Our team of lawyers has extensive experience in assisting some of the most innovative and ambitious FinTech projects in Estonia. Our assistance in this field is far-ranging: from ensuring the legal compliance of the business model to refining the specific contractual conditions in order to maximize the potential of the technology.
Among else, our repertoire includes:
ICOs and STOs
- Advising many innovative projects that have successfully carried out their token offerings (client example);
- Tokenized coin or security offerings to the public are the most recent approach to carrying out crowdfunding, enabling to raise funds worldwide while also gaining loyal early adopters of the technology in the form of the token purchasers.
- Providing legal certainty regarding cryptocurrency wallet and exchange licenses services (Estonia has been one of the first countries to introduce these services);
- Helping many foreign projects without any prior link to Estonia to conveniently establish their operations in Estonia and successfully commence providing their services all over Europe.
Regulatory compliance of blockchain-based business models
- Helping innovative business models to thrive in Estonia thanks to carefully designing the services to fit into the existing legal framework;
- For example, tokenizing the copyright royalty payments and setting up a blockchain-based system for frictionless and liquid real estate investment platform.
In addition, we assist with all other relevant issues, such as:
- Anti-Money Laundering (AML) and Know-Your-Customer (KYC) rules;
- Financial and payment services activity permits;
- Setting up crowdfunding platforms or projects.
Frequently Asked Questions
Do I need a license if I offer a cryptocurrency related service?
Cryptocurrencies are one of the most legislatively fragmented markets in Estonia. Because of that, there is no definitive answer, and many service providers need to acquire one or several licenses, while others can operate on an unregulated market entirely.
According to the analysis of the Financial Supervision Authority of Estonia, determining the licensing obligation starts with deciding whether the coin gives its owner an expectation of income or a voting right (similar to the voting right of a shareholder).
There are three main possibilities if the coin does not give any such right:
- the service is aimed at enabling transfer/storage/exchange/etc of virtual currency (e.g Bitcoin). In this case, you would need either a virtual currency wallet service or a virtual currency exchange service license;
- the coin is issued without any promise of income, voting right, or any other benefit. In that case, it is possible that such an issue would be considered as a donation and would not be regulated;
- the coin gives a right to use/access a certain service. In most cases, this activity would not be regulated and the standard provisions of the Law of Obligations would apply.
In case the coin does give a promise of future income or a voting right, then it is necessary to consider, whether:
- the coin has the qualities of traditional security. If yes, then a sufficiently large public offering (€2 500 000) would bring about an obligation to issue a prospectus;
- the ICO organizer invests the acquired funds under a certain investment policy. In that case, it is possible that the undertaking would be classified as an investment fund with the consequent obligation of appointing a licensed fund manager;
- the ICO organizer uses the acquired funds to issue loans in its name while promising the coin holder returns on interest. Such activity would potentially qualify as activity of a credit institution and necessitates a license from the Financial Supervision Authority.
How to set up a crypto company with an Estonian license?
You (or rather your company) need to apply for a license with the Estonian Financial Intelligence Unit (FIU). The application fee amounts to 3300 EUR and the procedure can last up to 2 months (in certain cases up to 4 months). During the procedure, any new service providers are required to provide several AML documents and confirmations.
The documents include, but are not limited to:
- ID documents of managers, direct owners, beneficial owners;
- company managers’ CVs with proof of acquired qualifications;
- confirmations on lack of previous criminal record of managers, direct owners, the beneficial owner;
- information on shareholdings in other companies;
- documentation on the internal AML/KYC procedures of the company.
To be compliant with the requirements of the law the company must be managed from Estonia. Meaning the majority of the management board must reside in Estonia.
In addition to that, it is necessary to have a registered bank account with a credit institution within the EEC. And finally, the company must have a share capital of 12 000 Euros.
What is the difference between cryptocurrency wallet and cryptocurrency exchange services?
When applying for a license, it is necessary to determine the exact service that you intend on offering.
As per Estonian legislation, there are two types of cryptocurrency services:
- virtual currency wallet service; and
- virtual currency exchange service.
The former is defined as “a service in the framework of which keys are generated for customers or customers’ encrypted keys are kept, which can be used for the purpose of keeping, storing and transferring virtual currencies”.
And the latter has the following definition: “a service with the help of which a person exchanges a virtual currency against a fiat currency or a fiat currency against a virtual currency or a virtual currency against another virtual currency”.
What are the potential obligations of a virtual currency service provider?
Any of the virtual currency service providers is considered an obligated entity under the AML (anti-money laundering) regulation of Estonia. This means that such an entity has an obligation of establishing and applying its own rules of procedure.
These rules must comply with a comprehensive set of standards set by the Estonian legislation, which is in turn based on the best EU and international practice.
Some of the examples of such obligations include:
- a requirement to identify the personality of the client through a KYC process;
- a requirement to establish a risk assessment for identifying the acceptable and unacceptable AML/terrorist financing risks;
- a requirement to monitor the new and existing client relationships on the subject of their compliance with the risk assessment and rules of procedure;
- a requirement to appoint a compliance officer, who oversees communication with the authorities on the matters of suspicious activity;
- a requirement to gather and store any relevant information pertaining to the relationship with the client;
- an obligation to update the existing rules with any changes to active legislation.