"The Estonian fintech sector has grown rapidly over the years, several foreign companies have started operations here, and new innovative services and ways of raising money have entered the market. To date, the activities of such service providers are either unregulated or minimally regulated and generally not subject to financial supervision, Minister of Finance Keit-Pentus Rosimannus (Reform) said.

"At the same time, for example, last year the balance of money channeled through crowdfunding platforms amounted to almost €440 million, with a total volume of approximately €900 million over the last five years," the minister added.

The main aim of the amendments is to provide uniform rules for all those involved in the sector, while ensuring that investors and consumers also receive correct and complete information about the instruments and services offered and that their rights are protected.

Due to technological developments, the raising of capital through various alternative investment opportunities has intensified over the last decade. However, the activities of companies offering such investment opportunities are largely unregulated and there are no effective investor protection measures. Thus, consumers and investors may receive too little information. As a result, it is also easier to commit fraud in an unregulated financial sector.

When the amendments enter into force, both existing and new crowdfunding service providers will have to adapt their activities to the new requirements. This means applying for an activity license and coming under the supervision of the Financial Supervision Authority together with the reporting obligation. In addition, undertakings must provide the service in accordance with the requirements arising from the law and be liable for violation of these requirements. Additionally, all virtual currency service providers licensed by the Financial Intelligence Unit today must start applying for an activity license from the Financial Supervision Authority and comply with the requirements set out in the bill in their activities.

At the end of 2020, there were approximately 20 companies registered in Estonia that managed crowdfunding platforms. At the end of the year, the balance of funding mediated through these platforms was around €440 million, or 1.6 percent of GDP.

There are about 400 companies with a valid activity license for the provision of virtual currency services issued in Estonia. More broadly, there are no adequate statistics on crypto asset brokerage service providers.

The regulation thus covers a large part of the Estonian fintech sector with requirements that ensure, among other things, more equal treatment of companies providing financial services, more equal conditions of competition and a better overview of the services offered to customers, as well as establishing relevant protection mechanisms.

The drafting was preceded by a development intention published in 2019, to which the feedback sent showed that the stakeholders in the sector mostly support the regulation of the field.

The European Union's crowdfunding regulation, which entered into force on November 10 this year, only applies to crowdfunding platforms that enable investment in companies. This bill seeks to apply similar operational requirements to other crowdfunding service providers, which should create a level playing field in the crowdfunding services sector. Amendments to the Money Laundering and Terrorist Financing Prevention Act are also currently being drafted, which foremost provide for additional requirements for more efficient management of the risks of money laundering and terrorist financing related to virtual currency service providers.

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