Germany Regulates Trading and Custody of Crypto-assets

Regulation of trading and custody of crypto-assets by the German regulator for banks and other financial institutions takes off 1st January, 2020 

Germany joins the growing list of European Union (EU) countries, and the entire world institutionalising crypto-assets (“Kryptowerte”), via statutory activities, as the German lawmakers introduced new law to be effective 1st January, 2020. The law covers crypto-asset custody and trading financial services providers, and business entities planning to venture into these financial services areas, who are required to be licensed by the federal financial regulatory authority, i.e. Bundesanstalt für Finanzdienstleistungsaufsicht abbreviated as “BaFin“. 

Though Germany has quite a controversial regulatory history with crypto-assets both at the national and international levels, it is now adapting and adopting both progressive and permissive approaches, as the government lawmakers have passed this new piece of legislation as a forward approach. Certain industry opinions may consider the soon-to-be-promulgated statute-law as harsh and inconsiderate, because among others, it fixes €125,000 as the initial capital requirement for banks, financial institutions, and financial technology service providers i.e fintech and blofintech. According to a Mondaq article on the matter, requirements are: 

“an initial capital of €125,000;

the management must have sufficient experience and be reliable;

the firm must have a proper business organization (this includes the rules applicable to outsourcing and risk management as well as IT security which apply to banks and other investment firms);

certain notification requirements (i.e. if the capital falls below certain thresholds or if managing directors resign or are appointed.)”. 

Earlier the bill had statutorily required that banks in Germany store crypto-assets with intermediary custodial service providers. The final version of the bill, which is more comprehensive, jettisoned the idea, and thus empowers financial institutions to store up and custody crypto-assets themselves sans Trusted Third Parties (TTPs), after they have procured requisite licenses that legally empower them to custody those crypto-assets.

Disclaimer

No legal advice, or investment advice. Just general information purpose it serves. Please see a professional legal counsel or an investment advisor.