Based on advice from the Dutch Council of State (Raad van State), lawmakers in the Netherlands have replaced a proposed license obligation with a registration requirement for crypto-service providers. As a result, financial institutions in the Netherlands involved in virtual currencies, crypto assets and ICOs must register with the Dutch Central Bank (DNB) before providing these services within and from the Netherlands.
EU Fifth Anti-Money Laundering Directive
In 2017, the Council of Europe and the European Parliament reached an agreement on strengthening EU rules to prevent money laundering and the financing of terrorist activities. This resulted in the Fifth Anti-Money Laundering Directive (5AMLD), which amended the fourth directive and combats the risks arising from anonymous virtual currencies. With this directive, providers engaged in exchange services and custodian wallet providers (i.e. entities that provide services to store private keys on behalf of customers and to hold, store and transfer virtual currencies) now fall within the scope of anti-money laundering legislation.
The 5AMLD provides the first definition of virtual currency covering all potential uses, including conducting payments, currency exchange, making investments, acting as store-of-value products and use in online casinos.
In December 2018, the Dutch Ministry of Finance and Ministry of Justice and Safety opened a public consultation on the legislative proposal implementing the 5AMLD and amending the Dutch Anti-Money Laundering and Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme). During the consultation, a licensing requirement was proposed where virtual currency exchange providers and custodian wallet providers would need to obtain licenses to provide crypto-services in the Netherlands.
The Dutch Council of State, however, filed objections to this and advised against the introduction of a license obligation for crypto-service providers. Because the Dutch Council of State interprets the 5AMLD as not permitting a choice between a license and registration, it does not believe 5AMLD allows for a license obligation.
Instead, the Council argued that the Dutch implementation of the 5AMLD as proposed in January surpasses EU rules for anti-money laundering legislation. The Dutch Council of State's advice contradicts the Dutch Authority for the Financial Markets and the DNB, which called for the introduction of a license obligation to contribute to the effectiveness and implementation of supervision.
The Dutch lawmakers ultimately heeded the advice of the Council of State. On 2 July, the Dutch parliament published a new legislative proposal that no longer includes a license obligation. The registration requirement applies to everyone who – through a profession or business – provides services as a virtual currency exchange provider or a custodian wallet provider within or from the Netherlands.
These crypto-service providers must register with the DNB. During this registration process, it will be assessed whether service providers are able to comply with the obligations set down in the Dutch money-laundering act.
The legislative proposal, which creates a registration system aimed at preventing money laundering and terrorist financing, must still be approved by the Dutch parliament but the 5AMLD must be implemented into Dutch law by 10 January 2020.
Due diligence and reporting suspicious activities
Because virtual currency exchange and custodian wallet providers fall outside the reach of regulators (and hence face no legal obligations to identify suspicious activity), EU lawmakers determined that the anonymous nature of virtual currencies make them prone to criminal misuse – problems that the 5AMLD addresses by making crypto-services subject to customer due diligence and reporting if suspicious activities are detected. Through amendments to the Dutch Anti-Money Laundering Act, crypto-service providers will need to comply fully with these obligations.
Virtual currency exchanges and wallets will need to adhere to 'know your customer' protocols and collect data on users that they may need to share with authorities. Furthermore, crypto-service providers will be required to report unusual transactions to the Financial Intelligence Unit Netherlands and to cooperate with any investigations.