Yes, German Crypto Regulations seem to be on the horizon. In a nutshell: With the law regarding the implementation of the amending directive to the Fourth EU Money Laundering Directive in Germany, which has already been passed by the German Federal Government, a new statutory provision is being introduced which will make many market participants in the cryptographic world ‘financial institutions’ subject to supervision as of January 1, 2020.
For example, “the safekeeping, administration and security of cryptographic values or private cryptographic keys used to hold, store or transfer cryptographic values for others (cryptographic safekeeping business)“ is classified as a financial service within the scope of the German Banking Act. As a rule, such services are offered either by wallet providers who hold the keys for third parties (i.e. the private hardware wallet at home is not affected) or by exchanges, provided you hold the key for third parties for at least one logical second.
What does this mean exactly?
This means that, among other things, all digital assets exchanges, but also all wallet operators that actively address the German market, must have a license from January 1st – otherwise there is a threat of the business being stopped by the Federal Financial Supervisory Authority (BaFin). To conduct business without permission is even a criminal offense.
What do I have to do to be able to stay in business?
Due to the extremely tight deadline, however, there is a transitional period which makes it possible for providers to continue operating the business for the time being. All parties that want to file such an permission request – which we assume will be many, given the relatively large German market – must indicate that by February 1st, 2020. After that, the parties have to file their complete permission request no later than June 30th, 2020. It is important to note here, that only those companies that have demonstrably already addressed the German market and do not carry out any other activity requiring a permit under the German Banking Act (KWG) will be given the opportunity to apply for a permit at all (meaning: Traditional Bank are actively excluded from being able to obtain such a license).
If you fail to comply with the rules…
If a company fails to comply with both of the above points or cannot prove that it has addressed the German market, it cannot – like the other companies – benefit from the „provisional“ granting of such a license. This means that if a crypto exchange or a custodian provider wants to actively open up the lucrative German market for itself, it or it can only do so after holding the permission in its hands – while its competitors may still operate under temporary permission and occupy important market shares.
Possible steps to take
1. secure your position by notification of the submission of an application for permission.
2. if necessary: create the basis for the notification of a permit application before.
3. submitting an application for a permit.
Lastly, it seems important to note that it might be a good idea to work with specialized German entities at this point, as this is a very national issue. And yes, there is one specialized consultancy firm for that (guess who ;-)).
Check my BlockDelta profile here.