On May 21, 2020, new regulations came into effect in the Netherlands for providers of crypto services. Based on this, crypto companies that offer services in the Netherlands are required to register with De Nederlandsche Bank (DNB).

Now, two years later, Dutch crypto companies are complaining about unfair competition. Dutch crypto companies currently comply with the strict Dutch crypto legislation and have incurred a lot of costs for this, customers have now defected to foreign competitors who do not meet these strict requirements , but DNB does not take effective action against this, so that they can simply go about their business without complying with the Dutch rules for crypto companies. Conclusion: Dutch crypto companies suffer damage as a result.

In the meantime, parliamentary questions have been asked about this, which were answered on May 13, 2022.

In this blog you can read everything about the mandatory registration for crypto companies, the criticism of this and the enforcement by DNB.

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• View quickly
• Dutch crypto legislation
  • Registration obligation crypto service providers
• Criticism by Dutch crypto companies
  • Stricter requirements than Europe
  • Court case Bitonic/DNB
  • Foreign competitors
• DNB enforcement
  • Parliamentary questions
  • DNB cases against offenders
• Conclusion

Dutch crypto legislation

In order to deal with money laundering and terrorist financing, the European anti-money laundering directive (the Anti-Money Laundering Directive or AMLD for short) was expanded in 2018 with an obligation specifically for providers of crypto services. This legislative change must be complied with by all EU member states and adopted in their own national regulations.

These new regulations for crypto services from the European Anti-Money Laundering Directive have been implemented in the Netherlands in the Money Laundering and Terrorist Financing Prevention Act, better known as the Wwft. The general purpose of the Wwft is to prevent and combat money laundering and terrorist financing . Money can be used in various ways in these illegal financial activities. These pose a serious threat to the economy and also affect the integrity of the financial sector. In many cases, people also subconsciously participate in this and become victims in this way. This law prevents that.

On May 21, 2020, this amended law came into effect and the so-called registration obligation for crypto service providers in the Netherlands was created .

Registration obligation crypto service providers

The registration obligation for crypto service providers can be found in Article 23b Wwft. In short, this statutory regulation means that two types of crypto service providers must register with DNB. It concerns natural persons, legal entities or companies that:

• provide services for exchanging between virtual currencies and fiat currencies (e.g. euro to Bitcoin (BTC), and vice versa), and/or
• provide custodial wallets/wallets for cryptocurrencies, meaning the provision of a service to secure cryptographic private keys on behalf of customers to hold, store and transfer virtual currencies.

The registration obligation only applies to parties that offer these services professionally or commercially in or from the Netherlands.

In short, in order to register with DNB, a crypto service provider must demonstrate that reliable and adequate business operations are conducted within the company. To this end, a file must be submitted with general business information, a detailed business plan, an elaboration of the governance, an elaboration of controlled and ethical business operations (such as training & education plans, compliance and audit, integrity risks, and customer due diligence policy) and information about the suitability and reliability of the policymakers, such as the directors and shareholders. DNB registers a crypto service provider within two months of receiving the request for registration. The DNB will only process the application when the complete file is complete.

This shows that quite a few requirements are set in order to comply with the registration obligation. Without registration, offering crypto services in or from the Netherlands is not permitted. Foreign parties that want to enter the Dutch market also have a registration obligation.

Do you want to know more about the regulations for crypto service providers? In the video below you will find an extensive webinar:

 

Criticism by Dutch crypto companies

The registration requirement for crypto service providers in the Netherlands has received quite a bit of criticism.

Stricter requirements than Europe

Initially, Dutch law entailed stricter requirements than the European directive itself.

Instead of mandatory registration , the Minister of Finance, Wopke Hoekstra, presented a bill at the end of 2018 with a licensing obligation for crypto service providers. There was a lot of objection to this, because a permit procedure has major differences compared to a registration procedure (read: stricter requirements and more costs), and would therefore be in conflict with the European directive. At the time, the Council of State confirmed that a permit obligation was not legally possible in the Netherlands.

This was followed by an amended bill that eventually came into effect on May 21, 2020, with a registration obligation and no licensing obligation for crypto service providers. According to critics and lawyers, however, this is a disguised permit requirement , because the registration system has all kinds of built-in tests that must be met before registration is started. Minister Hoekstra then assured that there was indeed a registration obligation as referred to in the European anti-money laundering directive and no permit obligation.

