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Regulation of Crypto Businesses in Germany

BaFin and regulation of cryptocurrencies

Just like supervisory authorities in other countries as well, the German Federal Financial Supervisory Authority (BaFin) has the task of ensuring a functioning financial system and protecting customers. Therefore, it is not surprising that the high amount of crypto start-ups and the increased media exposure have prompted BaFin to take action. On December 19, 2013, BaFin published a comprehensive opinion and adopted a position therein on matters under supervisory law in respect to various business models.

European banking supervision with first regulatory issues

Previously, the European Banking Authority (EBA) had already published their consumer oriented opinion on virtual currencies. Unlike BaFin, however, the EBA opinion of December 13, 2013 contains no clear legal conclusions. The Authority merely points to the actual legal and tax risks, which accompany

  • the acquisition,
  • the holding and
  • the trading

of cryptographic values such as Bitcoins or Ether. Among other things, the EBA warns about the risk that consumers can lose their money on untrustworthy trading platforms, for example, when the operator acts without the necessary official license and/or commits criminal acts (such as money laundering) and then must cease his business operation at a moment's notice.

Crypto values: Not currency and not money, but rather units of account

Even if Bitcoin or Ether are commonly referred to as a digital "currency," this term is not correct in a legal sense. A certain unit may only be denominated currency or money if it is issued by a central bank. Cryptos do not satisfy this requirement. In the view of BaFin they are therefore neither money, e-money, legal tender nor foreign exchange or foreign notes and coins.

BaFin classifies them instead as "units of account" within the meaning of the German Banking Act (KWG), i.e. as units of value not denominated for legal tender, which is at least comparable to foreign exchange.

Mere use of cryptos as a substitute currency does not require a license

Customers who just pay their bills with cryptos do not need to worry about a BaFin license in Germany. No BaFin license is also required for the mere use of crypto values as a substitute currency for sales activities: The entrepreneur can therefore accept the cryptocurrency without problems as payment for his services or goods. Through this service alone, he still provides no banking transactions or financial service.

But beware: The devil is in the details!

It can already become a problem when the entrepreneur does not himself accept the cryptocurrency, but rather makes use of a payment provider for the payment process, who forwards the cryptos received from the end customer to the entrepreneur or initially exchanges them and then distributes the corresponding euro amount to the entrepreneur. If the (possibly foreign) payment provider does not produce a BaFin license, even though one would be required, BaFin initiate legal proceedings against the entrepreneur.

BaFin license required for commercial crypto transactions such as mining pools

The threshold for the obligation to obtain a license is fluid. If additional service elements kick into the pure use of crypto values, this threshold can be exceeded rapidly. Therefore, whoever not only mines, purchases and sells cryptocurrencies in order to supply himself with goods or services on the market, but participates in a way that helps to sustain, further or create a market will not get around obtaining a BaFin license. Even though this may be surprising for many parties concerned, for example, a proprietary trading business requiring a license according to Section 1(1a) no. 4 of the German Banking Act is already operated by someone who advertises externally (e.g. on internet forums or the like) that he regularly purchases or sells cryptos. The same normally applies to mining pools.

Trading platforms for cryptocurrencies need BaFin permission

Unsurprisingly, the requirement of a permit for the operation of crypto trading platforms (crypto exchanges) comes as no surprise. As soon as cryptocurrencies themselves are traded commercially as commodities, it stands to reason that BaFin should regulate:

  • Depending on the concrete business model, the concrete contract design and the technical implementation, very different permissible elements of the KWG or also the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG) may be affected in these cases.
  • Crypto custody and proprietary trading requiring a license are just as conceivable as investment and acquisition brokerage requiring a BaFin license.
  • The latter, in turn, may also be exempt from licensing if the entrepreneur performs its business as a so-called contractually bound intermediary for the account and under the liability of a credit institution ("liability umbrella").

So-called multilateral trading systems also require a BaFin license:

  • In this case, the crypto platform uses suitable software to automatically bring together buyers and sellers of a crypto transaction, whereby the parties cannot decide whether they want to conclude the purchase/sale with a specific contractual partner.
  • They are only concerned with the purchase/sale itself and not with completing the transaction with a specific person.

Our promise


You would like to submit a license application? Our team will prepare your application together with you in such a way that confirmation by the supervisory authority is assured. Thanks to our many years of experience, we know exactly what conditions the BaFin and the Bundesbank impose on a license application. Provided your cooperation, we will prepare the application in such a way that it is guaranteed to be approved by the authorities.

We will be happy to answer your questions on +49 69 76 75 77 80 or info@winheller.com.

Consequence of a missing BaFin license

The banking services and financial services defined in the KWG require a BaFin license. The same applies to payment services, which are subject to the ZAG. Anyone who does not have the necessary permit is liable to prosecution - even in the case of merely negligent action.

There is then the threat of closure of the business by the authorities and, in addition, considerable civil law risks:

  • The entrepreneur who operates without the necessary BaFin license is liable to his customers for the damage incurred for this reason alone.
  • As a rule, the responsible entrepreneur cannot "hide" behind a limited liability legal form, e.g. a German GmbH (limited liability company) - the liability usually also affects him personally.

Our legal services for the regulation of cryptocurrency

Anyone wishing to conduct business with cryptocurrencies must deal with the associated regulatory issues at an early stage. In principle, any interested party can contact BaFin directly. However, in most cases this is not advisable, but on the contrary can have business-damaging consequences. We often experience that entrepreneurs talk or write their heads off when they contact BaFin themselves without having sufficient knowledge of German supervisory law.

If your business model is important to you and you value being able to implement it as quickly as possible, talk to an experienced cryptocurrency regulation lawyer! We will be happy to clarify with you in a personal or telephone conversation whether your crypto business model requires a BaFin license and how it can be modified, if necessary, in order to comply with the regulatory requirements.

We will also be happy to clarify the costs associated with the regulatory obligations. Once it is clear which business model you would like to implement, we will then coordinate with BaFin on your behalf regarding so-called doubtful case inquiries or submit the necessary BaFin permit applications, so that you can operate your Bitcoin business free from the concern of being in an illegal environment.

Your attorney for cryptocurrency regulation in Germany

are looking forward to answering your questions on all supervisory law matters regarding crypto values and BaFin. You can contact them by e-mail (info@winheller.com) or by phone (+49 69 76 75 77 80).

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