DIGIFIN20 | News: Financial regulators are watching cryptosafers

Financial regulators are watching cryptosafers

  • Since January 1, companies holding Bitcoin & Co. are considered financial service providers and must apply for a license
  • Bitkom sees opportunity for the breakthrough of digital assets
  • Information paper "Regulatory requirements for cryptosecurities" published

Since 1 January, anyone who holds crypto-currencies such as Bitcoin, Ripple, Litecoin or IOTA in safekeeping for customers requires a permit from the Federal Financial Supervisory Authority (BaFin).  The Digital Association Bitkom has pointed this out and at the same time published an information paper "Regulatory requirements for crypto-custodians". "Bitkom expressly welcomes the fact that in Germany the crypto-deposit business is now a financial service subject to authorization. This will significantly simplify future cooperation between cryptodepositaries and established financial service providers such as banks, asset managers or pension funds," says Patrick Hansen, Blockchain Division Manager at Bitkom. "Regulation in this case is a game changer that can help digital assets to achieve a breakthrough.

Because the legal situation has been clear since the beginning of the year, but BaFin is only just developing its administrative practice to this end, Bitkom has already compiled known and important information on the regulatory requirements of the licensing procedure in an information paper. This is intended to make it easier for crypto-custodians, especially those without experience in traditional financial market law, to carefully plan the upcoming application procedure.

The information paper "Regulatory requirements for cryptosafekeepers" describes the requirements for the professional qualification, reliability and availability of the managers and how they must be proven. In addition, it discusses in which cases a higher initial capital than 125,000 euros is required and what special rules apply to the initial capital if security tokens are also to be held in safekeeping. A crucial point for the granting of a cryptover custody license by BaFin is a risk strategy. The Bitkom paper outlines the basic contents of such a strategy, which affect all financial service providers, and then goes into the crypto-typical risks such as the loss of private keys. Finally, the paper deals with questions that affect foreign crypto depositories as well as exceptions to the equity deposit for pure crypto depositories.

Bitkom hopes that the German regulations will also become a blueprint for Europe-wide regulation as soon as possible. "The European market is highly fragmented due to different regulations and definitions of crypto currencies, which makes both companies and consumers insecure," said Hansen. "We urgently need EU-wide harmonisation in this area and with the EU regulation announced this year, we now have the chance that cryptovaluations will finally reach the regulated financial market and develop their full potential - both in Germany and throughout Europe.

The information paper "Regulatory requirements for cryptosecurities" is available for free download in German language here.