As of the 21st of May 2020, the updated Dutch Law on the Prevention of Money Laundering and Financing of Terrorism, better known as the Wwft, has entered into force formally. The most striking change is undoubtedly that crypto service providers have been included in the scope of anti-money laundering legislation.

What has changed

In 2018, the European Union implemented a set of changes to existing European anti-money laundering legislation. Now, two years later, this update has also been carried out in the Wwft.

The following cases have been added to Dutch anti-money laundering legislation:

  1. The expansion of the scope of the regulation to new areas. From now on, for example, tax advisors, art dealers and brokers must also comply with AML regulations.
  2. The maximum amount for anonymous prepaid cards and cash refunds without customer identification has been reduced to €150, – and €50 respectively.
  3. Providers of services for the exchange between virtual currencies and fiduciary currencies and providers of custodial wallets (hereinafter referred to as crypto service providers) are required to register with The Netherlands Bank (DNB).

Why have virtual currencies come into scope of the legislation

The EU considered the adjustments necessary because the risk of money laundering appeared to be increasingly manifesting itself in previously not recognised areas. The legislature was particularly concerned about the increased use of virtual currencies. Because of the anonymous nature of many virtual currencies, they lend themselves ideally to money laundering purposes. In order to deal with money laundering and terrorist financing, the registration requirement for crypto service providers has therefore been created. To be not registered means that providing crypto services in or from the Netherlands is not allowed.
A six-month transitional period has been set up for existing parties, but by 21 November 2020 they too must have successfully completed the registration process.

How does registration work

In the case of a successful registration, crypto service providers at DNB must demonstrate that they operate as a proper and well -run business. Meeting the conditions required asks quite a bit from a company. For example, crypto providers must provide a set of procedures and policies that, for example, show how identified integrity risks have been addressed and how client due diligence has been set up. The organisation should also be adequately structured, with an independent compliance function and transparent leadership. In addition to the organisational requirements mentioned, a review of directors and shareholders is also mandatory with regard to suitability and trustworthiness.
Both in the administrative field and for the practical organisational structure, the registration requirement has a major impact. If DNB is convinced that the crypto provider fully complies with all registration requirements, DNB will register the crypto service provider in the open register of crypto service providers.

Piece of cake?

Not quite. Notwithstanding the fact that the demand is not about a license but ‘only’ a registration, the conditions that a crypto service provider must meet are not elementary. The additional administrative and organisational burden and corresponding compliance efforts are a considerable obstacle for many market participants. In addition, the crypto service providers consider the expected ongoing supervisory costs to be quite high (+- 20K in 2020 alone). The registration requirement has therefore already caused the necessary uproar in the crypto domain in the past period. A number of parties have not awaited developments and have terminated services or left the Netherlands for countries where the supervisory regime is of a more moderate nature. For example, BitKassa terminated services on May 19th and the cryptocurrency provider Deribit recently left for Panama.

Although the requirements for registration in the Netherlands are not elementary, a registration as a crypto service provider implies that the business processes of the registered party are of a good quality . This creates trust among customers and suppliers and for many organisations this is an important reason to opt for registration in the Netherlands.

Preliminary estimates by the Ministry and DNB expect approximately 75 registration applications for 2020. Currently, the number is about 50. How many of these applications will actually be granted is also still uncertain. In preparation, DNB has issued guidelines to follow, and doing so significantly increases the chances for a successful registration. In the coming months, it will become evident which crypto service providers will be included by DNB in the register. This in turn will make it clearer to see to what extent the registration requirement changes the existing Dutch crypto landscape.

If you have questions about the content of the registration process, Enigma consulting will be happy to assist you with advice and support.

Contact

Geert Blom
Geert Blom
Senior Legal Adviseur

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