The Netherlands’ AMLD5 Regulations Appear to Kill Crypto Businesses

The Netherlands’ crypto market is seeing the first of small exchanges pushed out after the passage of heavily criticized anti-money laundering (AMLD5) regulations.

Announced April 24 in a company blog, Bittr founder Ruben Waterman stated that his Bitcoin exchange, established in 2018, was planned to shut down by April 28 as the one-man operation does not have the capital to meet the new regulations. The Dutch National Bank (DNB) indicates that registration alone costs $36,500, in addition to compliance needs.

The development shows what Dutch authorities expect of financial upstarts and could speak to future barriers to cryptocurrency development in the greater EU.

Ruben wrote:

“Above all, Bittr would have to appoint a dedicated compliance officer who’s responsible for compliance with the new regulations. Who can I appoint? Myself? That probably doesn’t work also being the sole shareholder and director.”

According to Dutch law, business pay for their own regulations out of pocket. Ruben noted that options for his Bitcoin savings platform included keeping a lawyer on retainer, paying a compliance officer or turning to a third party to control compliance costs in addition to the government registration fee — impossible, he stated, since the firm is quite small.

Making sense of it all

Dutch cryptocurrency companies were waging a battle of semantics with the DNB and Ministry of Finance (FIN) over the implementation of the European Union’s 5th Anti-Money Laundering Directive (AMLD5) which was enacted in January 2020.

Bitcoin companies said the DNB and FIN were tightening the EU directive needlessly while using doublespeak with the Dutch Parliament. The companies stated that the financial watchdogs had created a de facto licensing regime while AMLD5 calls for mere registration of crypto-related businesses. These statements were further supported by the Dutch Council of State, a governmental advisory board widely respected in the country, which asked the finance agencies to make their proposals clear.

Members of the Dutch Parliament kept two competing priorities in mind: fighting money laundering and supporting the country’s fintech firms.

In a Parliamentary report form April 21, Dutch Senator Bastiaan van Apeldoorn stated that cryptocurrencies are unlikely to be used on the same scale as cash for money laundering, but they still have to be monitored.

Finding a soft regulatory decision which would not displace small players in the market was the goal, he stated:

“The cryptocurrency phenomenon does exist and is likely to take on even larger, if not different, forms in the future. It is therefore good that this is also adequately regulated with regard to money laundering.”

The legislation was tied up on the point for months, even though the EU enacted its directive on January 5. Legislation was finally adopted on April 21, although opinions about its consequences diverge.

According to Bittr’s Ruben:

“The Minister of Finance (Wopke Hoekstra) then changed some wording so as to comply with the Council of State’s request but not actually changed any of its content. The Senate has raised questions about this practice but nevertheless approved the new regulations.”

The registration process was still a licensing regime, verbiage aside, Ruben stated. “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck,” he wrote.

Other participants

In a blog post from April 22, Bitonic, a Netherlands-based exchange ran by Daan Kleiman, who also leads a crypto lobbying group VNBL, stated that the final AMLD5-driven legislation “resolved the two main issues of concern for Bitonic.” The company stated that the DNB and FIN had explained the difference between licensing and registration plus the associated regulatory costs.

“We will closely monitor this when the law has entered into force, but it appears that for now, the threat of an excessive and costly supervisory regime is off the table,” Bitonic wrote.

Some companies haven’t waited to see what the DNB and FIN would make, however. Industry-leading derivatives exchange Deribit left the country for Panama, citing uncertainties around the forthcoming regulation.

In a January blog post announcing the move, Deribit stated:

“We believe that crypto markets should be freely available to most, and the new regulations would put too-high barriers for the majority of traders, both regulatory and cost-wise.”

Arthur Stolk, managing director of Dutch cryptocurrency fund Icoinic, said that most companies had waited for the passage and are going to wait it out until a promised evaluation by FIN is conducted. His major concern for smaller companies is with the flat regulatory fee every market player now has to pay for oversight, as compared to a per-volume cost applied in most cases.

Stolk said:

“The problem is that in normal traditional finance, if you are regulated and you have a license you need to pay by your volume. So, it’s a fair deal. Now everyone pays the same. In one year they do the evaluation – please do it by volume because then all the small projects can stay.”

And, unlike other governments, the Netherlands isn’t behind the times on crypto. In fact, it is going to lead the charge in the EU for developing a central bank digital currency (CBDC), according to the latest DNB report.

The 45-page report reads:

“If the decision should be taken within the euro system to experiment with a more concrete type of CBDC, we are ready to play a leading role. The Netherlands provides a suitable testing ground for such an experiment.”