For some time now, experts have been moving cryptocurrencies and crypto assets close to money laundering and terrorist financing. In order to prevent illegal business transactions using cryptos and to promote legal applications, the European Union has included in its fifth Money Laundering Directive (5th Directive on Combating Money Laundering) business activities using cryptos. The most important innovation: A permit from the Federal Financial Supervisory Authority (BaFin) must now be obtained to carry out the crypto custody business.
The fifth Money Laundering Directive stipulates that all EU member states must adopt new regulations on money laundering by January 10, 2020. All virtual currencies must also be included.
The EU defines a virtual currency as a digital representation of a value that has not been issued or backed by any central bank or public authority. Further, it is not necessarily linked to a legally defined currency and does not have the legal status of a currency or money, but is accepted by natural or legal persons as a means of exchange. It can be transferred, stored and traded electronically.
In addition to the operation of a platform for the purchase and sale of cryptocurrencies, the so-called crypto custody business is also included as a new regulated activity. The crypto custody business is understood to mean
of cryptocurrencies or private cryptographic keys. The latter are used to hold, store and transfer crypto assets for third parties.
WINHELLER is acting as a legal advisor to the German branch of the Dutch crypto currency exchange LiteBit in the BaFin licencing proceedings for both proprietary trading and the crypto custody business. Learn more
The federal government has decided not to include the crypto custody business in the Money Laundering Act, but in the Banking Act. According to the law, the crypto custody business is to become a financial service.
The classification of the crypto custody business as a regulated financial service results in an obligation to obtain a permit in accordance with the German Banking Act, so that the companies operating the crypto custody business are subject to the supervision of BaFin. Anyone who in turn receives a license to perform the crypto custody business may not provide any other financial service. This means that it is not possible to operate a platform for trading in cryptocurrencies while at the same time storing the cryptocurrencies for the customer. This is likely to lead to considerable practical difficulties.
Companies wishing to offer crypto custody services in Germany should prepare the application for permission as soon as possible. A transitional provision allows the crypto custody business to be provided once the law has been passed, provided the BaFin is informed by February 01, 2020, and the complete application for permission is submitted by June 30, 2020.
We will be happy to advise you on the best way to proceed. Your contact persons for all questions regarding crypto custody services and the crypto-security business are Attorney Benjamin Kirschbaum and Attorney Annette Wagemann. You can reach us by telephone at +49 (0)69 76 75 77 80 or by e-mail at email@example.com.