Estonia's government has passed a bill enforcing strict legal standards for digital asset service providers, according to local media reports on March 21. Approved on March 20, the legislation is part of Estonia's efforts to regulate the crypto industry and bolster its credibility.

Estonia has been a key hub for crypto service providers, hosting nearly half of the world's crypto service companies in 2021. However, as of 2024, the number of these companies has been reduced to around 50 by the Financial Intelligence Unit (Rahapesu Andmebüroo/RAB) as part of regulatory measures.

Matis Mäeker, the head of RAB, explained the forthcoming changes, highlighting that the new regulation would subject crypto service providers to financial oversight for the first time. He stressed the importance for these companies to have robust systems in place to securely manage client assets, likening their responsibilities to those of banks.

Under the new regime, crypto service providers will be supervised by Estonia's Financial Supervision Authority (FSA) or the Finantsinspektsioon from 2026.

The new legislation imposes stricter operational and reporting standards on crypto businesses, with potential fines of up to €5 million, a significant increase from the previous €40,000 limit under the Anti-Money Laundering Act. Additionally, crypto service providers will be required to obtain regulatory licenses, which will be issued by the FSA starting in 2025. Existing entities with FIU licenses must apply for the new licenses by 2026.

The legislation responds to several high-profile incidents of cyber thefts and business failures within Estonia's crypto sector, resulting in substantial losses for investors. By subjecting companies to FSA oversight, the government aims to mitigate these risks and ensure greater security for digital asset holders.

The new regulatory framework underscores Estonia's ongoing commitment to balancing financial innovation with market stability and investor protection.