In this article we’ll provide information about VASP legislation amendment in Lithuania. On 25.03.2022 was introduced project for amendment of Lithuanian AML framework regarding vir...
The updated Estonian Money Laundering and Terrorist Financing Prevention Act sets requirements for the calculation of the minimum amount of own funds for VASPs, which will be discussed in this article. Own funds are needed for a company to be able to absorb losses in a going or in a gone concern situation. Own funds amount, together with the envisaged business activities of the company, are used to determine, whether the amount of own funds is of a sufficient quantity and quality.
Pursuant to Article 87 of Directive 2009/138/EC, own funds consist of:
Basic own funds, which is made up of:
Ancillary own funds, which is made up of items other than basic own funds that can be called up to absorb losses, which may the following (to the extent that they are not Basic own funds):
All own funds are divided into 3 separate tiers, of which, the own funds belonging into Tier 1 should be treated as high-quality capital.
The amount of own funds of an Estonian VASP consists of Common Equity Tier 1 (CET1) items,taking into account the deductions (incl. losses for the current financial year, intangible assets, deferred tax assets that rely on future profitability, etc.) and without applying the exceptions related to the threshold provided.
Tier 1 basic own funds items are:
Article 722 of the Money Laundering and Terrorist Financing Prevention Act of Estonia (MLTFPA) provides the thresholds applicable for VASPs, to which the own funds of the VASP must at all times, depending on which of these is the larger:
Wallet & ICO services
Article 722 (3) of the MLTFPA provides that in a case where a VASP provides only the services of virtual currency wallet or ICO services, then the VASP’s own funds must not be less than 25 % of the fixed overhead costs of the previous financial year – the overhead costs are reviewed each year. Where a VASP has been operating for less than 12 months, a VASP may calculate fixed overhead costs by using estimates of business activity, provided it switches to data concerning previous periods as soon as those data become available.
Transfer & exchange services
VASP’s, providing virtual currency transfer or exchange services, own funds amount must equal to at least the following part-volume (1/12 of the total volume of the transactions carried out in the framework of providing the services) amounts of the transactions carried out in the frames of the aforementioned services:
In a case where a VASP, who provides virtual currency transfer or exchange services has been operating for less than 12 months, then, the VASP obtains the relevant figure by dividing the sum of the volumes of transfer and exchange transactions carried out in the preceding year by the number of months of operation.
The exact frequency, according to which a VASP must calculate and check the conformity of its amount of own funds has not been prescribed by law. However, pursuant to Article 722 (8) of the MLTFPA, VASPs are obligated to implement measures that permit, at any time, to calculate its own funds with sufficient precision. And pursuant to Article 722 (9) of the MLTFPA the Financial Intelligence Unit (FIU) may set a time limit during which the provider of virtual currency service must take steps to ensure that its own funds meet the requirements provided by this Act and the legislation enacted under it.
The conformity of VASP’s own funds to its regulatory requirements will be verified during the audit of VASP’s annual accounts, whereas the auditor presents the relevant opinion to the VASP and the Financial Intelligence Unit. A legal entity may be fined up to 400 000 € for non-compliance with the own funds requirements.
Implementation of measures to calculate the amount of own funds
To ensure that a VASP is capable of to calculating its own funds with sufficient precision at any time, such items must always recorded correctly and in a timely manner within the VASP’s bookkeeping.
To ensure the compliance of the VASP with the own funds requirements, in our opinion, the amount of own funds shall be calculated by a VASP on a monthly or annual basis, depending on the structure and activities of the VASP.
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