Denmark's Financial Regulators Crack Down on Crypto Services

Denmark's financial regulators are taking action against cryptocurrency service providers by stating that local banks cannot hold cryptocurrency to mitigate trading risks, reports COINTELEGRAPH.

On July 4, the Danish Financial Supervisory Authority (DFSA) issued an official order to Saxo Bank, a local investment bank, demanding the disposal of its own cryptocurrency holdings. The DFSA argued that Saxo Bank's involvement in crypto activities falls outside the legal scope of financial institutions as defined in Section 24 of Denmark's Financial Business Act. According to the DFSA, Saxo Bank enables its customers to trade various cryptocurrency products through its platform. The bank also offers crypto-linked exchange-traded funds and exchange-traded notes, allowing customers to speculate on crypto assets.

Furthermore, Saxo Bank maintains its own portfolio of cryptocurrencies to offset market risks associated with its crypto products, as stated by the DFSA. Referring to Annex 1 of the Financial Business Act, the authority concluded that the trading of crypto assets is not covered within the legal scope of financial institutions in Denmark. Consequently, the DFSA ordered Saxo Bank to divest its own holdings of crypto assets. The DFSA also mentioned the forthcoming implementation of Europe's Markets in Crypto-Assets regulation, MiCA, which will take effect entirely in December 2024. The regulator emphasized that the current crypto market remains unregulated.

Saxo Bank's global communications head, Lasse Lilholt, clarified that the DFSA's order does not force the bank to cease its crypto offerings. Lilholt stated that the bank will carefully review the decision and determine an appropriate response. He further explained that Saxo Bank's customers do not directly own the underlying cryptocurrency but instead purchase financial products linked to its price. Lilholt added that Saxo Bank holds a minimal cryptocurrency portfolio solely for risk mitigation purposes, primarily utilizing exchange-traded and cleared products. Consequently, the DFSA's decision is expected to have a negligible impact on the bank's operations and its customers.

It appears that Danish financial authorities have been uncertain regarding cryptocurrency regulations in the country. Some legal sources suggest that cryptocurrencies like Bitcoin do not fall under any category of financial services in Denmark, hence not falling under the jurisdiction of the DFSA. Despite this uncertainty, the DFSA granted authorization to the Danish cryptocurrency startup Januar in April 2023, allowing it to conduct business in 30 markets within the European Economic Area. Additionally, in March, the Supreme Court of Denmark issued two judgments regarding the taxable nature of Bitcoin sales under specific circumstances.