Netherlands Issues Bitcoin Warning to Financial Institutions

The Dutch central bank (DNB) has issued a warning on bitcoin aimed at banks and other financial institutions in the country.

Unlike most warnings issued by regulators and central banks across the globe, the Dutch warning does not address end-users of digital currency. Instead, the central bank clearly states that banks and payment institutions should be aware of integrity risks derived from processing transactions related to digital currencies.

Anonymity bad for business?

The warning (dated 5th June 2014) points out that digital currencies offer a high degree of anonymity so financial institutions should tread carefully, as digital currencies are classified as financial products “with a very high risk profile”.

The bank notes that digital currency transactions seem very transparent at first glance, due to the use of a public ledger. However, the bank warns:

“Transactions are hardly reducible to physical persons. Because virtual currencies may additionally be used as means of payment they are attractive as a link in a money laundering process.”

The relatively high degree of anonymity carries implications for banks and payment institutions open to digital currencies. Because they are anonymous, there is no direct link between the parties trading digital currencies or making purchases in said currencies.

Involvement is risky

The central bank warns that the act of accepting business from a bitcoin operator could have an indirect effect on the reputation of a bank or payments service.

It expressed doubts over the ability of financial institutions to keep track of questionable transactions carried out using digital currencies before they process them, outlining the risk:

“DNB banks and payment institutions that do decide to get involved with virtual currency companies or invest themselves into virtual currency in any way involved (require) rigorous tests to ensure compliance with applicable regulations.”

Still open to bitcoin

The bank also announced that it will determine whether banks and payment institutions involved in the digital currency space can assess these risks.

There is no specific date for the control measures, but the bank says it will begin rolling them out this year in an effort to improve customer experience and monitor “new and innovative” companies.

For the time being, Holland is one of the more liberal countries in Europe when it comes to bitcoin. It has attracted a number of bitcoin startups and some established companies are getting involved, including local payments processors.

In turn, bitcoin businesses are booming in the country despite the fact that the central bank still insists digital currencies are not a viable alternative to fiat currency.