CMS Expert Guide to Crypto Regulation in The Netherlands

There is currently no specific legislation with respect to cryptoassets other than the Dutch implementation of the Fifth Anti-Money Laundering Directive (5AMLD) in the Netherlands. The legal definitions of “custodian wallet providers” and “providers engaged in exchange services between virtual currencies and fiat currencies” are included in the Dutch Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, Wwft).

On the basis of Wwft, providers of custodian wallets for virtual currencies and providers engaged in exchange services between virtual currencies and fiat currencies must file a registration with the Dutch Central Bank (De Nederlandsche Bank, DNB). The registration requirement applies to service providers who provide services in a professional capacity or on a commercial basis in or from the Netherlands.

To obtain a registration crypto service providers must submit both practical and substantive information. For example, they will need to provide data evidencing compliance with the Wwft and the Sanctions Act (Sanctiewet 1977). In addition, policymakers must be assessed for fitness and propriety, and they must submit an assessment application for each policymaker.

Legislation

There is no specific crypto legislation in the Netherlands, other than the implementation of 5AMLD in the Wwft. However, the Dutch Financial Supervisory Act (FSA) will be applicable to cryptoassets if they qualify as a traditional financial instrument, such as a security, or electronic money. The Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) is the relevant supervisor relating to cryptoassets qualifying as financial instruments and DNB for cryptoassets qualifying as electronic money. 

Direct sales of tokens by issuers

Assuming that tokens are not considered financial instruments (e.g. securities) or e-money under Dutch law the issuance of the tokens are not regulated until MiCAR starts to apply. As a result there are no requirements to provide any offering documents (e.g. prospectus) to potential purchasers based on Dutch law.

However, token issues must ensure that any information regarding their products and services is clear, correct and not misleading. Unfair commercial practices towards consumers are prohibited in the Netherlands and omission of such information will be regarded as misleading commercial practice. Specific rules - like general consumer and investor protections regulations - may apply to pre-contractual information and marketing material. These rules stipulate that the provider of the tokens must properly inform investors in the token offering for them to make an adequate assessment. It is therefore advisable to provide information (e.g. a white paper) that not only highlights the benefits of the offering but also potential risks and downsides.

Non-fungible tokens (NFTs) (given they are generally not interchangeable) are not explicitly regulated in the Netherlands under regulatory law. However, it is important to note that NFTs will need to be assessed on a case-by-case basis, especially where a fungible token is wrapped in an NFT.

Exchange (buy/sell)

A party that operates a cryptocurrency exchange is referred to in the Wwft as “providers engaged in exchange services between virtual currencies and fiat currencies”. The definition has been derived from the 5AMLD.

The “providers engaged in exchange services between virtual currencies and fiat currencies” provide regulated activities and must file a registration with DNB. The registration requirement applies to service providers who provide these services in a professional capacity or on a commercial basis in or from the Netherlands.

Entities that solely provide services for the exchange between virtual currencies are currently not obliged to register with DNB.

Custody (hold)

A party that offers a cryptocurrency wallet is referred to in the Wwft as a ‘custodian wallet provider’ and is defined as “an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.” The definition has been derived from the 5AMLD.

The Wwft defines a virtual currency as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically”. The definition has also been derived from the 5AMLD.

The Explanatory Memorandum to the Wwft clarifies that a custodian wallet provider is considered as such if it is in a position to independently access the user's virtual currency. This requires the entity to administer the customer's private cryptographic key in such a manner as to enable it to hold, store or transfer its customer's virtual currencies. This applies in any case to providers that possess the users’ private keys, even if such keys are also shared among several customers. Providers that in no way whatsoever have access to their customers’ virtual currencies, i.e. providers of non-custodian wallets, do not need to register. They provide, for example, applications or devices that give users access to their virtual currencies to store them or show them the balance of their virtual currencies.

The providers of “custodian wallets” provide regulated activities and must file a registration with DNB. The registration requirement applies to service providers who provide these services in a professional capacity or on a commercial basis in or from the Netherlands.

Borrowing/lending

The borrowing/lending of cryptoassets is not explicitly regulated in the Netherlands. It is arguable that the lending of cryptoassets to consumers could fall within the scope of consumer credit regulation, but the AFM or DNB does not appear to have sanctioned any firms or made any public announcements in this regard.

Yield/staking services

The activities (i) borrowing/lending and (ii) yield/staking regarding virtual currencies (as defined in the Wwft) are not regulated in the Netherlands, if this does not involve fiat currencies and/or the regulated activities mentioned above.

Direct sales of tokens by issuers

Security

In the event that a token qualifies as a security within the meaning of the FSA, an approved prospectus should be published if these tokens will be offered to the public in the Netherlands, unless the issuer can make use of an exemption.

