In its response to the objections of Bitonic (a Dutch Bitcoin exchange), DNB has acknowledged the illegitimacy of its application of a verification requirement.
What is this about?
On 19 May 2021, following the ruling of the preliminary relief judge of the Rotterdam court on 7 April 2021 (see our note), the Dutch regulator (DNB) decided on Bitonic's objections to the verification requirement.
Which parties should care?
Firms that qualify as crypto service providers under the Dutch Anti-Money Laundering Act are likely to have encountered 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 European 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?
In January 2021, despite already having completed its registration process, Bitonic filed a preliminary injunction against DNB with the court to suspend the additional verification requirement. After the court hearing on 23 March 2021 the judge's ruling was published on 7 April 2021. One of the elements of this ruling was the instruction to DNB to decide on Bitonic's objections.
On 19 May 2021, DNB sent its decision to Bitonic. On the basis of publicly available information (see Bitonic's publication) we understand that in its decision DNB:
- acknowledges that its interpretation of the Sanctions Act (i.e. the application of the verification requirement) does not take account of the discretion a crypto service provider has to comply with the Sanctions Act in a risk-based manner;
- confirms that it has wrongly imposed the verification requirement as a condition for registration; and
- considers Bitonic's objections to the verification requirement justified.
When does this become relevant?
This matter is relevant for crypto service providers that are in the process of applying for the registration or, like Bitonic, have already been registered. Moreover, we understand that some might have postponed their application in anticipation of the outcome of this court case.
Any further thoughts?
DNB has now updated its statement on 'screening a relationship in incoming and outgoing customer transactions'. This update regards the confirmation that compliance with the verification requirement may be risk-based.
On the one hand, we believe that it is a positive development that after reconsideration DNB has changed its approach to the verification requirement.
Unfortunately, on the other hand, this statement still does not provide the crypto sector with the desired certainty. This relates to the fact that DNB still refers to applying the verification requirement (albeit risk-based), even though this does not follow from the law.
It is disappointing to see that DNB has missed this golden opportunity to create more clarity, but we hope that further developments will lead to DNB eventually fully abandoning the verification requirement.
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