Financial regulators in Denmark are coming after cryptocurrency service providers, declaring that local banks are not allowed to hold cryptocurrency to hedge against trading risks.
On July 4, the Danish Financial Supervisory Authority (DFSA) officially ordered the local investment bank Saxo Bank to dispose of its own holdings in crypto.
The regulator said that Saxo Bank’s crypto activity “lies outside of the legal business area of financial institutions,” citing Section 24 of Denmark’s Financial Business Act.
According to the DFSA, Saxo Bank offers its customers the opportunity to trade a number of cryptocurrency products through its platform. The firm also offers several crypto-linked exchange-traded funds and exchange-traded notes, the regulator said, adding that “it is possible to speculate on crypto assets.”
Additionally, Saxo Bank has its own portfolio of cryptocurrency assets, which are held as a hedge to offset the market risk associated with the bank’s crypto products, the DFSA wrote.
Citing Annex 1 of the Financial Business Act, the authority said that trading in crypto assets does not appear to be covered by the legal business area of financial institutions in Denmark. The DFSA stated:
“Based on the above, Saxo Bank’s trading in crypto assets for its own account is found to be outside the legal business area of financial institutions. On this basis, Saxo Bank is ordered to dispose of its own holdings of crypto assets.”
In the announcement, the DFSA also mentioned Europe’s Markets in Crypto-Assets regulation, known as MiCA. The regulator noted that MiCA regulations will only take effect in its entirety starting in December 2024. “The area thus remains unregulated for the time being,” the regulator added.
The order from the DFSA doesn’t make Saxo Bank stop its crypto offering, Saxo global communications head Lasse Lilholt told Cointelegraph.
“We naturally take the decision of the Financial Supervisory Authority into account and will read it thoroughly to consider how we otherwise respond to it,” the representative noted. As a Saxo Bank customer, one does not own the underlying cryptocurrency but instead buys a financial product that follows the price of the cryptocurrency.
The spokesperson also noted Saxo Bank holds a “very limited portfolio of cryptocurrencies,” solely to hedge a marginal proportion of risk associated with the facilitation of crypto assets. The representative added:
“The vast majority of this exposure is mitigated through exchange-traded and cleared products. Therefore, the FSA’s decision will have a very limited impact on our business, and our customers will not experience any significant changes.”
The DFSA didn’t immediately respond to Cointelegraph’s request to comment.
It appears that financial authorities in Denmark have been somewhat uncertain about local cryptocurrency regulations. According to some legal sources, cryptocurrencies like Bitcoin (BTC) do not fall under any category of financial services in Denmark and, as such, are not covered by the DFSA’s jurisdiction.
Despite the uncertainty, the DFSA authorized the Danish crypto-related startup Januar to conduct business in 30 European Economic Area markets in April 2023. In March, the Supreme Court of Denmark made two judgments on whether the sale of Bitcoin under certain circumstances qualifies as a taxable event.