4 March 2022 Léonard Maistriaux Banking - Dispute Resolution - Fintech

Belgium flexes its AML and regulatory muscle on crypto-service providers

On 27 January 2022, the Belgian parliament passed a law to amend the Belgian Anti-Money Laundering Act (“the Belgian AML Act”) so as to further regulate certain crypto-service providers.

The changes this law brings to the Belgian AML Act entered into force on Monday 21 February 2022.

Background

The impetus to regulate crypto-service providers from an AML perspective comes from the European Union (“EU”) and finds its origins in the Anti-Money Laundering Directive adopted on 30 May 2018 (the “5th AML Directive”) (see our previous blogpost: EU opens door for cryptocurrency exchanges to apply AML rules| Fintech | Blogs | Linklaters).

The 5th AML Directive notably widened the EU’s regulatory perimeter for AML controls and expressly brought two types of crypto-service providers into scope: the providers of exchange services between virtual currencies and fiat currencies and the custodian wallet providers (i.e. entities that provide services to safeguard private cryptographic keys on behalf of their customers to hold, store and transfer virtual currencies).

Belgium partially transposed the 5th AML Directive into the Belgian AML Act by way of an act dated 20 July 2020. The goal was to target the providers of the above-mentioned crypto-services when (i) they are “established on Belgian soil” and (ii) they are “referred to” in a Royal Decree (which has recently been adopted, see below). These providers would be made subject to the Belgian AML Act. As a result, they would be “obliged entities” subject to the controlling and reporting obligations set out by the Belgian AML Act and would be required to register with the Belgian Financial Services and Markets Authority (the “FSMA”).

The new law is intended to further elaborate on the regulation of these crypto-service providers by bringing several changes to the Belgian AML Act. This new law comes amidst concerns – echoed by Belgian politicians – that crypto-assets are prone to misuse for purposes of money laundering and scams.

Changes to the Belgian AML Act

The changes the new law brought to the Belgian AML Act are the following:

  • It provides a definition of what are the “exchange services between virtual currencies and fiat currencies” subject to the Belgian AML Act. These are “services consisting of buying or selling virtual currencies against legal currencies or legal currencies against virtual currencies, by using proprietary capital”.
  • It renders subject to the Belgian AML Act the providers of exchange services between virtual currencies and fiat currencies and the custodian wallet providers which would have “electronic infrastructures” installed in Belgium through which they offer their services. In other words, it considers these crypto-service providers as being “established on Belgian soil” for the purpose of the application of the Belgian AML Act. The “electronic infrastructures” which the Belgian lawmaker had specifically in mind are those ATMs which allow for the exchange between virtual currencies and fiat currencies. However, having other types or forms of electronic infrastructures (e.g. computer servers) located in Belgium through which the above-mentioned crypto-services are offered could also potentially trigger the application of the Belgian AML Act for these service providers.
  • It prohibits natural and legal persons which are governed by the laws of a country outside the European Economic Area (“EEA”) to offer or provide in Belgium, as a regular professional activity (even if complementary or ancillary), exchange services between virtual currencies and fiat currencies and custodian wallet services. As the Council of State noted in assessing the new law, this prohibition is very far-reaching. While several well-known crypto-service providers have their seats – or have subsidiaries through which they offer their services – in the EEA, this is not (yet) the case for all of them.
  • It also provides that the FSMA will hold a registry of providers of exchange services between virtual currencies and fiat currencies and of custodian wallet services – much like the registries it holds for other financial institutions.
  • Finally, it introduces several new criminal offences and sanctions. For instance, it makes it a criminal offence for non-EEA persons to offer or provide in Belgium exchange services between virtual currencies and fiat currencies and custodian wallet services (in breach of the above-mentioned prohibition). It also makes it a criminal offence for providers of the above-mentioned crypto-services established in Belgium to operate without being registered to that effect with the FSMA.
Royal Decree

The implementation of the Belgian AML Act – and the changes brought to it by the new law – had been made in large part dependent on a Royal Decree. This Royal Decree was adopted on 8 February 2022 and will enter into force on 1 May 2022. It specifies the providers of exchange services between virtual currencies and fiat currencies and the custodian wallet providers which are subject to the Belgian AML Act and which must therefore ask for their registration with the FSMA (i.e. those “established on Belgian soil” and which offer or provide on Belgian soil their services as a regular professional activity (even if complementary or ancillary)). It also sets out the registration requirements for these crypto-service providers and the conditions to exercise their activities.

What’s next?

The relevant regulatory framework is poised to change in the coming years, driven by two main initiatives at EU level.

First, on 24 September 2020, as part of its Digital Financial Package, the European Commission put forward a proposal for a regulation (i.e. an act which provides for rules which are directly applicable in the EU) on Markets in Crypto-assets (“MiCA”). Although MiCA will not directly impact the EU’s AML rules, it is designed to regulate broad swathes of the crypto-sphere with the aim of protecting consumers and investors, promoting competition and fostering innovation in the field. By way of example, MiCA aims to set out rules to: (i) impose an authorisation process and operating conditions for crypto-asset service providers; (ii) require, under certain conditions, issuers of crypto-assets to publish a white-paper (i.e. a document similar to a prospectus) which must contain the core information on the crypto-assets they offer; and (iii) prevent market abuse involving crypto-assets.

Secondly, on 20 July 2021, the European Commission presented a legislative package to strengthen the EU’s AML rules. The package consists of proposals for the creation of a new EU authority to fight money laundering, for a new regulation on AML, for a 6th AML Directive and for the revision of the Regulation 2015/847/EU on Transfers of Funds (see: Anti-money laundering and countering the financing of terrorism legislative package | European Commission (europa.eu)). These proposals include, inter alia, a ban on the possibility of opening or using anonymous crypto-asset accounts.

Historically, the crypto-sphere had been lightly regulated or even unregulated. The new Belgian law and the implementing Royal Decree, as well as the upcoming changes at EU level, show that the tide is definitely turning.