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Dutch Central Bank Forced To Scrap Crypto Wallet Verification Requirement

Last updated: | 4 min read

In a landmark decision for the country’s crypto industry, a court order obtained by Dutch bitcoin (BTC) exchange Bitonic has succeeded in forcing De Nederlandsche Bank (DNB) to scrap its controversial wallet verification requirement.

Source: Adobe/gesrey

The company contested the measure at a Rotterdam court, claiming the imposed know your customer’s customer (KYCC) rules pressured the exchange to violate the privacy of its users.

Bitonic said in a statement that,

“Last night we received a decision from DNB about the objection made by Bitonic with regard to the so called wallet verification requirement. The regulator formally acknowledged Bitonic’s view that the requirement as presented was unlawful and should never have been made during registration.”

The exchange quotes the bank’s official position, formulated after an order issued by the Rotterdam District Court called on the DNB to improve the motivation behind its registration requirement.

The “DNB declares the objection well-founded and revokes its primary decision of 17 November 2020,” the bank said, as quoted by Bitonic.

The exchange said that they would remove the wallet verification measures as soon as possible. “For example, we will no longer ask for all transactions a copy of your wallet screenshot. We will further investigate which other simplifications are possible,” they explained.

Simon Lelieveldt, Compliance Advisor at Bitonic, told that the company has received numerous complaints on the privacy infringements from its customers, and was pleased that the matter was resolved in a manner that benefited the exchange’s users and their privacy.

“First of all, we are very happy for our customers. And we compliment the central bank for the decision to revoke their previous requirement,” Lelieveldt said.

“We do feel, however, that there is a need for parliament to further investigate what went wrong here and we suggest they speed up a planned evaluation process on this issue,” he added.

Tobias Oudejans, a spokesperson for the DNB, told that, while he couldn’t comment on the legal case and its implications due to the country’s secrecy laws, he wished to emphasize that the bank decided on May 19 to introduce “a small change to our policy” but that, from the DNB’s point of view, the law in the Netherlands has not changed, and its obligations remained intact

“Compared with our previous policy, the only difference is that now we are using a risk-based approach to compliance. Of course, by no means, we are not stopping to enforce the Dutch law, but we have decided to introduce this change to our policy,” Oudejans said.

The bank’s spokesperson referred to the DNB’s updated policy document from May 19 which states that “providers of crypto services must take measures to ensure they adequately check, at the minimum, the identities of the persons or legal entities with whom they have a business relationship in their records, in compliance with the sanctions regulation”.

“As you can see, this means that we are allowed to adopt a risk-based approach, and it doesn’t say that we can’t use any procedure to monitor such transactions,” he said.

In either case, Bitonic said they hope that the landmark decision will impact the broader policy-making for the Dutch crypto industry.

“We hope that politicians will further reflect on this. As a result of this situation, the entire sector is unnecessarily confronted with high costs and administrative burdens, while warnings have already been issued in advance of the infringement of the privacy of citizens and the risk of excessive supervision,” the exchange concluded.

Last November, the central bank registered Bitonic as a crypto service provider, making the registration conditional and requiring the platform to implement special control measures. These were to be used with the aim to verify the possession and use of wallets and crypto-addresses by the exchange’s clients.

At the time of its registration, Bitonic claimed it was required to verify user identities through ID cards, passports, and/or driving licenses, and link BTC wallets to identities similarly to how banks create individual bank accounts for their clients.

A policy document released by the DNB also requires that in “transactions to and from external wallets, crypto service providers must be able to effectively verify the identity of a relationship with a person or legal entity as referred to in the sanctions regulations.”


Learn more:
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‘Ridiculous’ Registration Fees Force Dutch Bitcoin Exchange out of Business

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As Bitcoin’s Taproot Nears, Ex-CIA Director’s Paper Raises Privacy Concerns

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(Updated on May 24 with comments from DNB.)