What are the Cryptocurrency Regulations in the Netherlands and How to Stay Compliant - COREDO

What are the Cryptocurrency Regulations in the Netherlands and How to Stay Compliant

02.05.2023

Indubitably, it is permissible to engage in cryptocurrency transactions within the borders of the Netherlands, and the threshold for entry into the market as a virtual asset service provider (VASP) is notably low. Nonetheless, it is imperative to remember that this jurisdiction is governed by particular legislative peculiarities that warrant careful consideration.

In the year 2020, the European Union (EU) implemented the 5th Anti-Money Laundering Directive (AMLD5), compelling the Netherlands to revise its Money Laundering and Terrorist Financing Prevention Act (also known as Wwft – Wet ter voorkoming van witwassen en financieren van terrorisme). Consequently, the previously ambiguous legal standing of the cryptocurrency industry has been clarified, and entities operating within this sector are now mandated to comply with several stipulated conditions to be authorised to offer services to customers in the Netherlands.

The following guide aims to assist you in navigating the intricate web of Dutch cryptocurrency regulations, ensuring compliance with applicable laws and regulations, and avoiding the imposition of potentially significant financial penalties.

Who is impacted?

The cryptocurrency regulations in the Netherlands and the associated compliance obligations apply to a broad range of entities and individuals. This includes natural persons and legal entities offering professional or commercial services for the exchange of virtual currency and fiat currency, those providing professional or commercial custodial wallet services, and any service providers involved in Initial Coin Offerings that may be classified as a security or unit in a collective investment scheme. In short, anyone who is involved in cryptocurrency-related activities within the Netherlands must be cognizant of the applicable regulations and take steps to ensure compliance with the relevant laws and regulations.

Following the provisions outlined in the Money Laundering and Terrorist Financing Prevention Act, the following cryptocurrency service providers are subject to regulation within the Netherlands:
The cryptocurrency regulations in the Netherlands

  • Any natural persons or legal entities that engage in the provision of professional or commercial services for the exchange of virtual currency and fiat currency;
  • Any natural persons or legal entities that provide professional or commercial custodial wallet services.

However, it should be noted that service providers offering crypto-to-crypto exchanges remain unregulated.

It is also important to note that Initial Coin Offerings (ICO) are not subject to financial supervision in the Netherlands unless they are classified as a security. ICOs are digital tokens that are issued via a blockchain.

Suppose the tokens offered within the ICO represent a share in a specific project or start-up or guarantee future returns. In that case, they may be considered a security or a unit in a collective investment scheme (such as an investment fund), as defined under the Wwft. In such instances, the ICO falls within the ambit of the Financial Supervision Act and is subject to regulation by the Financial Markets Authority.

Who is the primary authority?

De Nederlandsche Bank (DNB) is the primary regulator for cryptocurrency-related activities under the purview of the Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) is De Nederlandsche Bank (DNB), which is also known as the Dutch National Bank. In particular, DNB is responsible for supervising crypto-fiat exchanges and custodian wallet providers within the Netherlands.

However, as mentioned above, Initial Coin Offerings (ICOs) are only subject to financial supervision if they are deemed to be securities or units in an investment fund. In such cases, the Financial Markets Authority (Autoriteit Financiële Markten or AFM) is the regulatory body responsible for supervising and enforcing compliance with relevant laws and regulations.

What are the crypto regulations in Netherlands?

The Money Laundering and Terrorist Financing Prevention Act (Wwft) outlines the principal cryptocurrency regulations in the Netherlands. In 2020, the Wwft was updated to incorporate provisions from the 5th Anti-Money Laundering Directive (AMLD5), which requires crypto companies to comply with anti-money laundering and counter-terrorism financing standards.

While AMLD5 provides general guidelines for European states, each state can determine how the requirements should be implemented. Therefore, it is essential to note the following when operating in the Dutch cryptocurrency market:

 1. Mandatory Registration with the DNB (Dutch National Bank)

It is mandatory for any individual or entity providing professional or commercial services related to the exchange of virtual currencies and fiat currencies or custodian wallets within or from the Netherlands to register with the Dutch National Bank (DNB), as outlined in the Wwft. Failure to register with the DNB may result in penalties and fines.

  • Provision of services in the Netherlands from the European Economic Area

Various factors are considered when assessing whether an entity provides services in the Netherlands. These include, but are not limited to:

  1. The expressed intention to engage in commercial relations with consumers in the country.
  2. Payments made to search engine services for displaying advertisements targeted at the Dutch market.
  3. Displaying reviews from customers in the Netherlands on the entity’s website.

It is important to note that even if an entity is already registered in another European Union (EU) or European Economic Area (EEA) member state, it must still register with the DNB if it provides services to clients in the Netherlands.

  • Provision of services to Dutch clients from foreign countries

The Wwft strictly prohibits the provision of regulated services from a third country that is neither an EU member state nor an EEA country.

To be eligible for registration with the DNB, a company must establish its presence in the Netherlands or any European Union/European Economic Area member state. However, the Minister of Finance may consider making exceptions for residents, established businesses, or offices in certain third countries. It is important to note that the list of such countries has not yet been announced.

