Supervision of managed trade
Memorandum
Source: Emanuel van Praag en Peter Hoefnagels, HVG Law LLP
Date: November 21, 2019
Subject: Supervision of managed trade/investment in cryptocurrency
Is Botsinvest B.V. supervised by DNB or AFM from the capacity of AMLD V?
No, Botsinvest B.V. (herafter: ?Botsinvest?) and its Yieldt ? Crypto Beheerd Beleggen (Crypto Managed Investments) service is initially not under supervision of DNB or AFM from the capacity of AMLD V. Please see 1
Crypto services, like the involvement of an intermediary with the purchase or sales of cryptos or performing services relating to preserving or managing crypto credit, are initially not supervised by the Financial Supervision Act (FSA). Please see 2
Companies offering services to exchange virtual money (cryptos) and regular money (fiduciary money) and companies offering crypto wallets, will soon be supervised by the integrity supervision of De Nederlandsche Bank )DNB). Please see 3
They have to register with DNB. A provider of crypto wallets means a company that offers services to secure cryptographic private keys on behalf of its customers to preserve, save and transfer virtual currencies.
With ?Yieldt ? Crypto Managed Investments?, Botsinvest does not offer services to exchange virtual money (cryptos) in regular money (fiduciary money) and does not offer crypto wallets. Botsinvest is therefore not supervised by DNB or AFM.
Does any other supervisory regulation apply to Botsinvest?
No other supervisory regulation applies to Botsinvest. Botsinvest is therefore not subject to specific supervisory commitments.
We would like to indicate that management trade/investment in cryptocurrency could only be subject to the scope of MiFID II Please see 4 (asset management; and therefore supervision) if the cryptocurrencies in which one invests are qualified as ?financial instrument?. Please see 5
Financial instruments could be securities (such as Philips shares or Unilever bonds). Cryptocurrencies that cannot be considered ?coins? but that have been issued by means of ICOs (such as ?security tokens?, that entitle one to a company?s merit) could be qualified as financial instrument because they have about the same characteristics as shares, for example. This largely depends on the specific characteristics of the relevant cryptocurrency (cryptocurrencies that are more similar to a coin are not regulated, cryptocurrencies that look like shares are). Please see 6.
We understand that Botsinvest – in correspondence with its investment policy – only invests in cryptocurrencies similar to a coin, such as Bitcoin and Ethereum. In most cases, the cryptocurrencies/tokens do not qualify as financial instrument. Please see 7.
Moreover, the regulation is often subject to change, so supervisory requirements could apply to managed trade/investment in cryptocurrencies in the future.
Source:
1: Regulation (EU) 2018/843.
2: Please see https://www.afm.nl/nl-nl/professionals/veelgesteldevragen/innovationhub/cryptovaluta-onder-tz
3: Please see https://www.toezicht.dnb.nl/2/50-237995.jsp
4: Regulation 2014/65/EU regarding markets for financial instruments (MiFID II). MiFID II regulates the supervision of performing investment services (such as asset management).
5: Please see among others AFM en ESMA Advice Initial Coin Offerings and Crypto-Assets 9 January 2019, p. 5 and 24.
6: It goes beyond the scope of this memorandum to determine exactly whether or not Yieldt would offer concrete asset management if the cryptocurrency it invests in for customers qualifies as financial instrument.
7: Cryptocurrencies/tokens are not classified in the ?investment object? category because the investment objects relate to matters (or rights to matters). It then concerns tangible objects and cryptocurrency is not tangible.
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