The Shift in Crypto Regulations

As of January 1, 2020, the landscape of cryptocurrency regulation in Germany has undergone a significant transformation. The Federal Financial Supervisory Authority, commonly known as BaFin, has introduced new definitions and requirements aimed at bringing crypto services in line with traditional financial frameworks. This alteration aligns German laws with the European Union’s Fifth Anti Money Laundering Directive (5AMLD).

Understanding the New Crypto Custody Standards

BaFin’s recent leaflet offers an in-depth look at how crypto businesses can navigate the new regulatory waters. Basically, if your business plans to hold or manage cryptocurrencies for clients—whether they are exchanges, banks, or some financial service provider—you’ll need to comply with these standards. Here’s a quick overview of what’s required:

• Obtain BaFin authorization before providing any crypto custody services.
• Stay informed about the evolving definitions surrounding crypto assets.
• Understand your role as a financial service provider under Germany’s Banking Act.

What’s in BaFin’s New Definitions?

The most striking outcome of the new regulations is BaFin’s remarkable expansion of what constitutes a crypto asset. This includes differentiating between various types of tokens. For example:

• Payment Tokens: These are used primarily to facilitate transactions.
• Security Tokens: These represent ownership or rights to underlying assets.

Importantly, security tokens are generally not categorized as securities under the German Securities Deposit Act, except when they become transferable or tradable, in which case they fall under EU prospectus regulations.

Navigating Security Tokens: A Gray Area

When it comes to storage, things can get a little murky. While business operating licenses for traditional securities are required, those not licensed to handle generic securities might still be able to store security tokens under certain conditions. It’s like walking a tightrope—challenging but potentially rewarding for businesses willing to tread carefully around regulations.

Who Can Store Crypto? BaFin’s Generic Approach

BaFin has made it clear that many businesses may have the green light to store cryptocurrencies. The criteria are pretty broad, which is good news for those eager to dive into the crypto waters:

“Anyone who wants to conduct banking business or provide financial services in Germany on a professional basis or to an extent that requires a business operation set up in a commercial manner.”

In simpler terms, if you’re planning on running a crypto-related business, you have to think like a bank and behave like one too—just without the fancier suits (or maybe that’s optional!).

Conclusion: Adapting to Change

The crypto world is changing in real-time, and Germany is leading the charge with its updated regulatory framework. For businesses, adapting to these new realities is not just a necessity—it’s an opportunity to position themselves as trustworthy financial entities in a rapidly growing market. So, buckle up and get those applications in, because the crypto custody game in Germany just got serious!