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Interesting observations from the Estonian FIU 2023 yearbook



FIU yearbook 2023

 

Today, Estonian FIU published its 2023 yearbook, which is an exciting and comprehensive guide to read, and which we dare to recommend to all compliance professionals.


Below are some highlights regarding virtual currency service providers, as this field has been of greatest interest to me over the years and we have helped companies comply with constantly changing and tightening legal requirements.


  1. Observations from interviews  with VASP’s board members, who were so-called "nominee directors":

  • The person appointed as a Member of the Board took the job “free of charge”, no contract or benefits were offered when taking the position of a board member

  • The board member did not know company management specifics  or associated risks

  • The board member did not know the number of clients or the volume of transactions. When the FIU official showed the volume of transactions on paper, the board member could not count the zeros in the numbers and only then grasped the size of the transactions.

  • As a result of the conversation, the FIU  found that the board member does not actually manage the company,

  • The seat of the company's board was not in Estonia, which means that the company was managed outside of Estonia

 

 

2. The main reasons for revoking the license were:

 

  • Necessary documents to comply with the new requirements were not submitted. In particular, business plans were lacking. The business plans of several companies overlapped, from financial projections to logical and typographical errors that indicated fictitious documents.

  • The provision of the service was not started within six months after obtaining the license. If the license has been valid for several years, but no service is provided, this may indicate that the company was created for sale. However, not knowing future license holders and their intentions is a heightened risk that FIU cannot tolerate.

  • The location, place of business, and purpose of operating the company's board were not in Estonia. A board member was assigned to Estonia, but in fact, strategic decisions were taken by another board member living abroad.

  • Customer service, IT support, financial management, and other personnel were located abroad, and individual employees were located in Estonia.

  • The information shown on the web pages also differed from the documents submitted to the data bureau. For example, the Estonian board members were not reflected on the company's website, or the provision of the service was advertised to significantly wider jurisdictions than it was shown to the FIU

3. FIU’s recommendations to new applicants when applying for the license

 

3.1. To prevent money laundering and terrorist financing, it is necessary to be familiar with international requirements, guidelines, recommendations and typologies. There are requirements for compliance arising from domestic legislation, but the fight against financial crime can only be effective if this complex world is truly understood.


3.2. FIU is open to dialogue with the obliged persons, but this does not mean that they will provide legal advice, which industry professionals can provide

 

3.3. Before applying for an activity license, applicants need to familiarize themselves with the national requirements, whether and which activity license the service needs, and carefully think through your business plan and the content of the service. The applicant must understand the main business concepts necessary for the provision of the service.

 

3.4. When applying for an activity license, an accurate and understandable description of the service shall be provided, explaining, among other things, how and to which customers the service is provided.

The company must describe in legal terms which license is required for requested services

 

3.5. A risk assessment and procedural rules must be tailor-made, and related to the applicant’s unique business model. It is a waste of time to submit standard documentation prepared like “one size fits all”

 

3.6. Annual reports must be submitted on time, because if the report is delayed for more than six months, the company is considered to have abandoned economic activity, and this gives the FIU the right to revoke the license.

 

4. Some facts about VASP's in Estonia:

 

  • Estonian licensed virtual currency service provider at the end of 2023:

  • On average, the turnover per service provider was 404 million euros per year

  • 5 employees on average

  • The main customers are from the United Kingdom, France, Curacao, Marshall Islands, and Estonia

5. Way forward

Starting in 2025, it will no longer be possible to apply for a VASP activity license from the FIU. Instead, an activity license must be requested from the Financial Supervision Authority for the provision of cryptocurrency services under the new requirements established in MiCA.

 

Current license holders may provide the virtual currency service until January 1, 2026, based on the license issued by the FIU.

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