In order to qualify as a security within the meaning of the FSA, the token should qualify as (a) a negotiable share or other negotiable instrument or right considered equivalent and not being an apartment right; (b) negotiable bond or other negotiable debt instrument; (c) any other negotiable instrument issued by a legal person, corporation or institution by which securities referred to under (a) or (b) may be acquired through exercising the rights attached to this instrument or through conversion, or settled in fiat money. Taking into account the available guidance regarding the qualification of a token as a security, it is important, among other things, whether (i) a return is distributed to the token holders, (ii) the token holders participate in the capital of a company and (iii) the negotiability of the token.

A token must be negotiable in order to qualify as a security within the meaning of the FSA. The AFM has clarified the scope of the term negotiability. To determine whether or not an instrument is negotiable, it is not decisive whether there is a specific market for these instruments, but rather whether the specific instrument is negotiable based on its characteristics. A clear indication that the instrument is negotiable is the extent of standardisation. The more standardised an instrument is, the more likely it is to be negotiable.

E-money

If the tokens qualify as electronic money (e-money) under Dutch law, the issuance of the token is a regulated activity and requires a license from DNB. Electronic money has been defined in the FSA as electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions (...), and which is accepted by a natural or legal person other than the electronic money issuer.

Investment object

Tokens may also qualify as investment object under Dutch law. No party may offer investment objects to consumers in the Netherlands without a licence granted for that purpose by the AFM. Investment objects relate to property, entitlement to property, and/or entitlement to a return in cash or part of the proceeds from the sale of property. The term 'investment object' has four requirements, in which it must, in short, be a (right to a) property that is acquired other than for no consideration, where a return in money is promised and where the management is primarily carried out by someone other than the acquirer.

Exchange (buy/sell)

If a cryptoasset has the characteristics of a regulated investment under the FSA, e.g. a share in a company, then exchange and custody of that cryptoasset will likely entail regulated activities, such as dealing in investments and safeguarding investments.

Custody (hold)

In the event that the cryptoassets qualify as financial instruments (e.g. a security), the custody services might be regulated under the FSA. Custody services with respect to financial instruments (i.e. safekeeping and administration of financial instruments for the account of clients) are considered as an ancillary service under the FSA. Solely providing these custody services in the Netherlands is not a licensed activity. However, if a licensed investment firm intends to provide ancillary services in the Netherlands, it must report this to the AFM. Also if the custody services will be provided in combination with other investment services or investment activities, a license will be required, unless an exemption applies.

Under circumstances and depending on the structure, the custody of client funds in relation to custody of financial instrument should also take into account the rules in the Netherlands regarding redeemable funds.

Borrowing/lending

The borrowing/lending of cryptoassets is not explicitly regulated in the Netherlands. It is arguable that the lending of cryptoassets to consumers could fall within the scope of consumer credit regulation, but the AFM and DNB do not appear to have sanctioned any firms or made any public announcements in this regard. If the cryptoasset qualifies as a financial instrument or e-money, additional rules may apply for the borrowing/lending of these cryptoassets.

Yield/staking services

Yield/staking is a complicated area. Depending on the business model and detail of the transactions, it can be arguable either way that yield/staking is within scope of the collective investment scheme regulations. The specific characteristics should be assessed on a case-by-case basis to consider whether requirements around collective investment, including rules implementing AIFMD or other applicable funds legislation, apply. The AFM does not appear to have sanctioned any firms or made any public announcements in this regard.

The Wwft does not contain a definition what is to be understood as targeting the Dutch market. A number of factors identified in case law determine whether an entity provides services in the Netherlands. The Explanatory Memorandum of the Wwft clarifies these factors. An important consideration is that a provider “must have expressed its intention to engage in commercial relations with consumers in one or more Member States [other than that in which the provider itself is resident or domiciled], including the Member State where the consumer is resident”. 

Further indications could include payments made to a search engine service (such as Google) for displaying advertisements in the Netherlands or showing reviews from Dutch customers on the website. Other aspects that may be relevant include the international nature of the service, the fact that the website can be consulted in another language or the fact that payment can be made in other currencies. The fact that a website is accessible is not in itself sufficient for a legally valid contract to be concluded between the provider and the customer from the Netherlands.

It can be derived from this case law that several factors may be relevant in determining the answer to the question of whether a provider focuses on the Dutch market. It will have to be determined per case or per provider whether this is the case.

In principle, entities operating from another country that is not an EU Member State cannot register with DNB. The Wwft prohibits the provision of services for the exchange between virtual currencies and regular currencies, or custodian wallets, from a third country that is not an EU Member State or an EEA country. Entities established in a third country that wish to provide these services in the Netherlands must establish a presence in the Netherlands or another Member State and apply for registration with DNB. If they fail to do so, they are in non-compliance with the Wwft, and DNB can take enforcement action.

Under certain strict conditions it is possible to provide investment services and activities on a reverse solicitation basis in the Netherlands. The AFM has issued guidance in this respect regarding third countries (non-EER) and has emphasized that reverse solicitation for investment services in only permitted under exceptional circumstances.

