Estonia Tightens Regulations: Why Crypto Firms Are Shutting Down?
In the past year, a considerable number of cryptocurrency companies in Estonia have been compelled to close their doors, either voluntarily or due to regulatory pressure. The catalyst for these closures was the introduction of amendments to the law on combating money laundering and preventing the financing of terrorism in 2022.
As of May 2023, only 100 officially registered cryptocurrency companies remain in Estonia, while 389 startups have completely ceased operations within the jurisdiction. Of these, 200 chose to shut down voluntarily, while 189 were forced to do so due to non-compliance with the new requirements. The Estonian authorities' notably stringent approach has drawn criticism for potentially stifling the industry, but regulators strongly disagree.
Regulators argue that these projects had been taking advantage of the inadequacies in existing laws. The introduction of new provisions, including increased licensing fees, minimum capital requirements, and more detailed reporting, aimed to close these loopholes. Financial intelligence agencies have shed light on key issues discovered during the examination of local cryptocurrency companies, particularly those that were compelled to close:
- Inadequate financial and risk management, encompassing flawed planning, ineffective expense control, and mismanagement of credit, among other factors.
- Poorly crafted business plans, characterized by subpar translations, frequent instances of plagiarism, disorganized descriptions of operational logic, and unrealistic calculations.
- Systematic attempts by management to circumvent legal obligations.
- Problematic board members, often lacking the necessary reputation or any substantive connection to the projects. Some startups even resorted to the complete falsification of governance information.
- Dissemination of unreliable public information on websites and social media platforms, as well as the employment of the same legal firms to handle regulatory matters.
- Absence of long-term ties with Estonia, making it difficult to ascertain the true intentions of these companies — whether they aimed was to conduct legitimate business in the country or exploit the European financial system for illicit activities.
We will continue reviewing the applications for amendment of authorisations, but soon, we can return to normality in terms of supervision, where we will be moving largely from assessment on paper to daily on-site supervision. Our colleagues from other countries have noticed our positive work and are now interested in learning about Estonia’s experience in identifying, assessing and managing risks in the virtual asset service providers sectornoted Matis Mäeker, the director of the Financial Intelligence Unit
Matis took office in the summer of 2021, but it is highly unlikely that the increased regulatory activity is specifically linked to him or the earlier MiCa law. Instead, it likely reflects a broader government campaign to combat money laundering through all financial organizations. Additionally, Estonia's desire to prevent sanctions evasion by Russia could be another contributing factor.
