The Estonian crypto regulation faces a lethal challenge. If immediate action is not taken by the legislator, then the licenses issued under the current legislation will become (or more precisely will remain) essentially a novelty – only relevant in fringe cases.
As of 10.03.2020 the new crypto regulations came into force in Estonia – we have covered the main changes already before. However, there is one glaring issue that no one seems to be talking about.
Not so fun fact for exchanges. As of 10.03.2020 if your client is outside the EEA, an e-resident (even an EU citizen) or their transaction volume exceeds 15 000 (natural person) euro or 25 000 euro (legal person) per calendar month then you have only two options to onboard them (see § 31 (1), (2), (3) and (6) here https://www.riigiteataja.ee/en/eli/509012020001/consolide):
- Face-to-face document check; or
- Use an ID card issued by Germany, Italy, Croatia, Estonia, Spain, Luxembourg, Czech Republic, Netherlands, Slovak Republik, Latvia, Belgium or Portugal (see full list here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2019.425.01.0006.01.ENG&toc=OJ:C:2019:425:TOC).
There is no other way to KYC non-EEA clients or clients who go over the 15k/25k threshold. None whatsoever. Sum&Substance is not enough. Veriff is not enough. You have to use those ID cards and cannot use anything else.
For instance, if you are dealing with a French citizen who wants to trade over 15k, they need to get an e-residency card or an ID card from one of the aforementioned jurisdictions. If you want to trade with any person outside the EEA in any amount – they need to get an e-residency card or an ID card from one of the aforementioned jurisdictions. Obviously they will not and cannot do that (other than perhaps an e-residency card).
Clearly this is not the market practice at the time and if exchanges were to follow the abovementioned requirements (which we suggest they do but we know they do not) then business under the Estonian licenses will stop. Most clients who have any business value to exchanges will trade over 15k and will not have easy access to the required ID cards. And obviously they will not be met face-to-face.
Luckily there is an amendment to the new regulation already in the works. The Estonian Parliament is changing § 32 of the relevant AML law to include more flexible options for digital identification (see amendment act here: https://www.riigikogu.ee/tegevus/eelnoud/eelnou/69421167-7e69-4383-b2f8-b9f2912a13e6/Rahapesu%20ja%20terrorismi%20rahastamise%20t%C3%B5kestamise%20seaduse%20ja%20teiste%20seaduste%20muutmise%20seadus).
At the time we do not know if the amendment will pass. We do not know when it will pass and we do not know what will be the alternative digital identification means (the amendment act does not specify them as of yet).
We understand the Ministry of Finance is very much open to suggestions from market participants as to what should such digital identification means be. Therefore, this is a call to arms. Speak up. Write to the ministry regarding your views on what would be reasonable.