January 10, 2020, time for the fifth EU Anti-Money Laundering Directive (..but not yet in the Netherlands..)

Status update on AMLD5 Implementation in the Netherlands

The 10th of January, 2020 has long been on the mind of many people working in the Anti-Money Laundering field. It is the date when European Member States should have implemented the 5th EU Anti Money Laundering Directive (AMLD5). This requires crypto-players to apply anti-money laundering procedures and get a registration.

Right now the proposal is in the Senate and the earliest date of implementation will be end of February. A further delay is possible however, as the crypto industry points out that some extra NL-designed, local, rules are added to the supervisory regime. This is a violation of the text and intent of the Directive and the Senate may further investigate this, leading to more delay.

In an earlier blog I detailed the Dutch discussion on the law that implements the AMLD5. In essence there is still a serious disagreement between legislators and industry. The Dutch Ministry of Finance and central bank effectively apply a supervisory regime to crypto players, against the explicit advice of the Council of State. The Ministry of Finance fooled our House of Representatives with a word trick. It replaced the word license for registration but added further Dutch rules to the law, basically setting up a regular disguised supervisory regime.

On December 3, the House of Representatives agreed to the text, but 2 weeks later, a secret letter of De Nederlandsche Bank was accidentally published on the web. It was the letter that requested the additional Dutch rules into the Dutch implementation law, which is precisely what the Ministry of Finance explained it did not do. This letter was picked up by Dutch research journalist Thomas Bollen of Follow the Money and he published an article that reconstructs the political debate and confirms the legitimate concerns of Dutch crypto-industry. In sum: the Dutch are indeed implementing a stricter supervision, which is not allowed under the EU Directive.

Topping up the EU rules

The rules proposed by the Ministry of Finance are the regular AMLD5 rules, but topped up with two provisions from the financial supervision law book which are generic umbrella clauses, allowing all kinds of investigations/measures. Those rules are the rules to have a solid organisation and have a full extensive integrity framework in place (whereas the anti money laundering rules prescribe a proportional risk framework, geared to the money laundering rules specifically). On top of that the Ministry expects companies to pay for their own supervision meaning an extra out of pocket sum of 25 or 50k can be expected.

What’s interesting is that the Ministry of Finance proposes that the central bank/DNB becomes the supervisor. Given that crypto companies do not qualify as financial institutions, it would be more logical that the regular AMLD-supervisor would do the job (Bureau Financieel Toezicht as it is called in Dutch). Or, considering the upcoming EU discussion on crypto regulation, ask the market supervisor AFM to do the job, as they may well be in charge for a next phase of regulation.

A choice for the AFM would also have been better given that the current rules for cryptoplayers lead to a supervisory regime that is the literal equivalent of the rules for providers of investments objects (for which the AFM already does supervision: you can see this as the providers of investments in ships etc). Setting up a similar regime in a different law and appointing the central bank as a supervisor really does not make sense.

The Dutch are not the only ones by the way. Also the Germans are going down the path of a much stricter implementation of the AMLD5. The French meanwhile are most clever and accurate. They designed a registration regime, in line with the AMLD5, but also allow players to voluntarily apply for a license.

Next up in Senate and beyond

Our Senate will discuss in particular the lawfulness and workability of the law. Ideally speaking this would mean that they revisit the texts of the law and request a separate advice of the Council of State on the current legal texts. The council of State has adviced strongly against the current texts but can only come into the discussion on request of politicians. So the industry is now requesting the Senate to actively request this advice, in order to provide an independent advice on the question whether Ministry of Finance has indeed gone too far (spoiler: yes)

How the Senate discussions ends is not clear but if the law is passed unchanged, then the infringement procedure at the European Commission comes into play. Already in the house of representatives the Ministry of Finance alluded to an already ongoing infringement action by the Commission on this AMLD5 implementation work of Member States. This would mean the European Commission steps in and orders the Member States to correct the wrongdoing. It would really be interesting to hear more about that.

However, for the industry in the Netherlands such proceedings may likely come too late, so the Dutch cryptostory may become one in which a couple of years after the introduction of this excessive regulation, we have 20–20 hindsight. We can then see that in 2020 we prematurely stifled innovation of an innovative group of players by a too hefty supervisory regime that wasn’t in the EU rules anyway.

PS. One of the readers pointed out to me that the ECB opinion on the proposed directive did not raise a specific concern about the nature of the AMLD5 regulation (whether license or registration). This makes the diverging position of the Dutch central bank (calling for license even when Europe has already decided on registration) even more intruiging.