On 2 July 2019, the Dutch Minister of Finance (the Minister) submitted the bill to implement the 5th Anti-Money Laundering Directive (Directive 2018/843 - 5th AMLD) and to amend – particularly - the Dutch Money Laundering and Terrorist Financing Prevention Act (Wet ter voorkoming van witwassen en financieren van terrorisme - Wwft) to Parliament.
The Directive must be implemented in national legislation by 10 January 2020 (see also our previous newsletters on the 5th AMLD here (general information) and here (focus on crypto's)). In an earlier news alert, we discussed the draft legislative proposal that the Minister had published for consultation. Below, we will discuss some of the differences between the bill that was finally submitted to Dutch Parliament and the draft bill.
2. LICENSING REQUIREMENT VS. REGISTRATION REQUIREMENT
Unlike the 5th AML Directive, the draft bill introduced a licensing requirement for 'providers of services for the exchange of virtual and fiduciary currencies' (providers of crypto exchanges) and for 'providers of a storage wallet' (crypto wallet providers). In our earlier alert, we asked the question to what extent this licensing requirement fitted in with the balanced and proportionate approach that the European legislator intended with the adoption of the 5th AMLD and the introduction of the monitoring of virtual currencies.
In its opinion on the draft bill, the Dutch Council of State (which advises Parliament on draft legislation that the government sends to Parliament and assesses draft bills on certain specific aspects, including compliance with higher – including European – legislation) answered in the negative. The 5th AMLD does not offer a choice between a licensing and a registration requirement for providers of crypto exchanges and crypto wallets. The Minister's originally proposed licensing requirement is therefore not permitted, according to the Council of State, advising the Minister to abolish the licensing requirement.
In its considerations, the Council State also notes that the fact that the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) advised the introduction of a licensing system because this would contribute to the effectiveness and execution of supervision does not mean that such measure is proportionate given the burden it imposes on the service providers.
The Council of State also discusses the possibility of introducing a licensing requirement, irrespective of the implementation obligation under the 5th AMLD, and of subjecting the relevant providers to prudential supervision by DNB, in view of developments in the area of virtual currency. However, the draft bill explicitly did not provide for this and was limited to the implementation of the 5th AMLD
3. LEGISLATIVE PROPOSAL
3.1 No licence but registration requirement
In the bill as sent by the Minister to Parliament, the licensing requirement has been abolished and replaced by a registration requirement, in line with the Directive and the advice of the Council of State. The explanatory memorandum to the legislative proposal explicitly addresses the possibility of introducing a licensing requirement independently of the implementation of the 5th AMLD, as also discussed by the Council of State in its advisory report. In its explanatory notes, the Minister notes that the originally introduced licensing requirement was aimed at testing providers of crypto exchange services and crypto wallets for compliance with the obligations laid down in the Wwft. This made the Wwft the most appropriate place for this permit requirement. Because supervision did not extend to requirements that are characteristic of the Dutch Financial Supervision Act (Wet op het financieel toezicht - Wft), such as prudential requirements and requirements with regard to conduct and/or consumer protection, the Minister eventually completely abandoned a licensing system (and therefore also did not introduce a licensing obligation for these providers in the Wft).
3.2 Adjustments following advice from Data Protection Authority
In addition, following the advice of the Dutch Data Protection Authority, the Minister has made a number of adjustments or included additional explanations. In its advice, the Authority was critical on a number of points in view of the interference of the 5th AMLD and the bill in the fundamental right of protection of personal data, such as the exchange of data between the Wwft supervisors (including DNB and AFM) and the bodies within the Financial Expertise Centre and the provision of data to (foreign) supervisory bodies.
3.3 Adjustments following consultation reactions
The Minister also made a number of amendments to the legislative proposal in response to the various consultation reactions. For example, the definition of virtual currency has been brought into line with that of the, the explanatory memorandum to the bill has been formulated in a more risk-based manner on a number of points (instead of the original detailed interpretation of the Directive in the explanatory memorandum), giving a provider of crypto exchange services or crypto wallets more room to explain in a reasoned manner why it has made a certain assessment or choice (based, of course, in principle, on procedures drawn up in advance). This could include, for example, assessing the risk profile of a client on the basis of various risk factors. In addition, the obligations that a provider of crypto exchange services or crypto wallets has to meet have been extended. For example, it must have a formal and factual control structure that is transparent, and proposed changes to this control structure must be notified to DNB (which does not seem to follow directly from the 5th AMLD, for that matter). Finally, the bill provides for a transitional period of 6 months for the registration obligation of existing providers of crypto exchange services and crypto wallets.
Whereas in the original draft bill the Minister had translated the wish of the regulators to strengthen the supervision of (the use of) virtual currencies into a licensing requirement for the providers of crypto exchange services and crypto wallets - and thus deviated from the rest of Europe - he was corrected by the Council of State and the reactions from the market. The final legislative proposal therefore follows European legislation fairly closely.