The Netherlands Plans to Bring A Licensing System for Crypto Exchanges and Service Providers
In an attempt to regulate the cryptocurrency industry in The Netherlands, the Dutch financial authorities are planning to introduce a new licensing system for digital currency exchanges and service providers. The new licensing system aims to enhance investor protection and to bring control over illicit activities of terror financing and money laundering.
Last week, the Netherlands Authority for the Financial Markets (AFM) and the country’s central bank De Nederlandse Bank (DNB) published a report stating that cryptocurrencies carry “high financial crime risks” and hence it is essential to license the fiat-to-crypto exchanges and custody solution providers.
The report notes: “These risks must be addressed effectively, which can be achieved as a result of the international coordination of countermeasures that AMLD5 [the Fifth European Anti-Money Laundering Directive] provides”.
The two authorities said that instead of having a registration system, they would recommend a licensing regime. This is because it allows for “pre-market entry assessment” to see whether the involved parties can comply with the AMLD5 rules. Unlike the licensing system, the registration process allows only for a “limited substantive assessment” of the involved parties.
Furthermore, the two regulatory authorities propose to introduce European regulatory framework to promote blockchain adoption within SMEs and allow the use of crypto assets like bonds and shares.
The authorities also recommend broadening the scope of securities and its definition. The new and broader definition should involve new form of corporate funding’s like the Initial Coin Offerings (ICOs) and the Security Token Offerings (STOs).
he report added: “Amending the definition is also desirable in anticipation of potential European consensus on the qualification of certain cryptos as security under present legislation”.
The Dutch authorities also call for international cooperation to establish the cryptocurrency rules. It notes: “The evolution of cryptos is primarily internationally-oriented given their inherent cross-border nature, and cannot be confined to the Dutch market alone”.
The Dutch central bank said that the authorities will be completely evaluating the crypto companies before granting them any license. However, Richard Kohl, a board member of the Bitcoin Nederland Foundation, call this a step backward. He believes that the new licensing system will bring huge costs to companies to stay compliant and a whole amount of additional paperwork.
According to Kohl, this system will bring a competitive disadvantage to crypto startups against already established traditional players like the banks.