The Estonian Ministry of Finance has sent on a second round of approvals a bill seeking to introduce a number of new requirements for cryptocurrency service providers and to bring them under the supervision of the Financial Supervision Authority (FSA) by 2025.
“Regulating the crypto market is a necessary step. All service providers will be subject to uniform requirements in Estonia and other member states, to be enforced by the Financial Supervision Authority. While no investment is ever entirely risk-free, this will provide additional assurance to investors that certain risks are mitigated and the likelihood of fraud is reduced,” Minister of Finance Mart Vorklaev said.
He added that from 2025, it will be possible to invest in cryptocurrency through an investment account.
“Although the first cryptocurrency was allegedly invented in the early 1980s, and the first popular cryptocurrency, Bitcoin, emerged in 2008, there has been a rapid increase in different cryptocurrencies and assets since then. However, their offering and intermediation have not been regulated until now. The new rules will bring similar regulations to these service providers as those that apply to more conventional financial instruments, such as stocks and bonds,” Thomas Auvaart, deputy head of the financial services policy department, said.
Until now, the EU has not uniformly regulated the crypto asset market, except for anti-money laundering requirements. The situation and regulations vary by member state, leading to several fraud schemes and affecting the reliability of the crypto market. However, cryptocurrencies and new technologies also offer additional opportunities for innovative digital services, alternative payment methods, or new financing sources. Regulating the market could also increase the related investments.
On May 31, 2023, EU regulation 2023/1114, or the MiCA regulation, came into force, establishing uniform rules for market participants across the European Union. This allows crypto asset service providers to offer their services under the same rules in all member states.
Currently, crypto asset service is known as virtual currency service in Estonia. Providers of virtual currency services must obtain an operating license from the Financial Intelligence Unit (FIU) to operate in Estonia. As of the beginning of the year, there are 54 such service providers. From 2025, it will no longer be possible to apply for an operating license from the FIU for virtual currency service, but existing service providers can operate under the old license until Jan. 1, 2026. Subsequently, the broader concept of crypto assets will replace virtual currency, and for continued operation, the activity must be aligned with the requirements of the MiCA regulation and a license obtained from the Financial Supervision Authority.
The draft law also amends certain requirements for risk capital funds, particularly those without a current license requirement. Since retail or average investors can invest in these, it is essential that the requirements for them are appropriate and the operation as transparent as possible. Therefore, the draft law proposes a separate capital requirement, clarifies how they can advertise, and what information they must provide to the FSA for their having their activity registered.
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