With the onset of the new year, a crucial time is approaching for crypto-asset service providers. The year 2024 marks a significant juncture for entities offering crypto-asset services or intending to do so, as it revolves around obtaining a MiCAR license. Starting from December 30, 2024, crypto-asset service providers must have obtained a license to operate in the European crypto market. This new license replaces the current registration regime under the Anti-Money Laundering and Countering the Financing of Terrorism Act ('AML/CFT Act'), presently supervised by the Dutch Central Bank (DNB).
The introduction of the licensing requirement has an impact on the costs and landscape for crypto-asset service providers. Additionally, the proposed Dutch transitional period, as outlined in the Regulation on Crypto Assets Implementation Act, compels entities to promptly decide on obtaining a MiCAR license. The consequences of rising costs, changing landscapes, and a short transition period, particularly burden small to medium-sized crypto-asset service providers. Therefore, entities need to consider the following factors:
1. To become a MiCAR-regulated entity, it is important to take into account both the one-off and ongoing costs, as this together can impose pose significant financial burdens. Below is an indication of these types of costs:
a. One-time costs: these encompass expenses for completing the license application, and potentially external assistance such as consultancy firms and/or legal counsel. However, the extent of these costs depends heavily on the existing level of internal knowledge and expertise present for the license application.
b. Ongoing costs: these include adjustments in business operations that are necessary to meet the requirements of the license application, such as capital requirements, setting up Anti-Money Laundering (AML) and compliance functions including associated systems, business continuity, and so on. Additionally, there are also the costs for ongoing supervision that are charged annually.
c. The level European playing field, which is the aim of the MiCAR regime, leads to an expansion of the market. In addition to commercial opportunities, this also entails risks, especially for small and medium-sized crypto service providers. As large international companies with substantial budgets will seek to dominate the market through extensive marketing campaigns or by acquiring local cryptocurrency service providers.
2. The deadline for license applications in the proposed Dutch procedure poses an additional challenge for involved parties. Since there is a proposal to shorten the transition period from the current registration regime to MiCAR from the initially established eighteen months to six months.
3. In some member states, it is possible to utilize the member state option. This option enables the offering of a simplified procedure for MiCAR license applications for entities that currently hold a national license. However, Dutch providers cannot use this option, as there is only a registration regime in place.
The above-mentioned developments make it challenging for small to medium-sized crypto-asset service providers to sustain themselves independently. These entities may be compelled to sell the business or even close operations. Recent examples include Litebit and Bitcoin Meester, ceasing operations due to increased regulatory costs or being acquired by a large international entity, such as Kraken. Given the above, we anticipate further consolidation in the Dutch crypto market in 2024.
Contacts
Maarten van der Noordaa
Manager, Digital Strategy
KPMG in the Netherlands
Toon Kuijsters
Consultant, Financial Risk Management
KPMG in the Netherlands
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