  • Provision of services from the Netherlands to foreign customers

Crypto companies must meet specific requirements to demonstrate compliance with the Wwft and the Sw when applying for registration with the DNB. These requirements include implementing effective customer due diligence (CDD) procedures, appointing a compliance officer, and reporting unusual transactions to the Financial Intelligence Unit (FIU).

Crypto companies must also have adequate risk management systems in place and conduct regular internal audits to assess the effectiveness of their compliance measures. In addition, they must ensure that their employees are trained to identify and report suspicious transactions.

To comply with the Sw, crypto companies must screen their clients and their transactions against national and international sanctions lists. They must also report suspicious transactions to the FIU, including those related to sanctioned countries or individuals.

Meeting these requirements is critical for successful registration with the DNB and ongoing compliance with Dutch crypto regulations.

2. Compliance with Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)

Crypto providers must have a risk-based approach when conducting customer due diligence, which means that they must assess and manage the risk associated with each customer on a case-by-case basis. This includes assessing the customer’s source of funds, transaction patterns, and potential involvement in illegal activities.

Furthermore, crypto providers must also establish procedures for the ongoing monitoring of customer transactions and the detection of suspicious activities. This includes regularly reviewing customer information and transactions to identify any unusual activity.

Failure to comply with these requirements can result in significant fines, penalties, and reputational damage. It is therefore essential for crypto providers operating in the Netherlands to have robust AML/CFT compliance measures in place.

  • What’s the difference between Licensing and Registration?

It should be noted that while both registration and licensing enable business activity in sectors that require state supervision, the two have essential differences. Expressly, a license is granted for a specific period, such as one, five, or ten years, and entails periodic supervision for matters such as license renewal or violations. In contrast, registration involves ongoing state supervision of a company’s activities following registration and does not have a fixed expiration date.

  • What is the FATF’s Travel Rule?

As a member of the esteemed global financial watchdog known as the Financial Action Task Force (FATF), The Netherlands dutifully adheres to the rigorous standards established by this regulatory body, including those specifically designed for Virtual Asset Service Providers (VASPs).

The cryptocurrency regulations in the NetherlandsThe guidelines outlined in Recommendation 16, commonly called the Travel Rule, compel VASPs, such as cryptocurrencies, exchanges, banks, hosted wallets, and other financial institutions, to divulge select identifying information regarding the parties involved in cryptocurrency transactions valued at over USD/EUR 1000. Notably, while the Crypto Travel Rule has yet to be formally imposed within the Netherlands, this may change in the future as global regulations in this area continue to evolve.

  • How much would be the Registration Fees with the DNB?

First and foremost, a registration fee encompassing fit and proper assessments is mandatory for all interested parties and totals EUR 5,000.

Additionally, the calculation of the regular supervision fee imposed by the Dutch Central Bank (DNB) is determined annually following the Financial Supervision Funding Decree.

The fee amount is based on various factors, including the nature and scope of the services provided by the institution, its size and complexity, and the level of risk posed by its activities. The DNB utilises a risk-based approach to determine the appropriate level of supervision required for each institution and adjusts the fee accordingly.

Furthermore, the DNB takes into account any costs incurred in the course of supervision, such as on-site inspections and reviews, when calculating the amount of the fee. The exact sum of the regular supervision fee is specified in the Regulation on the Funding of Financial Supervision.

  • What are the Deadlines for registration?

To ensure the timely and efficient processing of all submitted requests, the Dutch Central Bank (DNB) has established a strict two-month deadline for service providers to receive a response. However, it is essential to note that this deadline may be extended if necessary documents are missing from the request. Furthermore, as a prerequisite for registration, all policymakers and co-policymakers must undergo a rigorous assessment to determine their fitness and propriety, a requirement that must be met even if it results in the deadline being suspended.

According to Section 4:15 of the General Administrative Law Act (Algemene wet bestuursrecht—Awb), if any pertinent information is missing, the DNB may suspend the period in which it is required to render a decision on the request until the request is supplemented or until the deadline for supplementation has expired unused.

During the processing period, cryptocurrency operators are strictly prohibited from offering any services to customers. It is important to note that insufficient documentation may result in the DNB refusing registration altogether.

  • What are the Sanctions?

The potential sanctions for non-compliance with the Dutch Anti-Money Laundering and Counter-Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme—Wwft) include a range of penalties, depending on the nature and severity of the violation.

The Dutch Central Bank (DNB) is authorised to impose fines that may extend to millions of euros. Other possible penalties may include temporary or permanent suspension of business operations, revocation of operating licenses, and criminal prosecution. The specific sanction or combination of sanctions applied will depend on the circumstances of each case, as determined by the relevant authorities.

Additionally, under relevant national law, other penalties may also be imposed at the discretion of the relevant authorities.

Summary:

  • The Dutch cryptocurrency sector saw a significant change in 2020 when the European Directive was implemented into Dutch legislation.
  • Since then, local cryptocurrency regulations have remained unchanged.
  • Registered providers of cryptocurrency-to-fiat exchanges and custodian wallet services are allowed to conduct business in the Netherlands. However, other types of crypto companies, such as those offering crypto-to-crypto exchange services, remain unregulated.
  • ICOs generally do not fall under financial supervision unless they are classified as securities.
  • The FATF Travel Rule is not mandatory in the Netherlands, despite the country being a member of the FATF.

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