Today German business newspaper Handelsblatt reported that 40 banks have approached the German regulator BaFin expressing an interest in getting into the digital asset or crypto asset custody business. At the end of December, Germany passed a new law implementing the latest EU Money Laundering Directive into its Banking Act (KWG), which covers the custody of crypto assets. The new legislation came into force on January 1st.
Existing banks who want to extend their business to cover the custody of digital assets will now need an additional license.
But the definition of crypto assets is broad enough to cover both cryptocurrencies and an asset-backed digital asset. Hence the interest from banks may be viewed as either interest in cryptocurrencies or blockchain.
Two months ago, a Deutsche Börse spokesperson cited this legislation when it was announced that the stock exchange would switch its digital asset focus away from Switzerland to Germany and other European countries.
“The German Federal Government will create new framework conditions for financial markets infrastructure based on Blockchain Technology as well as the associated changes in the KWG legislation (Banking Act) as part of its Blockchain strategy” said the Deutsche Börse spokesperson. “Part of this will be a classification of digital assets as “crypto values” within the KWG as well as the expected introduction of dematerialised / digital securities.”
The new crypto asset definition
The banking legislation defines crypto assets as :
- “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 a currency or money, but of natural or legal persons
- on the basis of an agreement or actual practice is accepted as a means of payment
- or is used for investment purposes
- and which can be transmitted, stored and traded electronically”
It expressly excludes e-money covered by payment services legislation and certain monies purely used for payments.
A member of Germany’s parliament, Frank Schäffler spoke to the Handelsblatt. “The market is growing faster than the Federal Ministry of Finance has predicted. It is both a blessing and a curse,” Schäffler said. “The high demand for crypto custody licenses shows that companies are increasingly adopting blockchain technology, but is also the result of the new legislation.”
While crypto custody organizations have to implement anti-money laundering processes immediately, the law outlines a transition period for licensing, which lasts through to the end of November. However, these transition rules apply only to non-bank existing crypto custodians, including foreign custodians. These businesses have to file a statement of intent by the end of March and complete the license application by the end of November.
It seems that other existing crypto businesses such as exchanges were already covered by legislation that previously classified Bitcoin as virtual currencies, so they are not covered by the transition rules.