On 18 January 2019, the Dutch Minister of Finance (the Minister) sent a letter to the Dutch Parliament (Tweede Kamer) addressing the joint recommendation made by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) and the Dutch Central Bank (De Nederlandsche Bank, DNB) on on a regulatory framework for cryptos (commonly known as virtual currency or cryptocurrency).
The AFM and DNB believe that cryptos bring about significant risks, in particular in the area money laundering and terrorist financing. They also point out that cryptos have a vulnerability to deception, fraud, manipulation and cybercrime. The AFM and DNB issued a number of warnings on these risks in recent years and believe these risks are still present in crypto markets today, albeit that the impact of the risks on Dutch consumers currently seems less significant than in early 2018 due to a decrease of interest in cryptos. However, the Dutch regulators also see potential in the functional application of cryptos and its underlying technologies within the financial sector.
On the basis of their analysis the Dutch regulators have came up with a number of recommendations, but have refrained from introducing national legislation, as it is unlikely that this will significantly contribute to the reduction of risks for Dutch consumers. This conclusion is based in part on the fact that there is a relatively small number of Dutch crypto-service providers and a lack of internationally agreed framework with regard to consumer protection.
Based on the recommendations made by the AFM and DNB, the Minister will take the following action:
- Given the high risk that cryptos are involved in money laundering and terrorist financing, the Minister will be introducing a licence obligation for providers of exchange services between cryptos and fiat money and cryptocurrency wallets. DNB will be designated as the competent regulatory authority.
- European securities legislation could provide for more flexibility around the application of distributed ledger technology, in particular when applying this technology for small-scale trading and clearing and settlement of securities. In addition, the Dutch regulators recommend changing European legislation to bring financing involving the use of cryptos within the relevant rules applicable to corporate funding. The Minister will consult with the AFM and DNB to identify the required amendments to European legislation and will take action to put this item on the agenda in Brussels.
- The AFM and DNB recommend bringing the definition of security (effect) included in the Act on the Financial Supervision (Wet op het financieel toezicht, AFS) in line with the broader definition of ‘security’ used in the (recast) Markets in Financial Instruments Directive (MiFID II). This will provide for more flexibility to bring specific cryptos within the scope of the AFS. The Minister has indicated to investigate this further and provide an update in the course of 2019.
View the Minister’s letter (Dutch only), 18 January 2019.