The Dutch central bank and the AFM called for the introduction of a licensing regime for fiat-crypto exchanges and wallet providers to prevent money laundering and terrorist financing.
The DNB and the AFM published a report in which they make a couple of recommendations for the Dutch Minister of Finance, amid concerns that cryptocurrencies pose significant risks, especially with regard to financial crime, fraud, deception, cybercrime and manipulation
"Cryptos carry high financial crime risks, to which crypto service providers can be exposed as well as today's financial sector via their indirect exposure to such risks. Despite the waning popularity of cryptos, these risks remain significant. After all, criminals can still use cryptos to conceal the origin of their funds," the report said.
The DNB and the AFM believe that these risks must be addressed effectively and that this can be achieved "as a result of the international co-ordination of countermeasures" provided by the Fifth Anti-Money Laundering Directive (AMLD5).
The first recommendation is the creation of a licensing regime under the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme - Wwft) for fiat-crypto exchange platforms and wallet providers, aimed at preventing money laundering and terrorist financing through crypto activities.
According to the regulators, a licensing regime is preferable to a registration scheme, as it would allow for a "pre-market entry assessment" to establish whether parties will or can meet the requirements of AMLD5.
"[A licensing regime would enable] applicants to be assessed, and if necessary rejected, before they enter the market," the report said.
On the other hand, a registration scheme would be "less effective", because it allows for only a limited substantive assessment of these parties.
The second recommendation is to amend the European regulatory framework for corporate funding to enable blockchain-based development of SME funding and reconcile the Dutch and EU regulatory definitions of "security".
As such, the DNB and the AFM advocate amending the EU regulatory framework so that the offering and trading of cryptos are comparable to shares and bonds.
For example, more proportionate rules would be needed for small-scale trading as well as requirements that do not "unnecessarily hamper the infrastructural benefits of blockchain technology in the settlement and custody of cryptos".
The DNB and the AFM added:
"The scope of European legislation applicable to corporate funding should shift towards a substance-over-form approach, to ensure that new funding models are covered by the applicable rules."
However, at national level, the two authorities recommended bringing the restrictive Dutch definition of security in line with the broader definition used in European legislation.
This would allow the AFM to include certain cryptos within the scope of its supervisory perimeter.
"Amending the definition is also desirable in anticipation of potential European consensus on the qualification of certain cryptos as security under present legislation", the report said.