Subsequently, it turned out that DNB certainly applied stricter requirements in the registration procedure than the European directive. For example, in September 2020, the so -called wallet verification requirement was made mandatory by DNB: the crypto service provider must establish, check and screen a customer’s identity against the sanctions lists. According to DNB, this meant that a provider of crypto services must establish for every transaction to and from an external wallet that this person is actually the recipient or sender. In practice, this means that users must share screenshots of their wallet address to which they want to send purchased crypto coins, to prove that this is actually their address. This was again followed by a lot of criticism with a request to withdraw this requirement, because this requirement has no sound legal basis, is in conflict with privacy regulations and, moreover, is ineffective. This wallet verification requirement would also defeat the purpose of the anti-money laundering regulation, as this requirement is stricter than those for banks, credit card companies and other financial institutions. However, DNB did not respond to this criticism.

Subsequently, crypto service Bitonic – the first Bitcoin company in the Netherlands – has filed a formal objection and filed a lawsuit against DNB to have this dispute reviewed by the court.

Court case Bitonic/DNB

On 7 April 2021, the District Court of Rotterdam issued a provisional judgment on the lawfulness of the wallet verification requirement. Although DNB took the position that it offers providers the freedom to choose solutions, DNB’s starting point was that for every transaction – including transactions in which the customer sends or receives crypto coins from his own wallet – the identity and determines the domicile of the counterparty and establishes that this person is actually the recipient or sender.

The question is whether this is proportionate and necessary to comply with the objectives of the legislation. But this does not mean that the registration requirement is manifestly incorrect or unlawful. According to the court, more research is needed for this. Finally, the court ruled that DNB had to further substantiate the wallet verification requirement and respond to Bitonic’s objection within six weeks.

DNB has since returned to the verification requirement in May 2021 and has ruled in Bitonic’s favour. After reconsideration, DNB admits that the verification requirement is unlawful and should not have been imposed during registration . “DNB wrongly made the registration requirement a condition for the registration of Bitonic.” In concrete terms, this means that crypto service providers are not required by law to take wallet verification measures, such as asking for a screenshot of your wallet. This makes it easier and faster to send crypto coins and saves a lot of administrative burden, which is a favorable step for innovation and the business climate in the Netherlands.

Foreign competitors

It is now two years since the registration requirement for crypto service providers in the Netherlands came into effect on May 21, 2020. Dutch crypto companies are now complaining that they have been dealt with harshly ever since. For example, as discussed in the previous section, they were required to register with DNB. To be able to do this, they had to meet all kinds of far-reaching requirements within a short period of time. This entailed high costs. Many small crypto companies have had to end their activities because of this.

According to the trade association United Bitcoin Companies of the Netherlands, Dutch crypto companies have already jointly incurred millions of euros in costs. This not only concerns own costs, but also the supervisory costs that must be paid to DNB are high. Subsequently, it turned out that many customers went over to foreign competitors because of the far-reaching rules, such as the current verification requirement.

These foreign competitors have not registered and therefore have more favorable rules for customers. You often have to register there and go through a verification procedure, but that does not apply to individual transactions or only from certain amounts. These procedures are much more accessible and customer-friendly. Moreover, these foreign competitors seem to be dealt with less severely. Despite the fact that they have not registered with DNB, there is no or inadequate enforcement. After two years, no fine has yet been handed out to foreign crypto companies that do not comply with Dutch law, but do offer services here. The supervision therefore appears to be ineffective.

Because of this state of affairs, there is now great frustration among Dutch crypto companies. In short: they now comply with the strict Dutch crypto legislation and have incurred a lot of costs for this, customers have meanwhile gone over to foreign competitors who do not (yet) meet these strict requirements, but DNB does not take effective action against this, so they simply can go about their business without complying with the Wwft rules for crypto companies. Dutch crypto companies are suffering damage as a result.

DNB

DNB enforcement

Parliamentary questions have now been asked about enforcement by DNB. On May 13, 2022, the Minister of Finance, Sigrid Kaag, answered this.

Parliamentary questions

The parliamentary questions raise the issue that the sector association Bitcoin companies in the Netherlands points to the lack of enforcement by DNB among foreign parties that focus on the Dutch market, while DNB has previously indicated that crypto companies that do not comply with the Wwft requirements will not be could be active in the Dutch market for longer.

