Bitonic Drags Dutch Central Bank to Court Over Controversial KYC Requirements

The crypto space in Netherlands is undergoing a significant shift as companies gear up to adapt to the country’s new rules governing wallet identity verification. However, these companies aren’t going down without a fight, and the standoff is about to escalate.

Not Backing Down

Yesterday, Dutch cryptocurrency exchange Bitonic announced that it had filed a preliminary injunction against De Nederlandsche Bank (DNB), the country’s central bank, for exclusion from a controversial identity verification law.

In the announcement, the company claimed that the central bank’s requirements were a “nuisance,” bemoaning their effects on its business if sustained.

The suit addresses new know-your-customer (KYC) requirements that the DNB mandated on crypto exchanges to prevent fraud and money laundering. The rules include verifications requirements for transactions, both on the senders’ and receivers’ ends.

“Crypto service providers must check whether their clients and any ultimate beneficiary owners (UBOs) are on a Dutch or European sanctions list and report any hits to DNB. Risk-based checks are not permitted […] compliance also entails that institutions must check incoming and outgoing payment transfers.”

To ensure the continuity of its business, Bitonic begrudgingly accepted the central bank’s demands. In a release, the exchange told users that they would have to verify that they are the legitimate controllers of their Bitcoin addresses. The verification process will include signing a message and uploading a screenshot.

While the company acceded to the demands, it made sure to communicate its feelings about them. In yesterday’s release, Bitoonic explained that the DNB had failed to address any concerns over the KYS rules. The exchange added that an independent compliance firm had provided advice that the central bank’s policy lacked legal standing.

The exchange pointed out that the verification protocols were an incursion on existing custom privacy laws, adding that its action was simply to bring them before an unbiased judge.

Everyone Hates the New Rules

Bitonic isn’t the only exchange that has voiced its disdain for the new rules, which are an extension of the European Union’s Fifth Anti-Money Laundering Directive (AMLD5). At the time the requirements came out, crypto journalist Aaron van Wirdum explained that the DNB’s policies were even more stringent than those of other European countries.

As imposed by the Dutch central bank (@DNB_NL), Bitcoin exchanges in The Netherlands must now ask their customers to "prove" they really control their withdrawal address. No other European country requires this.

Via @Bitonic: https://t.co/UEtVJD3e5z. pic.twitter.com/Nbsa9usSWF

— Aaron van Wirdum (@AaronvanW) November 17, 2020

While Bitonic is fighting the rules, however, several other firms have merely folded. Last January, crypto exchange Derbit moved its operations to Panama, while the SImpleCoin mining pool permanently shut its operations. Both firms blamed the new KYC policies for their actions, explaining that they were too stringent to implement.