It is generally assumed that the AFM still applies the initiative test. This test implies that if a non-Dutch investment firm provides a service to a client in the Netherlands solely at the initiative of the client, the investment service is not deemed to take place in the Netherlands and is therefore not regulated in the Netherlands. In the event that the investment firm is acting in the Netherlands via media such as internet, telephone, fax, newspapers or emails, it is likely that it will be considered to be active in the Netherlands and it is not possible to rely on the initiative test. The initiative test cannot be relied upon when the investment firm starts providing extra investment services or performing extra investment activities in addition to the investment services or investment activities initiated by the client.

Furthermore, there is an exemption in the Netherlands for investment firms from Australia, United Stated and Switzerland that have only professional investors or eligible counterparties as clients in the Netherlands. The exemption for investment firms from the US in Article 10 of the FSA exemption regulation facilitates that investment firms in the aforementioned countries can provide certain investment services within the meaning of MiFID II in the Netherlands.

In principle, DNB decides on applications for registration within two months of receipt of a complete application. However, the actual application period depends on several factors, including the quality and completeness of the application.

In our experience the application process usually takes approximately 3 to 9 months. However, this depends on the available information and the involvement in the required testing on integrity and suitability of the day to day policymakers.

In principle, AFM/DNB decides on applications for authorization within thirteen weeks of receipt. However, the actual application period depends on several factors, including the quality and completeness of the application. If the application is incomplete or incorrect AFM/DNB will ask to provide additional information within a reasonable period. Please note that if AFM/DNB request further data or information to supplement the application, the application period will be suspended and resumed on the date on which they receive the requested information.

In our experience the application process usually takes approximately 9 months up to 2 years depending on the complexity and the risks relating to the applicants business model.

One-off charges apply to applications for registration as a crypto service provider and for fit and proper assessments:

• Processing an application for registration as meant in Section 23b of the Wwft (including assessments as meant in Section 23h of the Wwft): EUR 6,300
• Fit and proper assessments of natural persons, not in the context of a registration as meant in Section 23b of the Wwft:

1. Section 23h(1) of the Wwft (fitness): EUR 2,000;
2. Section 23h(2) and (4) of the Wwft (propriety): EUR 1,100;
3. Section 23h (3) of the Wwft (reputation and propriety): EUR 1,300.

Please note that an annual fee will be charged for regular supervision to all crypto service providers.

One-off charges apply to applications for a license as an investment firm and for fit and proper assessments

• Permit application: EUR 200 per hour for AFM activities up to a maximum of EUR 100,000.
• Reliability assessment per daily director, co-perpetrator and supervisory director EUR 700.
• Suitability assessment per daily policymaker and supervisory director EUR 2,900.

Please note that an annual fee will be charged for regular supervision to all investment firms.

Compliance

Crypto service providers must submit information on their organisation, including data evidencing compliance with the Wwft and the Sanctions Act. Under the Sanctions Act, DNB expects that crypto service providers will verify whether the customer is indeed the owner of the wallet.

Testing of policymakers

As part of the registration process, all management board members, (co-) policymakers and supervisory board members must be assessed for fitness and propriety, while the holders of qualifying holdings (shares representing 10% or more of shares and/or voting rights) need to be assessed for propriety.

In order to apply for a fitness or propriety assessment, the online form ‘Initial assessment crypto service providers’ in the Digital Supervision Portal of DNB should be used.

Propriety assessment: DNB verifies whether the propriety of a candidate is beyond doubt, which involves ensuring their intentions, actions and antecedents do not stand in the way of performing their duties. In this respect, DNB primarily focuses on their antecedents.

Fitness assessment: When assessing fitness, DNB determines whether a candidate has sufficient relevant knowledge and skills, and displays the required professional behaviour to perform the job. DNB determines this based on their education, work experience and competencies.

Sound business organisation

Firms need to also comply with the wider rules and guidance under the FSA (in addition to the Wwft). To be eligible for a license, a number of conditions must be fulfilled, such as:

• suitability and reliability of the daily policymaker and supervisory directors;
• the reliability of co-directors;
• sound business practice;
• organisation of the business operations;
• control structure;
• measures for safeguarding clients' rights;
• policy for preventing conflicts of interest; and
• minimum shareholders' equity.

To submit an application for a license, various documents need to be prepared and requested. The most time-intensive part of the whole process will be to prepare the internal control and administrative organisation document (AO/IC), which describes and structures the business operation.

Substance

The investment firm must ensure that its day-to-day management is in the hands of at least two natural persons working in the Netherlands.

Other legal formalities

As part of the application process, all management board members, (co-) policymakers and supervisory board members must be assessed for fitness and propriety. Owners of a direct or indirect qualifying holding in a licensed investment firm must have a declaration of no-objection (verklaring van geen bezwaar) from DNB to own, acquire or increase the qualifying holding in a payment service provider. A qualifying holding is a direct or indirect equity interest or degree of control of 10% or more.