Estonia to Strengthen Supervision of Virtual Asset Service Providers

Estonia has recently considered enacting new rules on encryption and proposed draft legislation that will strengthen the supervision of virtual asset service providers, but it has not made the possession of encrypted currency illegal.

The Estonian government today approved the proposed rules of the December 23, 2021, draft. It must now pass the parliament before it can be implemented in the first half of 2022.

The bill aims to regulate encrypted entities or virtual asset service providers (VASP), such as traditional financial institutions and payment platforms, to reduce financial crimes.

According to regulations, virtual asset service providers that facilitate virtual asset transactions must identify their customers and companies that do not have any physical business operations in Estonia are not allowed to obtain a VASP license.

The new regulations enable VASP to meet higher standards of anti-money laundering clauses, which are further increased on the basis of Estonia’s 2020 ban on opening anonymous virtual accounts.

Concern about the prohibition of owning cryptocurrency or non-custodial wallets have been expressed and the Estonian government holds no intention to prohibit the digital assets.

The government document explained that:

"This means that the legislation does not contain any measures prohibiting customers from owning and trading virtual assets, nor does it require customers to share their wallet private keys in any way." "Individuals are still free to use non-custodial wallets."

As reported by Blockchain.News on June 15, 2020, Estonia has revoked licenses from 500 crypto companies as part of combating illicit financial transactions after Danske Bank was associated with a $220 billion money-laundering scandal. This is an estimate of 30% of the entire number of approved crypto companies in the country.

This was the biggest black money scandal in European history at the time.

So far, about 400 licensed companies remain.