Cryptocurrencies, Estonia, Financial Services

"In Estonia ever greater amounts of capital are raised by means of novel technological solutions, and often these technologies are based on cryptography. Raising capital in this manner is generally not regulated, however, and the rights of investors are not sufficiently protected. Therefore the ministry has come up with a relevant initiative," Deputy Secretary General of the Ministry of Finance Marten Ross said.

Different names are used for the model whereby a business operator raises investments in some official currency or virtual currency and issues in return, for instance, units entered in a blockchain, or tokens in English. Conditionally, such new kinds of assets can be called crypto assets, the Ministry of Finance said. 

Perhaps due to the recognized e-state and positive image of an IT nation, Estonia is a place that several persons brokering foreign crypto assets have registered as the domicile of their activities. While new technology may facilitate the brokerage of capital for investors and businesses, it entails different risks, the ministry said.

Absence of rules may entail a danger of fraud for consumers and investors, for instance. In addition, risks related to money laundering and terrorism may be involved, as crypto assets enable the transfer of value without identifying the parties.

The consultation document of crypto asset regulation drafted by the Ministry of Finance focuses on how crypto assets should be defined, what advice should be provided to investors when investing in crypto assets, what rules should apply to the conduct of transactions involving crypto assets and their registration, and what operating requirements should apply to brokers of crypto assets.

It also needs to be assessed separately whether supervision over brokers of crypto assets should be brought under the Financial Supervision Authority or whether such supervision should be mandatory starting from a certain volume of assets or number of clients, the ministry said.

At present brokers of crypto assets need an activity permit from the Financial Intelligence Unit in Estonia. 

The Ministry of Finance is now awaiting the opinions of the Ministry of Justice, the Ministry of Economic Affairs and Communications, the Financial Supervision Authority, the Bank of Estonia, the Estonian Cryptocurrency Association, FinanceEstonia, the Estonian Banking Association and the Bar Association of Estonia.