As the German Handelsblatt reports, the law has triggered a run on the license among German banks. As Handelsblatt writes, the German Federal Financial Supervisory Authority (BaFin) has already received more than 40 expressions of interest from banks for a German crypto-custody license.
As a result of the Fifth EU Anti-Money Laundering Directive (5AMLD), the member states of the European Union are forced to treat providers of crypto-currencies as obligated under money laundering law. In Germany, legislators have taken the EU directive as an opportunity to subject companies offering a custody service for crypto-currencies to extensive regulation.
According to the implementation law in Germany, all cryptocurrency exchanges that offer a custody service for their customers, i.e. provide a wallet, have to apply for a license from the BaFin. At the same time, banks that have to establish an additional subsidiary to provide the service are granted a license to offer services related to Bitcoin, Ethereum or Ripple. The services with crypto-currencies are not legally treated differently from trading in shares or bonds.
Crypto regulation in Germany
Virtual currencies have gained enormously in importance in recent years. The worldwide market capitalization is increasing. But the big problem is anonymity when trading virtual currencies. This makes them vulnerable to abuse by criminals or terrorists.
„Previous business models, which were too lax in identifying customers, must be adapted or discontinued,“ says Berlin. The new regulation also increases consumer protection.
According to the draft law, cryptographic values are digital representations of a value that has not been issued or guaranteed by any central bank or public body and does not have the legal status of currency or money. Not only crypto-currencies are covered, but also tokens or coins, which are treated as crypto-assets.
German Crypto-Custody License – Important Location Factor?
Given the expressions of interest, the government is confident that good financial market regulation can also be a location factor. „This gives us almost a unique selling proposition that will help us to bring serious providers to Germany,“ was the statement in Berlin.
BaFin had pointed out to the companies that a license is required for crypto-custody business since 1 January 2020. However, the law provides for transitional periods until the end of November 2020 for companies that have already been active in this business before. For the transitional period, however, a notification must be submitted to Bafin by the end of March.
FDP member of parliament Frank Schäffler welcomes the high number of expressions of interest. „The market is growing faster than the Federal Ministry of Finance predicted. This is both a blessing and a curse“, the financial expert told the Handelsblatt. „The high demand for crypto safekeeping licenses shows that companies are increasingly adopting blockchain technology, but it is also a result of the new legislation.“
Only solarisBank known by name
One of the first institutions to offer such a service is the Berliner solarisBank. For this purpose, the bank has founded the subsidiary Solaris Digital Assets. In the event of a successful application for a German crypto-custody license, the financial institution intends to store Bitcoin and other cryptocurrencies on behalf of customers.
„We have been dealing intensively with the topic of crypto-custody for one and a half years,“ Michael Offermann, Managing Director Blockchain Factory at solarisBank, recently told Handelsblatt. „With the new regulations in the new Anti-Money Laundering Act, now is a good time to practically start. After all, we are not a research institute, but a commercial bank.“
solarisBank has a full banking license and offers its liability umbrella to numerous German financial technology start-ups. They are convinced that they will occupy a future market early on. „Digital assets will fundamentally change the financial market. As soon as the purchase and custody of Bitcoin and Co. become easier, we expect strong growth,“ said Offermann. The sales potential in the first year is already in the seven-digit range.
The German law on the custody of Bitcoin & Co. still causes uncertainty concerning the licensing process, especially for foreign crypto custodians. BaFin Clarifies Licensing Process for Foreign Crypto Custodians.
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