The Federal Financial Supervisory Authority of Germany, Bafin, has issued guidance to clarify the status of cryptocurrencies and the regulations that apply to related business activities. The recommendations are based on the country’s current legislation, taking into account the latest changes.
The Keepers of Your Crypto Are Financial Institutions in Germany
The guidance document concentrates on the requirements for the providers of crypto custody services operating in the Federal Republic. Starting from 2020, German banks and other regulated financial institutions are allowed to manage cryptocurrencies such as bitcoin on behalf of their clients, after Berlin adopted amendments transposing Europe’s anti-money laundering rules into national law. German fintechs also rushed to offer similar services.
Regulators begin with defining what a crypto custody business is – the safekeeping and managing of crypto assets or private cryptographic keys that serve to hold and store crypto assets that can be transferred to others, which is a financial service. The definition stems from the German Banking Act, while providing this type of service was made possible by the law implementing EU’s Fourth Anti-Money Laundering Directive. The changes came into force on Dec. 12, 2019.
Germany now considers service providers who offer the exchange of virtual currencies for legal tender and vice versa, or for other digital assets, to be financial service institutions. Cryptocurrencies, depending on their design, are generally regarded as financial instruments. The exchange of cryptos falls into the category of regulated banking and other financial services transactions. The broad definition has been given in order to account for all crypto assets relevant to the financial market,