This article was first published on the Fin Law blog.
The provision of services related to crypto assets has long been regulated by financial supervision law in Germany. Service providers who wish to offer financial commission activities or proprietary trading activities in relation to crypto assets in Germany, for example, need a license from BaFin under the German Banking Act (KWG) or the German Securities Institutes Act (WpIG). The mediation of supply and demand regarding the conclusion of contracts for crypto transactions or the operation of crypto exchange platforms is also subject to authorization as investment brokerage or as the operation of a trading system. multilateral according to KWG or WpIG.
Companies that want to offer such services in the future are currently faced with the question of whether applying for permission from BaFin is still worthwhile. Because the new European Regulation on Crypto Asset Markets (MiCA) will introduce an independent authorization regime for cryptographic service providers from its validity 18 months after its announcement in the Official Journal of the EU. In about two years at the latest, it will therefore be possible to apply to BaFin for a license to provide cryptographic services in accordance with the MiCA. Crypto trading activities will then be essentially regulated in accordance with MiCA regulations.
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BaFin license application according to KWG or WpIG still makes sense
Applying for a license under the KWG or WpIG for companies planning to provide crypto services still makes sense in many cases. On the one hand, ambitious companies with consistent business models regularly lack time to wait for the entry into force of the new MiCA. In addition, under the MiCA rules, companies will not need additional MiCA authorization if they already have a corresponding authorization under the European Securities Regulation relating to financial instruments. Thus, for example, securities institutions licensed for financial commission and proprietary trading activities will also be able to engage in such activities with respect to crypto assets within the meaning of the MiCA without having to seek authorization. Additional MiCA. As a result, German investment institutions will be able to use their licenses for crypto assets immediately after the MiCA comes into effect across Europe.
BaFin licenses granted under German supervisory law will also be passable in the future in the field of crypto services. There are special features for the financial services of the crypto custody company and the management of the crypto safe register, which are only regulated nationally in Germany in the KWG. While according to the MiCA, the custody of cryptocurrencies should be able to be carried out by securities institutions authorized to custody financial instruments, the management of the cryptocurrency ledger only refers to the management of the cryptocurrency ledger in accordance to the German Electronic Securities Act (eWpG) . The management of cryptocurrency registers can therefore only be authorized in the future by BaFin in accordance with the KWG.
For some business models, MiCA authorization will not be sufficient
In some cases, even a MiCA license may not be sufficient for certain business models. This will be the case, for example, if a company wishes to offer services in relation to tokenized securities within the meaning of European securities regulations under the second European Markets in Financial Instruments Directive (MiFID2). Because financial instruments within the meaning of MiFID2 are not intended to be regulated by MiCA.
This should also apply if a financial instrument covered by MiFID2 is tokenised, i.e. transferable on a blockchain. Companies wishing to trade tokenized financial instruments within the meaning of MiFID2 regulations will still need a financial supervision license in accordance with the KWG or WpIG, even in the era of MiCA. However, authorization under the MiCA will not be suitable for the implementation of such business models. Therefore, applying for a license under the KWG or WpIG in Germany is still valid in most cases for companies with business models related to crypto assets.
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