on and off-ramps for crypto, those transferring funds between crypto wallets, wallet service providers, and those offering initial coin offerings.
Notable crypto firms offering services in Estonia include exchanges Coinbase, Binance, and Kraken. CryptoWallet.com, a wallet service provider, recently successfully renewed its license.
OSOM Finance, which offered a proprietary crypto algorithm, has shut down its Estonian operations.
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