Estonia slashes crypto-friendly incentives ahead of MiCA
Estonia has given up on its brief attempt to become a world leader in the digital asset industry, with more stringent crypto licensing rules set to come into effect on June 15.
Estonia once enjoyed international attention for its crypto initiatives. In 2019, PricewaterhouseCoopers (PWC) issued a report praising Estonia’s efforts to implement blockchain for digital IDs, drivers licenses, e-residency, and governance technologies. Similarly, the World Economic Forum lauded Estonia’s efforts to digitize government and healthcare services in 2020.
Last year, Estonia was home to half of the world’s Virtual Asset Service Providers (VASPs). Unfortunately, bad actors abused Estonia’s previously lax rules for obtaining a license. Shell companies were bought in the country and used for shady activities — operators often didn’t have a physical presence in the country.
According to Estonia’s Financial Intelligence Unit, bad actors would skirt safeguards by:
- Appointing people as board members in official documents without the person’s knowledge, or appointing fake identities with fabricated CVs.
- Submitting business plans that were identical to other companies and “lacked any logic or connection to Estonia.”
- Providing poorly translated documents from another language that lacked coherence.
The problems that have emerged from Estonia’s lax licensing requirements are already being reduced. The recent enactment of the Money Laundering and Terrorist Financing Prevention Act, which came into effect on March 15, has led to over 200 digital asset service providers abandoning their licenses. Estonia also suspended hundreds of additional licenses due to failure to meet these new requirements.
Its recent crackdown has left only 100 licensed digital asset service providers in Estonia, compared to a previous peak of nearly 650.
Critics argue Estonia will lose its competitive edge
The European Union passed the comprehensive Markets in Crypto Assets (MiCA) rule set back in October. The EU originally expected to publish MiCA in the Official Journal in Q1 2023, with most of the provisions going into effect 12 to 18 months after publication.
However, EU member Estonia is keen to enact similar legislation to regulate digital asset service providers far sooner. New rules that will take effect on June 15 will heighten transparency requirements further; crypto firms can no longer have anonymous accounts and must have at least €250,000 in capital.
Read more: ECB says crypto regulation needed MiCA yesterday — it’ll take years to enact
Some digital asset participants think Estonia is overreacting. Estonian Cryptocurrency Association chief Raido Saar said Estonia could lose its competitive edge as it regulates heavy-handedly over the crypto industry.
“If those companies are helped, they will stay in Estonia. But if you kill them with terms they are not able to comply with [regulation], of course, they will leave Estonia. And with that, a part of the brains leave Estonia,” Saar told Euronews.
On the topic of investors potentially losing money on crypto investments, Matis Mäeker, the head of the Estonian Financial Intelligence Unit, disagreed with Saar: “We are in a place where people have so much money to spend and they are not spending it wisely and they are investing in places that they shouldn’t invest at the moment. And at one point they will lose their assets.”
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