The Minister of Finance replies that DNB has received signals several times in the past two years about some major foreign players on the crypto market. In addition, on the basis of its own research and contacts in the context of cooperation with, among others, the Netherlands Authority for the Financial Markets (AFM), the Tax and Customs Administration and the police, DNB has compiled a list of 36 parties that may be active on the Dutch market without registration.

Anyone who offers custodial wallets or crypto exchange services in or from the Netherlands must register with DNB. In the event of a violation of the registration obligation, DNB can take enforcement action. This also applies to foreign parties that are active in the Netherlands. In practice, enforcement can mean that several enforcement measures are deployed simultaneously to achieve the enforcement goal. Enforcement measures that DNB has at its disposal to tackle illegal service providers include an order subject to periodic penalty payments or an administrative fine. In addition, DNB has instruments that are not formal enforcement measures, such as a public warning. The supervisor can also report this to the Public Prosecution Service, which can then enforce criminal law.

In 2021, DNB issued one public warning. This was against Binance. In that year, DNB also received signals about 36 possible violations of the registration obligation by crypto service providers. DNB initiated proceedings in 18 cases. That case has been closed in 14 cases because the violation has ended. Two cases are still pending and DNB has taken enforcement action in two cases.

The enforcement procedures are time – consuming and require a great deal of staffing . This is because DNB has a duty of proof with regard to the violations and illegal service providers also have the opportunity to defend themselves and appeal. Although publication of a formal measure is already possible in specific cases if there has not yet been an irrevocable decision, the main rule is that DNB publishes an imposed fine and/or periodic penalty payment when it is final. This means that the absence of published fines and penalty payments does not necessarily mean that there is no enforcement.

Finally, the Minister of Finance indicates that he is aware of the outrage of Dutch crypto companies about the lack of a level playing field, and indicates that everything is important to ensure a level playing field.

Both I and DNB are committed to ensuring a level playing field. This is also the reason that DNB has started cases against parties that offer crypto services in the Netherlands without registration.

DNB cases against offenders

The ZBO accountability 2021 that DNB published in April 2022 shows that as of January 1, 2021, 15 providers of crypto services were registered with DNB, at the end of 2021 there were 27 providers registered.

 

 

Since the introduction of the registration obligation for crypto service providers in 2020, DNB has received signals about providers of crypto services that would be active in or from the Netherlands without registration. All signals are assessed by DNB. If there is a suspicion that a crypto service provider is not complying with the registration obligation, DNB will start a case. DNB’s supervision is aimed at ending violations of the registration obligation as effectively as possible. Formal enforcement measures are used where necessary.

The table below shows the number of signals that DNB has received about suspected offenders since the introduction of the obligation to register, with a specification of the assessment and follow-up actions by DNB: a case has been started after a signal, no case has been started, or the signal has yet to be assessed.

Source: DNB

 

As can be read, DNB has therefore started a case in response to 18 signals. The status of these cases is shown in the table below: the violation has now ended, the case is still pending or enforcement action has been taken.

Source: DNB

 

It therefore follows that DNB does enforce, but in practice this is not transparent and visible. It is not clear against which foreign crypto companies a case has been started and how exactly they will be enforced. It is known that DNB issued an official warning to Binance in August 2021. It is not known exactly how that ended. Dutch people can currently (May 2022) still use Binance and other foreign crypto companies such as KuCoin, Kraken and Crypto.com, without being registered with DNB.

If you want to know whether a provider of crypto services is registered with DNB, you can consult the online register here.

Conclusion

The regulations that crypto service providers in the Netherlands must comply with are based on the European Anti-Money Laundering Directive . When introducing these rules, DNB made a very urgent statement that crypto companies had to register. If not, they should no longer be allowed to operate in the Dutch crypto market. Dutch crypto companies have now registered and have incurred a lot of costs and lost customers, but are now complaining that major foreign competitors have not done so and that enforcement by DNB is inadequate.

DNB indicates that it will enforce it and has published information about this in April 2022. However, it has not been disclosed which foreign crypto companies are involved and what measures have been taken exactly. The Dutch can currently still use foreign competitors such as Binance and KuCoin.

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