Since the beginning of the banking renaissance and the establishment of Fintech as an independent banking field, crypto exchanges have tried to find the appropriate license that will enable them to conduct their business with a minimum level of regulation, whilst still adhering to the regulatory framework.
The Estonian licenses that were issued up until the beginning of 2019 have proved to be the easiest license to comply with, and have served thousands of licenses in Estonia.
Yet, recently the tide has shifted in the Baltics, and especially in Estonia. 5 AMLD that was supposed to be fully implemented by January 2020 in all Member States in the European Union has taken a very heavy toll on the local regulators. Member States that will be deemed non-compliant will have to 5 AMLD will be held in breach of EU Law, which will result in proceedings against the EU Commission in front of the CJEU.
Certain Member States have already been issued warnings by the EU Commission, such as the Netherlands, Spain, Portugal, Slovenia, Romania, Slovakia, Hungary and Cyprus. Estonia clearly does not want to appear in such a star-studded list, which have left local regulators with severe consequences.
Hence, it was inevitable that Estonia, with the vast amount of crypto exchange licenses that were issued, will take the lead in amending their crypto regulations and guidelines in that regard.
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The purpose of the new framework stems from the 5th AML Directive implementation in each Member State, which has completely changed the EU to an indistinguishably new Market that is facing unchartered waters, specifically within the realm of AML. Crypto Exchanges operating and licensed in Estonia are encouraged to adapt to the new framework or risk revocation of their license.
Crypto exchanges that have obtained the license prior to the new conditions will not only have to comply to the new conditions such as local AML officer, local director, physical presence and raise in the share capital but in certain will also have to expect an invitation to the FIU for further clarifications. The list above is non- exhaustive, and the FIU is able to ask for additional documentation and proof of integration to the Estonian market.
It seems that the era of smoother and wrinkle-free licenses in the EU has ended, and the era of heavier regulation has embanked on the shores not only of the continent but also on the realm of the FATF. Banking renaissance, like any sort of renaissance, encompasses many challenges for the spearheading individuals and companies, such as cryptocurrency exchanges. What will remain is not only a question to the regulator but to the companies as well, that will now have to learn to collaborate better with the Member State Regulators.
Ella Rosenberg is an EU Law Regulatory Consultant at the Porat Group and CEO of the Israel-EU Chamber of Commerce and Industry