MiCA implementation in Estonia

Manimama's experts are well versed in the complexities of cryptocurrency regulation and are committed to sharing their findings with businesses and individuals navigating this dynamic sector.

Indeed, our legal team recently finalized a comprehensive study on the national implementation of the Markets in Crypto-assets Regulation (MiCA) in various EU countries. The legal research not only highlights the differences in how MiCA is adopted at the national level, but also offers standard rules for compliance. Today we offer you an insight into the specifics of obtaining a cryptocurrency license in Estonia under the new MiCA provisions.

Current requirements (prior to MiCA implementation)

Requirements for issuing an authorisation to a Estonian VASP:

1) Private limited liability company (OÜ). 

2) At least 1 shareholder (natural person or corporate entity; no restrictions to citizenship or residence) and at least 1 management board member (can be the same as the shareholder, but only a natural person). Company management must have residency in Estonia. Members of the management board of a VASP must possess a higher education and at least two-year specialised work experience.

3) Share capital must be at least 100,000 euros or 250,000 euros depending on the service provided. The share capital must be fully paid up in monetary form before applying for a crypto license in Estonia.

4) Physical office in Estonia.

5) A business plan for at least two years.

6) A VASP must have its own funds (depending on the services provided and the volumes).

7) Estonian resident AML officer. He can hold the position only in 1 licensed company.

8) Documentation compiled in accordance with §13 of the MLTFPA to ascertain the appetite for risk, and concerning risk analysis.

9) A VASP is required to have the annual accounts audited.

10) A VASP is required to appoint an internal auditor.

11) A payment account opened in a credit institution, e-money institution or payment institution that has been established in Estonia or in an EEA state that provides cross-border services in Estonia or has established a branch in Estonia.

The application for authorisation of a VASP must be filed via the web portal of the register of economic activities or via a notary. A state fee of 10,000 euros shall be paid for a new application.

Has the jurisdiction enacted a law/draft law implementing MiCA?

The draft law “The Law on the Market of Cryptocurrency Assets” was adopted.

Who is the regulator under the law/draft law implementing MiCA?

Regulatory oversight from the Financial Intelligence Unit (FIU) to the Financial Supervision Authority (Finantsinspektsioon).

Requirements for future CASPs stipulated by the national legislation implementing MiCA, the presence of national peculiarities.

Provided for in Section 2 of the draft law.

– Article 5:

     There must be a license (The license is granted and revoked by the Financial Supervisory Authority, is valid for an unlimited period and is not transferable. The legal address of the authorized cryptocurrency participant shall be located in Estonia and shall be specified in the memorandum of association or articles of association of the cryptocurrency participant).

– Article 7: 

   (1) A cryptocurrency participant may only act as a partnership or limited liability company.

   (2) A participant in a limited liability company shall have a management board of at least three members. A cryptocurrency service provider in the form of a limited liability company is not required to have a supervisory board if it does not provide the services referred to in Article 3(1)(16)(a), (b), (c) or (d) of Regulation (EU) No 2023/1114 of the European Parliament and of the Council. In the case provided for in the second sentence of this paragraph, the requirements applicable to shareholders of a cryptographic service provider in Article 68 of Regulation (EU) No 2023/1114 and in the legislation adopted pursuant to that Regulation shall apply to a member of the management body.

    (3) The board of a cryptocurrency service provider shall consist of at least two members.

– Article 8:

    (1) A crypto service provider shall ensure that any person who provides advice or information on its behalf in relation to a crypto asset or crypto service has the necessary knowledge and skills, including that person’s ability to:

  1.  understand the principles and nature of crypto services, as well as the types of crypto assets in respect of which advice is provided, including the risks associated with crypto assets;
  2. is able to fulfill the client’s order in the best possible way, including in accordance with Article 78 of Regulation (EU) 2023/1114 of the European Parliament and of the Council;
  3. knows the principles of identifying, preventing and managing conflicts of interest;
  4. be familiar with the requirements for personal data protection;
  5. be able to explain how, in accordance with Article 71 of Regulation (EU) No 2023/1114 of the European Parliament and of the Council, customer complaints regarding the provision of cryptocurrency services will be resolved as quickly and transparently as possible;
  6. can recommend where the client can apply to resolve disputes;
  7.  is familiar with the procedures for preventing abuse in the cryptoasset market;
  8.  be familiar with the procedures for preventing money laundering and terrorist financing;
  9.  be able to explain the rights and obligations of the parties, including the total costs and fees of the crypto service client, as well as the terms of withdrawal and termination of the agreement.

– Article 9:

The crypto service provider and token issuer shall comply with the digital integrity requirements set out in Regulation (EU) 2022/2554 of the European Parliament and of the Council.

The period of time by which the CASP must comply with the new requirements, as well as the procedure for notifying the regulator of compliance with the new requirements.

Art. 48. (1) A person wishing to provide cryptocurrency services shall be subject to this Law from December 30, 2024, unless otherwise provided in subsection (4) of this section.

(8) A person wishing to provide cryptocurrency services in accordance with Regulation (EU) 2023/1114 of the European Parliament and of the Council may apply for an authorization in accordance with Article 62 of the Regulation to the Financial Supervisory Authority as of September 30, 2024. The first sentence of this paragraph does not oblige the Authority to take any procedural steps before December 30, 2024.

* Existing crypto service providers can continue to operate under the RAB license until January 1, 2026. After this date, current crypto licenses in Estonia will no longer be valid. To continue operating, service providers must comply with the MiCA regulations and obtain a cryptocurrency services license from the FSA.

Is there a transition period before the full implementation of MiCA?

A virtual currency service provider or any other person authorized to provide virtual currency services in accordance with the Law on Prevention of Legalization (Laundering) of the Proceeds of Crime and Terrorist Financing before the entry into force of this Law shall bring its activities in compliance with the requirements established by this Law no later than January 1, 2026.

The ability of a CASP from a jurisdiction with a transition period to operate freely in a jurisdiction without a transition period starting from January 1, 2025

Not regulated.

Liability provided for CASPs that continue to operate at the place of registration without meeting the new requirements

Articles 11, 12, section 3 of the Draft Law MiCA Regulation Enforcement Act; Financial Market Supervisory Authority Act, Banking Act and others, amendment (334/ME) provide for a number of penalties. 

 The articles do not contain a specific sanction for violation of registration requirements. However, they mention a list of actions related to violation or failure to comply with MiCA requirements, compliance with which is virtually impossible without registration and is the essence of CASP activities, for which a fine of EUR 700,000 is provided.

Other useful information regarding the implementation of MiCA

License Reapplication: Existing crypto licenses in Estonia will lose their validity, necessitating businesses to apply for a new MiCA license.

– Introduction of New Services: MiCA will introduce new services related to crypto-assets. Such as advisory and portfolio management services, which will also require licensing.

– Whitepaper Requirement: Issuers of crypto-assets must prepare, coordinate, and publish a crypto-asset whitepaper, with penalties for providing false information.

Manimama Legal & Growth Agency provides a gateway for the companies operating as the virtual asset wallet and exchange providers allowing to enter to the markets legally. We are ready to offer an appropriate support in obtaining a license with lower founding and operating costs. We offer KYC/AML launch, support in risk assessment, legal services, legal opinions, advice on general data protection provisions, contracts and all necessary legal and business tools to start business of virtual asset service provider.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.