Crypto law: Permit requirements nevertheless despite Minister’s promises to the Senate

On April 21, Minister Hoekstra of Finance provided clarity to the Senate: the new ‘crypto law’ would not contain any licensing requirements, but only a registration at significantly lower costs. In practice, De Nederlandsche Bank (DNB) seems to be testing based on licensing requirements and regulations for trust offices. The registration therefore turns out to be a disguised licensing regime with costly supervision.

During the discussion of the new ‘crypto law’ in the Senate on April 21, MPs asked critical questions about the upcoming regulations that should apply to bitcoin companies. Member of Parliament Henk Otten of Fraction-Otten referred to the Council of State, which stated that a licensing system is in conflict with the European directive.

In other words, this means that the Directive does not make it possible to shape the registration obligation prescribed therein as a (further-reaching) licensing obligation with prior assessment, as explained in more detail in the explanatory notes. (see note 9) That a There is an increased risk of money laundering and terrorist financing, and the fact that this is related to the anonymity of the services, as stated in the explanatory memorandum (see note 10), cannot therefore justify the proposed licensing system.” – Advisory Council of State, 2 April 2019

Member of Parliament Otten pointed out that the bill had been amended accordingly: new and stricter supervision requirements were added, but to accommodate the Council, the word ‘permit’ was replaced by ‘registration’. He quoted an independent analysis by van ‘t Hart lawyers, which concludes that the bill contains a disguised licensing system. He asked the minister to provide a further explanation of this ‘play on words’ by the Ministry of Finance.

“The minister said that he had indeed followed the advice of the Council of State to switch to a registration system, and not to a licensing system. But that is a play on words. Because it is a registration system with all kinds of tests built in. That is not a registration system, but a disguised licensing system.” -Henk Otten, Member of Parliament Otten Party

According to Minister Hoekstra, however, there were no word games or a disguised licensing system. He assured the MPs that there will indeed be a registration as intended by the European directive.

“That brings me to Mr Otten. With regard to the registration obligation, I really have to insist that it is different from what Mr Otten says. It is simply different whether you have a registration obligation or whether you have a permit obligation. you, and a permit will be granted to you. That is just something completely different. The bar is also set at a different level there. The evidence for this could also be found in this debate, because some of the members were of course also critical on the cabinet because we have dropped that permit requirement. But that was because we wanted to take the advice of the Council of State seriously.” – Wopke Hoekstra, Minister of Finance

That explicit clarification led to great relief in the bitcoin industry, which has long called attention to the issue. The supervision and the supervision costs would become proportional and would not have a licensing character, but would only come down to the European registration requirements.

Still permit requirements: SIRA

However, a recent news item on DNB’s website shows that they are nevertheless aiming for an ex ante assessment, based on requirements identical to the license requirements that apply to trust offices. DNB refers to the term Systematic Integrity Risk Analysis (SIRA) , a specific license requirement under financial supervision. It is a concept that cannot be found in the anti-money laundering law that applies to bitcoin companies.

In the news item, DNB further suggests that the SIRA of virtually all registration applications submitted by bitcoin companies falls short. This seems to imply that registration can be rejected on that basis, making it in fact a licensing system.

On Twitter, Simon Lelieveldt points out that the term SIRA and the reference to ‘service files’ is remarkable because those terms originate from the Trust Offices Supervision Act. He discovered that the text of the recent news item about the SIRA for bitcoin companies was copied almost entirely from this earlier news item from DNB addressed to trust offices.

Trust offices fall under the Trust Offices Supervision Act (Wtt) and are subject to a licensing system, while bitcoin companies fall under the much more specific Wwft legislation with only a registration. However, it seems that DNB intends, contrary to what Minister Hoekstra promised, to apply the stricter requirements from financial supervision as a prior admission requirement for registration.

Cost

The difference between a registration and a permit is significant. You do a registration , as Minister Hoekstra already indicated, while you are being granted a permit . A registration system need be little more than a list of companies, but permits can be denied or revoked. For example, when the (permit) requirements are not met. This system will soon also apply to bitcoin companies.

A de facto licensing system means a much higher regulatory burden for bitcoin companies than a registration system. There is also a chance that part of the applications will be rejected in the case of a licensing system and that part of the companies will have to discontinue their services as a result. Moreover, just processing the ‘registration’ application already costs ???????5,000. On top of that, the extra costs would come from meeting this stricter permit requirement.

For smaller Bitcoin companies, these high costs in combination with a real risk of rejection are an insurmountable barrier. It has now also become known that the actual costs for bitcoin companies will indeed amount to ?? 40,000 on an annual basis. A number of bitcoin companies were therefore forced to close their virtual doors or establish themselves elsewhere due to the ‘crypto law’.

Parliamentary questions

When the continuing high costs became known, both MP Alkaya and ter Linde asked questions about the impact of these costs on innovation in the Netherlands. In response, the Ministry of Finance again explained the cost allocation method in a complicated way.

The Minister’s answers showed that if the Bureau of Financial Supervision had indeed been designated as the supervisor of the bitcoin sector, there would be no such passing on/costs. The designation of DNB as supervisor therefore prevents the Ministry of Finance from having to pay for the supervision that they consider socially desirable.

All in all, four months after the law came into effect, the concern of the bitcoin companies has become a reality: a costly and disguised licensing regime. Time will tell how many of the 48 applicants will eventually make it to the finish line with a registration.

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