Dutch regulator publishes Q&A on wallet verification requirement

What is this about?

On 16 September 2022, the Dutch regulator (DNB) published its final Q&A on the application of its heavily criticised wallet verification requirement.

This publication follows after the public consultation on the draft Q&A initiated by DNB almost a year ago (on 19 November 2021).

Which parties should care?

Firms that are in scope of the registration regime for crypto service providers under the Dutch Anti-Money Laundering Act should take note of this Q&A.

Such firms may fall in scope of the registration regime due to providing custodian wallet services or exchange services between virtual currencies and fiat currencies in the Netherlands.

This also includes European firms providing such crypto services in the Netherlands on a pure cross-border basis.

What should they know?

Following the ruling of the preliminary relief judge of the Rotterdam court on 7 April 2021 (see our note), DNB decided on a Dutch bitcoin exchange’s (Bitonic) objections to the wallet verification requirement.

As a result, DNB acknowledged that risk-based compliance with the wallet verification requirement should be permitted (see our note).

Following these developments, on 19 November 2021 DNB launched a consultation on a Q&A regarding this requirement (see our note).

The final Q&A published on 16 September 2022 takes into account the received responses to the consultation (including the response submitted by Simmons & Simmons Amsterdam) and addresses:

• which persons fall in scope of the term ‘relationship’;
• risk-based compliance with the wallet verification requirement and the relevant elements of the risk analysis. Among others, DNB specifically addresses our response by covering the differences between risks associated with different types of wallets; and
• concrete measures DNB sees in practice that could help manage the risk of non-compliance with sanctions regulations.

When does this become relevant?

This Q&A is relevant for crypto service providers that intend to apply for a registration, are in the process of applying for the registration or have already been registered.

The final version of the Q&A regarding ‘Sanctions screening for (incoming and outgoing) crypto transactions’ is available here.

Any further thoughts?

On the one hand, we are pleased to see that DNB takes into account our criticism that not every relationship involving an external wallet should be seen as high risk by acknowledging the different risks across different types of wallets.

On the other hand, even though the final version of the Q&A looks more nuanced than the draft version consulted in November 2021, DNB continues to require verification of wallet ownership in certain circumstances.

Furthermore, DNB’s elaborate feedback statement does not address our expressed concerns in relation to the lack of legal basis for the application of this wallet verification requirement.