The recent drop in the number of registered crypto firms operating in Estonia has caught the attention of the crypto community, as it has been revealed that there has been an 80% decrease since early 2022. The reduction in operation licenses, from nearly 650 companies down to just 100, is attributable to the government tightening its regulatory standards on the cryptocurrency sector.
In March 2022, Estonia amended the Prevention of Money Laundering and Terrorist Financing Act and added several new criteria to the operating permit application and renewal process. This was done in response to the recognition of the crypto sector’s “high risk of money laundering and terrorist financing” by the government-run Anti-Money Laundering Data Bureau and its partners. As a result, 389 firms have either had their operating licenses revoked or have asked for their permits to be withdrawn.
On one hand, these heightened regulatory standards could be seen positively as a necessary measure to protect the country’s financial sector and limit illegal activities. With cases like the two Estonian citizens who were arrested in Tallinn late last year, suspected of organizing a $575 million crypto fraud and money laundering scheme, the call for stronger regulations cannot be ignored. In fact, Matis Mäeker, the head of the Anti-Money Laundering Office, claims that Estonia’s efforts in regulating the sector have caught the eye of other countries, who are now interested in learning from their experience.
On the other hand, the sudden increase in regulatory requirements may have put undue pressure on some companies operating in the crypto space. Many firms, unable to keep up with these changes, were forced to give up their business licenses, effectively shrinking the Estonian crypto market. A substantial number of operating licenses were invalidated due to non-compliance, leading to speculation over whether these were too high for Estonian crypto firms.
Among the issues regarding the application process, it was reported that some papers were submitted with typos or logical errors, suggesting a lack of due diligence by the companies or individuals applying for a license. In other cases, the applications appeared to have used machine translation, making it difficult for the regulatory boards to assess the documentation correctly. This raises concerns about the quality and credibility of some companies that were operating or seeking to operate within the Estonian cryptocurrency space.
While stricter regulations are necessary to protect investors and mitigate risks associated with money laundering and terrorist financing, it is essential to strike a balance between these requirements and the capacity of businesses navigating the crypto industry. In the future, as Estonia moves from “largely paper-based assessments” to “daily on-site supervision,” it will be crucial to maintain this balance and evaluate the impact of these changes on the broader crypto ecosystem.
Source: Cryptonews
