Best practices for KYC/AML

Guides

2022-09-23

5 min read

Cryptocurrency Regulation in the Netherlands—How Companies Can Stay Compliant in 2022

Sumsub’s experts have created a guide to help crypto businesses enter the Dutch market and stay compliant with local regulations.

Alyssa Abrams

Content Manager

Cryptocurrency transactions are allowed in the Netherlands, and there are no significant barriers to entry for virtual asset service providers (VASPs). So while this makes for an attractive jurisdiction, the country has some legislative specificities that should be taken into consideration.

In 2020, the 5th Anti-Money Laundering Directive (AMLD5) came into force in the EU, leading the Netherlands to amend its Money Laundering and Terrorist Financing Prevention Act (Wwft). This means that the crypto industry is no longer in a legal gray area, and now must fulfill several conditions to be able to provide services to Dutch clients.

This guide will help businesses navigate Dutch crypto regulations, stay compliant and avoid fines.

The highlights

Who is affected?
Who is the main regulator?
Main crypto regulations in the Netherlands
Fees for registration with the DNB
Deadlines
Sanctions
Conclusion
Where to find out more

Who is affected?

The following crypto service providers are regulated in the Netherlands, according to the Money Laundering and Terrorist Financing Prevention Act (Wet ter voorkoming van witwassen en financieren van terrorisme—Wwft):

natural persons or legal entities providing professional or commercial services for the exchange between virtual currency and fiat currency;
natural persons or legal entities that offer professional or commercial custodian wallets.

At the moment the entities who offer crypto-to-crypto exchanges are still not regulated.

*Initial Coin Offerings (ICO) do not fall under the financial supervision in the Netherlands, unless qualified as a security. ICO are digital tokens issued through blockchain. If the token within the ICO represents a share in a given project/start-up or guarantees entitlement to future returns, it may qualify as a security or a unit in a collective investment scheme (i.e. an investment fund) as defined by the Wwft. In this case, the ICO falls within the scope of the Financial Supervision Act and is regulated by the Financial Markets Authority.

Who is the main regulator?

According to the Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) crypto-fiat exchanges and custodian wallet providers fall under the supervision of De Nederlandsche Bank, or the Dutch National Bank (DNB).

* ICOs fall under financial supervision only if they are qualified as securities or units in an investment fund.

Main crypto regulations in the Netherlands

The key crypto regulations in the Netherlands are described in the Money Laundering and Terrorist Financing Prevention Act (Wwft).

In 2020, the Wwft was amended to introduce rules arising from the European law—the 5th Anti-Money Laundering Directive (AMLD5).

Under AMLD5, crypto companies must comply with AML/CTF standards. However, since the directive only provides European states with general “recommendations”, each state may choose how exactly they would like the changes to be implemented.

Here is what’s important to know when entering the Dutch market:

1. Registration with the DNB is mandatory

According to the Wwft, anyone who offers professional or commercial services in or from the Netherlands for the exchange between virtual currencies and fiat currencies or custodian wallets must register with the DNB.

Provision of services in the Netherlands from the EU/EEA

When determining whether an entity provides services in the Netherlands, as a rule, several factors are assessed:

expressed intention to engage in commercial relations with consumers in the country
payments made to a search engine service for displaying advertisements
showing reviews from customers from the Netherlands on the website

Even if an entity already has an equivalent registration in another EU or EEA member state, it must get registered with the DNB if it works with Dutch clients.

Provision of services to Dutch clients from third countries

The Wwft prohibits the provision of regulated services from a third country that is not an EU Member State or an EEA country.

To register with the DNB, a company needs to establish presence in the Netherlands, or any EU or EEA member state. The Minister of Finance is ready to make an exception for businesses that are resident, established or have an office in certain third countries, but the list of such countries hasn’t been announced yet.

Provision of services from the Netherlands to foreign customers

Even if the entity provides regulated services for non-Dutch customers, it must also apply for registration if it operates from the Netherlands.

The registration procedure, including necessary assessments, documents and information, are specified on the DNB’s website.

To submit an application for registration online, visit the Digital Supervision Portal. Failure to comply with this requirement may lead to a fine up to millions of euros.

To get registered with the DNB, crypto companies need to demonstrate compliance with the Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft) and the Sanctions Act (Sanctiewet 1977—Sw).

* How is registration different from licensing? Both registration and licensing permit business activity in sectors that need state supervision. However, the license is given for a certain period of time (e.g. for 1, 5 or 10 years) and warrants occasional supervision in cases such as license renewal or violation. On the other hand, registration warrants permanent state supervision of a company’s activities post-registration.

2. AML/CFT compliance

Crypto providers must have well-adjusted KYC and AML processes.
Customer Due Diligence, sanction screening and transaction monitoring therefore are a must.

As part of AML/CFT compliance, crypto providers must set up a clear AML procedure, including:

Identification of their customers
monitoring transactions
checking customer presence on sanctions lists
providing the Dutch authorities with necessary information
performing other measures prescribed by law

Staff members must be trained in the field of AML/CTF monitoring and should be able to report breaches of regulations. Any transaction that seems to be related money laundering or terrorist financing must be reported to the Dutch Financial Intelligence Unit (FIU-NL).

* The FATF’s Travel Rule. The Netherlands is a member of the Financial Action Task Force (FATF), an international AML/CFT watchdog, and therefore follows FATF standards, including those set for Virtual Asset Service Providers (VASPs).

The Recommendation 16 of the FATF, also called the Travel Rule, recommends that VASPs, including cryptocurrencies, exchanges, banks, hosted wallets and other financial institutions, share certain identifying information about the originator and beneficiary of cryptocurrency transactions over USD/EUR 1000.

At the moment, the Crypto Travel Rule is not mandated in the Netherlands.

Fees for registration with the DNB

1. Registration fee (including fit and proper assessments)—EUR 5,000.

2. Regular supervision fee—the amount is calculated by the DNB for each year pursuant to the Financial Supervision Funding Decree. The exact sum is stated in the Regulation on the Funding of Financial Supervision.

Deadlines

The deadline for processing requests submitted by service providers is two months. this period may be extended if any necessary documents are missing.

Another prerequisite for registration is that all policymakers and co-policymakers must first be assessed for fitness and propriety, even if this means that the deadline needs to be suspended: “if any information is missing, the period within which we are required to decide on the request for registration will be suspended until the date on which the request is supplemented or until the term for its supplementation elapses unused, in accordance with Section 4:15 of the General Administrative Law Act (Algemene wet bestuursrecht—Awb).”

Cryptocurrency operators are not permitted to offer their services during the processing period.

The bank may also refuse registration in case there are insufficient documents.

Sanctions

A fine up to millions of euros may be imposed by the DNB, depending on the violation under the Wwft.

Other possible penalties can be established by the relevant national law.

Conclusion

A serious change in the Dutch crypto sector was made in 2020, after the European Directive was implemented in the Dutch legislation.
Since then, there have not been changes in local crypto regulations.
Providers of crypto/fiat exchanges and custodian wallet services may freely carry out their business activities with clients from the Netherlands with a DNB registration.
Crypto-to-crypto exchange services and other types of crypto companies are still unregulated.
ICOs do not fall under the financial supervision, except when the ICO is considered a security.
The FATF Travel Rule is not mandatory in the Netherlands, although the country is a member of the FATF.