A preliminary relief judge ruled on the eagerly anticipated case initiated by Dutch Bitcoin exchange Bitonic against the Dutch regulator (DNB).
What is this about?
On 7 April 2021, the preliminary relief judge of the Rotterdam court ruled on the case initiated by Bitonic against the Dutch Central Bank (DNB). This case was about Bitonic's objections against DNB's verification requirement which Bitonic considers unlawful. A number of crypto service providers were supportive of this brave step to stand up against the regulator.
Which parties should care?
Firms that qualify as crypto service providers under the Dutch Anti-Money Laundering Act will encounter DNB's approach on the verification requirement as part of the mandatory registration process. Generally, such firms provide custodian wallet services or exchange services between virtual currencies and fiat currencies in the Netherlands. Consequently, also EEA-firms providing such crypto services in the Netherlands on a pure cross-border basis are likely to fall within scope of this registration regime.
What should they know?
Under the Dutch Sanctions Regulation (Regeling toezicht Sanctiewet 1977), firms in scope must take measures to ensure that they adequately screen relationships against sanctions lists. They are prohibited from transacting with sanctioned persons or entities.
In September 2020, DNB communicated to crypto service providers that in order to comply with this sanctions regime in relation to transactions to and from external wallets, they must also establish that the person screened is actually the recipient or the sender. In order to comply with this verification requirement, which is considered by the market to be additional to the basic statutory requirement, DNB provided several examples of technological means used for the whitelisting of external wallets. This additional onerous verification requirement has created turmoil in the Dutch crypto industry which attempted to initiate a dialogue with DNB on this requirement on multiple occasions.
In January 2021, despite already having completed its registration process, Bitonic filed a preliminary injunction against DNB with the court of Rotterdam to suspend the additional verification requirement. The court hearing took place on 23 March 2021, after which the judge's ruling was published on 7 April 2021.
In its ruling the judge:
- confirms that the verification requirement was indeed part of the registration process. Therefore, Bitonic has the right to object to it;
- expresses its doubts as to whether DNB was - considering the (European) laws and regulations – permitted to apply the verification requirement in the first place;
- states that DNB's application of the intended registration regime shows resemblance to a licensing regime; and
- does not suspend the verification requirement, but instructs DNB to decide on Bitonic's objections within six weeks after the date of the ruling (i.e. by 19 May 2021 at the latest).
With respect to the doubts expressed the judge emphasises that this does not mean that it has determined that the verification requirement is clearly incorrect or unlawful. In this context, further in-depth research is required, which according to the judge, can be conducted by DNB during the objection period.
When does this become relevant?
For crypto service providers this has been a relevant topic since September 2020. The next date of relevance is expected to be 19 May 2021, which is the date by which DNB should have taken a decision on Bitonic's objections.
Any further thoughts?
DNB's surprising application of the additional verification requirement and DNB's communication in this regard have created unnecessary uncertainty in the Dutch crypto industry. In addition, this requirement - which does not apply in other EU member states - results in an uneven playing field across the EU, to the detriment of the Dutch crypto industry. Therefore, we believe that it is a positive development that this requirement has been reviewed by an independent judge who has cast doubts on DNB's approach. A decision from DNB revoking its approach would be very much welcomed by the Dutch and international crypto industry.
The court's ruling can be found here (only in Dutch).
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