Since January 1, companies that hold Bitcoin & Co. are considered financial service providers and must apply for a license. Bitkom sees this as an opportunity for the breakthrough of digital assets and has therefore published an information paper for “Regulatory requirements for crypto custodians”.
Since January 1st, 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 business is now a financial service subject to authorization. This will significantly simplify future cooperation between crypto custodians 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 crypto custodians” describes the requirements for the professional qualification, as well as reliability and availability of the managers and how these are to be proven. In addition, it discusses in which cases a higher initial capital than 125,000 euros is required, and which 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 crypto custodian 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 custodians as well as exceptions regarding the equity deposit for pure crypto custodians.
Bitkom hopes that the German regulations will also become a blueprint for Europe-wide regulations as soon as possible. “The European market is highly fragmented due to different regulations and definitions of crypto currencies, which unsettles both companies and consumers,” said Hansen. The first step on the way to submitting an application for a BaFin license for crypto depositing is careful planning and, in conjunction with this, a thorough examination of the regulatory requirements to be fulfilled.
““We absolutely need EU-wide harmonization here and with the EU regulation announced this year, we now have the chance that crypto values will finally arrive in the regulated financial market and develop their full potential – both in Germany and throughout Europe.”
There is a great deal of ignorance and uncertainty – especially among companies that have so far been “spared” from financial market law – regarding the requirements of the new legislation, especially since BaFin is only just developing its administrative practice for crypto custody.
Bitkom would therefore like to provide basic information on the application requirements for managing directors (point 1), initial capital (point 2), risk strategy (point 3) and foreign crypto custodians (point 4) so that companies affected by the new license are best prepared for the application procedure. Bitkom would like to contribute to making the new regulation a success story, to ensure that as many companies as possible receive the crypto custody license, and that the topic of cryptocurrencies finally reaches the regulated financial market.
The information paper “Regulatory requirements for crypto custodians” is available to download for free.
