With the implementation of AMLD V, platforms for exchanging cryptocurrencies into fiat money and crypto custodian wallet providers became regulated in the Netherlands. In a series of articles we will discuss the requirements crypto service providers have to comply with. In this first update we focus on the first requirement: registering with De Nederlandsche Bank.
On 21 May 2020, the Dutch Implementation Act amending the current Dutch anti-money laundering rules (Act) entered into force. This Act is implementing the fifth European Directive on Anti-money laundering and counter terrorist financing (Directive (EU) 2018/843, the AMLD V) and amends, amongst others, the Dutch anti-money laundering and counter terrorist financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, the Wwft).
Both on a European, as well as on a national level, regulators and legislators have made clear the desire to regulate crypto currencies and the services providers in connection thereto. As such, the European Commission launched a public consultation on the future EU framework for markets in crypto-assets, such as bitcoin and the effect these new technologies will have on how financial assets are issued, exchanged, shared and accessed. The consultation has ended on 19 March 2020 and it is expected that the European Commission will provide for a reaction on the public consultation in the third quarter of 2020 (see link). However, through AMLD V, the EU is already ensuring a certain level of EU regulation of crypto assets at this very moment.
With the implementation of AMLD V, platforms for exchanging cryptocurrencies into fiat money (government issued currency) and crypto custodian wallet providers (hereinafter: crypto service providers) became regulated. Further to the Wwft, crypto service providers will have to comply with the following general requirements:
- register with the Dutch Central Bank (De Nederlandsche Bank N.V., DNB);
- comply with integrity rules for business conduct; and
- request declarations of no-objection (DNO) for anticipated (changes to) qualifying holdings in the crypto service provider.
These last two requirements are similar to requirements included in the Dutch Financial Supervision Act (Wet op het financieel toezicht) applicable to most licensed entities in the financial sector, such as banks, insurers and payment services providers.
In addition thereto, the crypto service providers will also have to comply with the general AML rules:
- identify their customers for anti-money laundering purposes;
- monitor transactions; and
- file Suspicious Activity Reports (SARs) to local law enforcement.
This update will focus on the first requirement: registering with DNB. However, before elaborating on this registration requirement, it is important to note that not all crypto service providers fall under the scope of the (current) Wwft. Currently, within the scope of the Wwft are: companies, natural or legal persons, in the exercise of profession or business, offering:
- exchange services for virtual currencies and fiduciary currencies; and / or
- secure private cryptographic keys on behalf of its clients to hold, store, and transfer virtual currencies (custodian wallets)
If these services are offered in or from the Netherlands, registration with DNB is mandatory. Without registration, a crypto service provider is not allowed to provide its services in the Netherlands.
“In or from the Netherlands” in this case means both Dutch providers and providers from other EU Member States offering services in the Netherlands, regardless of whether they are already registered in another Member State. As result of a ban included in the Act, crypto service providers from or located in non-EU jurisdictions, in principle, cannot register in the Netherlands. Meaning these crypto service providers must at least have an establishment in the European Union in order to be able to offer their services in the Netherlands.
For example: an African crypto service provider aiming to offer its services in the Netherlands, must establish itself in the EU. Let’s say the African crypto service provider chooses to form an establishment in France. After registering in both France as well as the Netherlands, the crypto service provider may offer its services in the Netherlands from its establishment in France.
Registration may sound easy. However, the registration application is extensive and onerous. As such, similar to license applications with DNB, the registration will need to be accompanied by:
- a business plan in which is included, among others, a diagram illustrating the activities, the targeted market share, a SWOT analysis, an elaborate description of the company’s growth ambitions, including expected revenues from the crypto services and the company’s partners or chain of partners;
- initial assessment forms through which each policymaker (management board member, supervisory board member, co-policymaker, shareholders ≥10% ) will be subjected to a fit & proper screening by DNB;
- organizational charts and a description thereof, trade register extracts, shareholders register;
- policies covering sound and ethical business conduct, including outsourcing, training, reporting, conflicts of interest, compliance with the aforementioned Wwft obligations;
- an integrity risk analysis; and
- relevant outsourcing agreements, enabling DNB to supervise the crypto service provider, also if it outsources certain activities that are related to the Wwft and Dutch Sanctions Act.
Provided DNB is satisfied with the submitted documentation, it will, in principle, register the crypto service provider within two months after submitting a complete application for registration.
As said, without registration, crypto service providers are not allowed to provide services in the Netherlands without registration. Not complying with this obligation is categorized as an economic crime, which is, under circumstances, punishable with jailtime and fines.
Although this form of regulation for crypto service providers was long expected and communicated in the market, it may still be experienced as quite burdensome for crypto service providers.
DLA Piper is happy to provide further advice on the rules and regulations applicable to crypto service providers and assist with the DNB registration obligations and the attached ongoing requirements.
Keep an eye out for our subsequent updates regarding the other requirements for crypto service providers. Up next: integrity for crypto service providers!