A national licensing regime for crypto exchange platforms and crypto wallet providers is needed to ensure more effective prevention of money laundering and terrorist financing. The European regulatory framework for corporate funding must be amended to enable blockchain-based development of small-scale corporate funding. Effective protection of Dutch consumers against the principal risks requires international coordination due to the cross-border nature of cryptos.
The AFM and DNB made these recommendations in a joint advice, which the Dutch Minister of Finance fowarded to the House of Representatives today.
Cryptos are susceptible to money laundering and terrorist financing
Cryptos are vulnerable to financial crime, which is why the AFM and DNB recommend introducing a licensing regime under the Dutch Anti-money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme – Wwft) The fourth European Anti-Money Laundering Directive has been revised to address this risk, with the standards in the revised directive (AMLD5) now also applying to platforms that enable the exchange of cryptos to fiat money as well as to crypto wallet providers. A licensing regime will allow preventative assessment – and rejection – of potential market parties.
Amendment of the European regulatory framework for capital market funding
The application of blockchain technology may open up opportunities for the funding of small-scale business activities, provided the cryptos represent clear and enforceable rights, as is the case with shares and bonds. The AFM and DNB recommend amending the European regulatory framework for corporate funding to enable the use of cryptos that are comparable to shares or bonds. This requires proportionate rules for trading as well as amendments to the rules for custody and settlement in order to prevent them from unnecessarily reducing the benefits of blockchain technology.
At a national level, the AFM and DNB recommend bringing the Dutch definition of a security in line with the more broader definition used in European legislation. This will provide the AFM with the necessary flexibility to bring specific cryptos under the scope of its supervision.
Consumer protection at an international level
Consumers will always be exposed to risks, and given the cross-border nature of cryptos, additional national regulations aimed at consumer protection can only be effective if they are coordinated at an international level. That is why the AFM and DNB contribute actively to international policy-making with respect to cryptos.
Now that the popularity of cryptos has seen a sharp decline, the need to set up a national regulatory framework has also decreased. However, the supervisory authorities will continue to monitor developments in the crypto markets and promote consumer awareness of the risks associated with cryptos.
The risks remain
The AFM and DNB have repeatedly warned about the risks of deception, fraud, manipulation and cybercrime associated with cryptos and initial coin offerings (ICOs). These risks will remain. The AFM and DNB will continue to monitor the crypto-related activities of regulated financial institutions, such as providing crypto wallets. In addition, the AFM will remain alert to the activities of providers of speculative crypto-based products, such as contracts for difference (CfDs).
The AFM is committed to promoting fair and transparent financial markets.
As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.