Danish Financial Authorities Orders Saxo Bank to Dispose of Cryptocurrency Holdings

Danish financial authorities have taken a firm stance on cryptocurrency service providers, specifically instructing local banks to refrain from holding cryptocurrency assets as a measure to mitigate trading risks. The Danish Financial Supervisory Authority (DFSA) officially issued an order on July 4 to Saxo Bank, a prominent investment bank, demanding the disposal of its own crypto holdings.

The regulator’s decision was based on the assertion that Saxo Bank’s involvement with cryptocurrencies falls outside the legal purview of financial institutions, citing section 24 of Denmark’s Financial Business Act. The DFSA highlighted that Saxo Bank enables customers to engage in cryptocurrency trading through its platform and offers various crypto-linked exchange-traded funds and exchange-traded notes, which allow speculating on crypto assets.

In addition, Saxo Bank maintains its own portfolio of cryptocurrencies, which serves as a hedge against market risks associated with the bank’s crypto products, as stated by the DFSA. However, according to Annex 1 of the Financial Business Act, the regulatory authority maintained that trading crypto assets does not fall under the recognized business domain of financial institutions in Denmark.

Consequently, the DFSA ordered Saxo Bank to divest its cryptocurrency holdings due to their placement outside the legal boundaries of financial institutions. The regulatory body also made reference to the Markets in Crypto Assets regulation of Europe (MiCA), noting that the comprehensive application of MiCA will commence only from December 2024. Therefore, the current state of the crypto sector remains unregulated.

Saxo Bank responded to the order, clarifying that it will not cease its cryptocurrency offering. Lasse Lilholt, the Head of Global Communications at Saxo Bank, informed that the bank will thoroughly review the decision by the Financial Supervisory Authority and determine an appropriate course of action. Lilholt emphasized that Saxo Bank’s customers do not directly own the underlying cryptocurrencies but rather purchase financial products that track their prices.

Regarding Saxo Bank’s cryptocurrency holdings, Lilholt explained that they maintain a minimal portfolio for hedging purposes, primarily relying on exchange-traded and cleared products to mitigate exposure to risk. Consequently, the impact of the FSA’s decision on Saxo Bank’s business is anticipated to be negligible, with customers unlikely to encounter significant changes.

Danish Financial Authorities Navigate Uncertainty Surrounding Cryptocurrency Regulations

In a recent development, Danish financial authorities find themselves grappling with the ambiguous nature of local cryptocurrency regulations. Legal sources have revealed that cryptocurrencies such as Bitcoin currently do not fall under any specific category of financial services in Denmark. Consequently, the Danish Financial Supervisory Authority (DFSA) does not have jurisdiction over these digital assets.

The absence of clear regulatory guidelines has created an atmosphere of uncertainty for crypto enthusiasts and businesses operating in Denmark. However, despite the prevailing ambiguity, the DFSA granted authorization to a Danish crypto-related startup named Januar in April 2023. This authorization allows Januar to conduct its cryptocurrency business in an impressive 30 markets within the European Economic Area (EEA). 

Interestingly, this authorization comes in the wake of two significant judgments made by the Supreme Court of Denmark earlier in March. The court deliberated on whether the sale of Bitcoin, under specific circumstances, qualifies as a taxable event. These judgments shed light on the legal implications surrounding the taxation of cryptocurrencies in the country.

With the DFSA’s recent authorization of Januar, it remains to be seen how Danish financial authorities will approach the regulation of cryptocurrencies in the future. While the absence of specific regulations may have created an uncertain landscape, this move by the DFSA indicates a willingness to explore and engage with the evolving crypto industry.