Clifford Chance

On 21 May 2020 the Implementation Act for the fifth Anti-Money Laundering Directive (AMLD5) entered into force in the Netherlands. This Implementation Act brings certain virtual currency service providers (VCSPs) under the scope of the Dutch Anti-Money Laundering and Counter-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, "Wwft") and under supervision of the Dutch Central Bank (De Nederlandsche Bank, "DNB"). The main driver to start supervising VCSPs is to decrease acting anonymously in virtual currency transactions and hence combat money laundering and financing terrorism. This is effectuated by submitting the so called 'gatekeepers' of virtual currencies to a registration regime.

Two types of VCSPs fall within the scope of the Wwft:

1. Providers engaged in exchange services between virtual currencies and fiat currencies: This includes online crypto brokerage and exchange platforms that offer exchange services between cryptocurrencies (such as Bitcoin) and fiat currencies (euros and dollars). Offline providers of automated teller machines (ATMs) that enable such exchanges also fall within the scope.
2. Custodian wallet providers: This service is defined in the Wwft as "entities that provide services to safeguard private cryptographic keys on behalf of their customers, to hold, store and transfer virtual currencies". Custodian wallet providers that offer so-called multi-signature wallets (using multiple private cryptographic keys to safeguard the wallet) also fall within the scope.

VCSPs will need to register with DNB if they are established or have their registered office (i) in the Netherlands providing virtual currency services in and/or from the Netherlands, or (ii) in another Member State providing virtual currency services on a cross-border basis in the Netherlands (i.e. when serving Dutch clients). VCSPs established or having their registered office in a country that is not an EU Member State or an EEA country (i.e. third country) are not able to register with DNB as the Wwft prohibits the provision of virtual currency services from a third country. This prohibition does not apply if the third country has been designated by the Dutch Minister of Finance. So far, the Minister has not designated any third countries.

Although the VCSPs are, on paper, only obliged to 'register' with DNB, the registration process of DNB is very similar to a license application process (for e.g. a PSD2 or MiFID license). To register, the VCSPs must, amongst others, provide the following information: 

• A business plan;
• Sound business operations documents, describing the policies, procedures and measures for sound business operations;
• Outsourcing agreements (relevant for compliance with the Wwft);
• Ethical business operations documents, describing the policies, procedures and measures for ethical business operations;
• An integrity risk analysis of the VCSPs business (SIRA); and
• A description of the organisational structure (including a detailed structure chart of the group) of the VCSP. 

Furthermore, persons that will become daily policymakers (or will supervise daily policymakers) of the VSCP will be screened on integrity and suitability, which, next to the necessary paperwork, may include an interview with DNB in which the suitability of the board member is assessed. Finally, any entity or person holding 10% of the shares or voting rights (or comparable control) in a VSCP will be screened on integrity by DNB. 

DNB has further set out detailed requirements in its 'Explanatory notes to the request for registration form for registration as a crypto service provider'. From this list of requirements it becomes clear that DNB takes the registration process for VCSPs very seriously. We expect that this will result in a shake out of the number of VCSPs active in the Netherlands. Only the VCSPs that are truly committed to obtaining this registration (and have their affairs in order) will be able to register with DNB. Also, VCSPs must have the means to comply with all the requirements – this may make life more difficult for start-ups in this sector. 

VCSPs that are active in the Netherlands but have not submitted a draft registration with DNB on or before 21 May 2020 (the day of coming into force of the Implementation Act) will need to stop their activities in the Netherlands until they have been registered with DNB. The review period for registration after 21 May 2020 is two months. VCSPs that have submitted a draft registration prior to 21 May 2020 fall under the six months transition regime under which they are allowed to keep providing their services without a registration. These entities will need to comply with all other obligations as set out in the Wwft during that period (e.g. client due diligence requirements, transaction monitoring and notification requirements). DNB will review the draft registrations of VCSPs that have submitted these prior to 21 May 2020, within a 6 months period as of that date.