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 business activities using cryptos.
The most important innovation: A permit from the German 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.
According to the EU:
- A virtual currency is a digital representation of a value that has not been issued or backed by any central bank or public authority.
- 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
- the safekeeping,
- administration and
- the protection
of cryptocurrencies or private cryptographic keys. The latter are used to hold, store and transfer crypto assets for third parties.
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The German government has decided not to include the crypto custody business in the Money Laundering Act, but in the German 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 asset custody services in Germany should prepare the application for permission as soon as possible. The transitional provision that allowed crypto custody solutions to be offered even after the Act came into force if the BaFin had been informed of this by February 01, 2020, and a request for permission had been submitted is now no longer in force.
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