ESTONIA Law and Practice Contributed by: Yuliya Barabash, Ivan Nevzorov, Daria Lysenko and Nikita Prokopenko, SBSB FinTech Lawyers
gies, particularly in the financial sector. Banks and financial companies are increasingly inclined to use distributed ledger technology (DLT) to manage cus - tomer data, optimise payments and automate compli - ance procedures, including KYC and AML monitoring. This is aimed at increasing transparency, automation and security. It is still too early to talk about the widespread use of blockchain technologies by traditional players – but, at the same time, it opens up new opportunities for them and enables them to compete with innovative businesses and form partnerships with fintech and regtech companies. All this is aimed at improving the security and efficiency of systems and procedures. 10.2 Local Regulators’ Approach to Blockchain Finantsinspektsioon has a reputation among fintech businesses as a friendly regulator that also pays con - siderable attention to risk management and strict compliance with legislation. The approach remains that technology is not regulated separately, but activi - ties that use technology to provide financial services are part of the regulatory regime. The main stage today is the introduction of the Mar - kets in Crypto-Assets Regulation (MiCA), which has been implemented in Estonian legislation and estab - lishes rules for crypto-asset service providers (CASP), and the regulator is focused on this. In other words, the use of blockchain is recognised as a reality in con - junction with maintaining system security and user protection. In addition to the general MiCA framework covered in the new general chapter on MiCA, the Estonian Crypto Market Act ( krüptovaraturu seadus – CMA) regulates certain aspects of the activity, liability and termination of participants in crypto-asset markets, as well as their supervision, thereby specifying and supplementing the provisions of MiCA and Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital operational resilience for the financial sector (DORA). The CMA entered into force on 1 July 2024. Its entry into force was accompanied by amendments to several other laws governing entities engaged in crypto-asset activ -
ities. The MCA became applicable from 30 December 2024 for persons whose activities fall within the scope of MiCA. 10.3 Classification of Blockchain Assets According to the pan-European approach, which also works in Estonia, the determination of whether a blockchain asset is a financial instrument is based on its nature rather than its form. This means that if a blockchain asset has the characteristics of a finan - cial instrument (eg, it confers a right to participate in capital, a right to profit), then it should be classified as a security and subject to the applicable regime for securities. Digital assets without the characteristics of financial instruments will be classified in accordance with MiCA interpretations (which distinguish between asset-ref - erenced tokens, e-money tokens and crypto-assets other than asset-referenced tokens or e-money tokens) if they meet the requirements. The main thing is not the form of the asset, but its essence. • Asset-referenced tokens (ARTs), often referred to as a type of stablecoin, are designed to maintain a relatively stable value by referencing one or several underlying assets, such as fiat currencies, com - modities or a basket of assets. These tokens have gained significant popularity in the crypto market as they aim to reduce volatility and provide a more predictable value compared to traditional crypto - currencies. Under MiCA, asset-referenced tokens are subject to strict regulatory requirements. Issu - ers must obtain authorisation from the relevant national competent authority and comply with governance, transparency and risk-management obligations. The purpose of this regulatory over - sight is to ensure the reliability and stability of such tokens, as well as to protect consumers and main - tain financial stability within the European Union. • E-money tokens (EMTs) represent digital versions of fiat currency and are primarily intended to func - tion as a means of payment. In many respects, they resemble electronic money and are designed to serve as a digital alternative to traditional pay - ment instruments. Under MiCA, e-money tokens
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