Estonia is distributing a list of frequently asked questions (FAQs) to allay suspicions that the country’s recently adopted cryptocurrency law is a prohibition.

The stricter restrictions are in response to the Financial Action Task Force’s (FATF) guidelines, which included instructions for countries advocating stricter anti-money laundering criteria for VASPs.

The bill aims to regulate crypto organizations, such as conventional financial institutions and payment systems, as virtual asset service providers (VASPs). It expands the definition of a virtual account service provider (VASP) and holds VASPs to a higher level of anti-money laundering requirements, complementing Estonia’s 2020 restriction on the formation of anonymous virtual accounts.

VASPs will be responsible for gathering and distributing know-your-customer information and will be barred from starting anonymous accounts, which might be used to target non-custodial wallets. They must also get a VASP license for 10,000 euros (up from 3,300 euros before), fulfill capital criteria and pay a monitoring charge of 1% of share capital and 0.035 percent of all virtual asset transactions. According to the FAQ, this is to deter inactive entities from enrolling.

Some feared that the criteria amounted to a prohibition on crypto ownership or the use of a noncustodial wallet. During the draft stage of FATF’s advice, the sector expressed similar worries, claiming that depending on how a country implements the recommendations, it may be used to justify outlawing decentralized finance or noncustodial firms. If such were the case, the DeFi area might be closed off, with no compatible means for centralized and decentralized organizations to trade assets.

Estonia’s FAQ makes it plain that the country does not aim to impose a ban. Customers and private wallets set up without the assistance of a service provider are exempt from AML requirements. Citizens may store cryptocurrency in whatever manner they choose and transact with anybody. Only VASPs are subject to the anti-anonymity requirements, which Estonia’s Anti-Money Laundering Act governs.

This means that the legislation does not contain any measures to ban customers from owning and trading virtual assets and does not in any way require customers to share their private keys to wallets. Individuals can still freely use non-custodial wallets.” according to the government’s paper. “Individuals can still freely use non-custodial wallets.”

Businesses are obliged to authenticate the identities behind the accounts. Therefore such wallets can’t be created using a VASP. In practice, Estonia prohibits companies from allowing customers to open non-custodial accounts.

It’s also unclear how Estonian VASPs will deal with non-custodial wallets since they can’t successfully convey the user’s identity information in an anonymous wallet transaction. However, transactions between VASPs and un-hosted wallets are allowed, as long as given real-time risk analysis is performed on each transaction, according to the FAQ.

On December 23, the Estonian government adopted the proposed guidelines. It must now pass through Parliament before going into effect in the first half of 2022.


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