Over the past couple of years, cryptocurrency companies have been drawn by several jurisdictions, where regulation has been enacted and on top of that, rules were beneficial for the growth of the industry.
Estonia ranks high in terms of crypto-related brands, especially exchange platforms, but 2022 came in hand with several changes in the local laws, with an impact on both providers and average users. Bitcoin recently dropped to levels not seen since January this year, so it makes sense for regulators to make sure that companies won’t be having difficulties in such a challenging environment.
Capital requirements
The new amendments to the Estonian AML Act, which is also regulating virtual asset services providers (VASPs), entered into force on March 15th, 2022. Already licensed VASPs, as well as new applicants, will need to consider tougher requirements, one of which deals with capital requirements.
Based on the new framework, companies will need to have a share capital of EUR 250,000 to offer virtual currency transfer services. This impacts exchanges such as Bitnomics, which is now licensed in Estonia and aims to offer reliable exchange conditions for all users.
Such a requirement is more than welcomed, given conditions in the crypto market have been deteriorating. When valuations are falling impulsively, liquidity risks can arise, putting exchanges under pressure, and average users at the risk of incurring losses. Estonian regulators want to proactively avoid these issues with the latest capital requirements.
AML/KYC
Bitnomics, and the other exchanges that want to continue operating with headquarters in Estonia, would have to reinforce their AML/KYC approach as well. These companies need to have a sound internal compliance and risk management framework in place, including AML regulations, risk management policies, and business continuity plans.
By implementing Know Your Customer (KYC), the exchange will have detailed information about all users and decline to open accounts for high-risk individuals. Reliable exchanges have already made the KYC procedure mandatory and all customers have to submit identification documents before they start exchanging crypto.
Transaction monitoring
Under the new laws, exchanges must save and store information related to each transaction conducted, including details such as transaction ID and data on the originator and recipient. Basically, this is a simplified version of the FATF (Financial Action Task Force) “Travel Rule”. Stopping any suspicious transactions from occurring is the main reason why such requirements have been implemented.
Reputation
Choosing a proper exchange platform to work with should be done based on a broad analysis and each user must decide which company is the right fit. Thanks to the new rules, all exchanges must not have prior convictions regarding economic activities and have a good business reputation.
All of the above are pieces of good news for average cryptocurrency users, but in the case of exchanges, some experts believe it would be harder to comply. Preliminary estimates suggest some operators might cease their activity in Estonia, as the country is no longer viewed as a crypto-friendly place.
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