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Increased regulation of crypto­currencies in Germany  

From 1 January 2020, business in cryptocurrencies will be fully regulated in Germany. Considerable restructuring will be required as a result of the strict national requirements, which providers should prepare for now.

On 31 July 2019, the government published a draft law to implement an amendment to the Fourth EU Money Laundering Directive. In addition to purely money laundering regulations, the draft contains comprehensive provisions that would fully regulate cryptocurrency business. In terms of content, the draft law goes far beyond the regulations required by European law and continues the special German approach for the regulatory treatment of Bitcoin, Ether and other forms of virtual currencies.

Regulation of transactions with cryptocurrencies

The draft law extends the scope of financial instruments and introduces a new investment service.

In future, financial instruments within the meaning of the German Banking Act will also include crypto-assets (§ 1 para 11 sentence 1 no. 10, sentence 4 KWG-draft). The German Financial Supervisory Authority (BaFin) had already recorded cryptocurrencies as units of account in its administrative practice, but this was met with resistance in case law and literature (see above all the judgment of the Berlin Court of Appeal of 25 September 2018 - (4) 161 sentence 28/18 (35/18)). This discussion about the supervisory recording of virtual currencies should be ended by the present draft law. According to the draft, crypto-assets (which may include various forms of tokens and coins) will in future be considered financial instruments and all forms of trading in them subject to authorisation.

In addition, the draft law introduces a new investment service in the form of the custody of crypto-assets (§ 1 para. 1a sentence 2 no. 6 KWG-draft). The crypto-custody business is the counterpart to the classic custody business, which only refers to securities.

Business with crypto-assets will thus be fully regulated in Germany and, in particular, subject to authorisation. This new regulation will affect both providers domiciled in Germany and providers who offer trading in cryptocurrencies or crypto custody services across borders. A major difference to transactions with conventional financial instruments under MiFID II is that due to the lack of European harmonisation, it would be difficult to use the European passport. In future, providers from the EEA will therefore also require a special German licence, which in principle presupposes the registered seat or a branch to be located in Germany (§ 53 KWG).

Segregation of the custody of crypto-assets under company law

An important special feature of the new regulation is the fact that in future it will not be permitted to act as crypto-custodian and at the same time to carry out other business requiring authorisation (Section 32 (1g) KWG-draft). With this regulation, the legislator wants to shield other banking business and investment services from the risks of crypto-assets.

According to the wording of the draft, this prohibition only covers the simultaneous operation of crypto-custody business and other business subject to authorisation under the German Banking Act (KWG). It should therefore be permissible to combine crypto-custody with a licence for payment services under the German Payment Services Act (CISA) and thus to develop both the (crypto) asset side and the monetary side of such transactions. In future, however, it will not be possible to offer an integrated custody account that simultaneously includes both conventional securities and crypto assets.

Transitional regulations

The law is due to enter into force on 1 January 2020.

Transitional provisions are intended for those companies that already conduct transactions which will be covered by the new law, but will require a licence in future due to the extension of the definition of financial instrument to include crypto-assets, and the introduction of the new investment service of crypto-custody (s. 64y KWG-draft). The necessary licence is deemed to have been provisionally granted if the German Financial Supervisory Authority (BaFin) is given initial notice by 1 February 2020 that the company intends to submit a licence application, and a complete licence application is submitted by 30 June 2020. The transitional rules are therefore not automatically effective, but require action on the part of providers who (also) wish to conduct business with crypto-assets in the future.

No separate transitional regulation applies to providers who currently operate crypto-custody businesses (without a licence) in the same entity as other business subject to licencing under the German Banking Act. They must transfer the crypto-custody business to a separate company and operate it before 1 January 2020 in order to benefit from the transitional regulations.


With comprehensive licencing requirements for crypto businesses, regulatory burdens are once again increased as the German government continue to adopt a special approach and European law is not harmonised. Providers who want to conduct crypto business in the future, particularly crypto-custody, must act promptly. Fundamental strategic decisions are necessary as to which business entities should operate which services in future and, if necessary, corporate restructuring should be carried out accordingly. In order to benefit from the transitional regulations, the relevant entity must already conduct business before 1 January 2020. The German Financial Supervisory Authority (BaFin) must be notified of the intention to apply for a licence by January 2020 at the latest. This is followed by the preparation of a (complete) licence application by 30 June 2020 at the latest. The timetable set by the draft law is feasible, but requires a timely and targeted approach. The stringent regulatory requirements pose significant challenges for existing providers, but also offer opportunities to position themselves promisingly, through well thought-out regulatory strategies.

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