Many crypto exchange licenses have been requested to comply with a new regulatory framework and conditions, which were unheard of prior to the deadline of July 1st, 2020.
Without adapting to the new conditions of the financial intelligence unit (hereinafter- FIU), current licenses will be revoked, and new licenses will no longer be able to adapt their practices in light of the old framework.
The new conditions for the crypto exchange license in Estonia, which will also include an e-wallet license, are inherent to prove economic substance in Estonia, in addition to stricter regulatory conditions that will have to be imposed by the enterprises. Thus, it is not only imposing a greater liability on the exchanges, but it also creates a regulatory regime that is not easy to operate without sound experience in Anti Money Laundering (hereinafter- AML) and leads companies to focus more on regulations than on operations.
It is for this reason, that many established crypto exchange licenses are considering the option of either applying to a small payment institution (hereinafter- SPI) license, or in other cases even to an electronic money institution (hereinafter- EMI) license.
Just as much as 9/11 changed the AML/ CTF realm into the regulatory framework that we are witnessing today, which may seem as over-regulation, currently the Estonian crypto market is going through the same process.
Applicants which have applied to the new license and conditions should also bear in mind that this is not the last hurdle they will have to pass. 6 AMLD, which will take effect on December 20th, 2020 will serve as an additional stepping stone in the drastic fall of many licenses, as it will impose even more regulatory conditions, such as criminal liability, ad-hoc blacklisting on an EU level and enhanced nominee/ local director applicability and fit-and-proper checks.
It is advisable for crypto exchange licenses which are currently in the process, to assess their regulatory practices, operations and economic substance, in order to consider a sounder and more stable license.
Many crypto exchanges have not yet received a definite answer in regards to their applications, and have even been invited to additional interviews at the FIU in Tallinn, received regulatory inquires and still need to prove beyond reasonable doubt their commitment to establishing a practice in Estonia.
Taking into account the effort and the amount of diligence put into the above, it is credible to assume that without proper regulatory correspondence with the FIU, granting of the license will be elusive than ever before. Consequently and on that account, exchanges should either consider the future of such a license or apply it to a different financial license.
Ella Rosenberg is the Founder of Israeli- European Regulatory Consultancy Firm
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