In publishing a draft bill relating to the Fifth Money Laundering Directive, the German Federal Ministry of Finance has widened the scope of the licensing requirement under the German Banking Act (Kreditwesengesetz – “KWG”) for certain financial services related to crypto assets.
The draft bill introduces a broad definition of crypto assets and includes them within the definition of “financial instruments”. As such, trading and arranging activities in crypto assets will be subject to the licensing requirements of BaFin, the German regulator.
The KWG says of “crypto assets”:
“For the purposes if this Act, Crypto Assets are digital representations of a value which has not been issued or guaranteed by any central bank or public authority and which does not have the legal status of currency or money but it is accepted that any person or entity as a means of exchange or payment for investment purposes by virtue of an agreement or actual practice and which can be transmitted , stored and traded electronically”.
Although BaFin already categorised Bitcoins as financial instruments, confusion had arisen as the Berlin Court of Appeal had opposed this classification in a criminal case ruling. The new wider definition set out in the German Banking Act will make the position clear as BaFin’s view would be reflected in law. BaFin’s view now is that virtual currencies, security tokens and investment tokens will all qualify as financial instruments.
Therefore, once the draft law is passed, brokerage or advisory services relating to crypto assets would have to be classified as financial services which will require a licence. The draft bill also introduces a regulation for crypto assets custody services and defines this service as the “safekeeping, administration and storage of crypto assets or private cryptographic keys used to hold, store and transfer crypto assets for others.
Should the draft law be passed, it will come into force no later than 10th January 2020.
This follows BaFin issuing a public warning concerning cryptocurrency exchange CoinBene on May 28. BaFin claimed that CoinBene had been recruiting freelance crypto traders who were paid on commission. BaFin also stated that the crypto assets are considered as financial instruments and therefore trading them requires authorisation under the KWG.
BaFin said that CoinBene is not included in Germany’s commercial register and has not obtained proper licensure for trading crypto assets as required by the KWG.