„Amending directive to the fourth EU Money Laundering Directive in Germany will require most digital asset exchanges and custodians to obtain a license from the German regulator BaFin.“

In a nutshell: With the law on the implementation of the amending directive to the Fourth EU Money Laundering Directive in Germany, which has already been passed by the German Federal Government, a new statutory provision is being introduced which will make many market participants in the cryptographic world „financial institutions“ subject to supervision as of January 1, 2020. For example, „the safekeeping, administration and security of cryptographic values or private cryptographic keys used to hold, store or transfer cryptographic values for others (cryptographic safekeeping business)“ is classified as a financial service within the scope of the German Banking Act. As a rule, such services are offered either by wallet providers who hold the keys for third parties (i.e. the private hardware wallet at home is not affected) or by exchanges, provided you hold the key for third parties for at least one logical second.

This means that, among other things, all stock exchanges, but also all wallet operators that actively address the German market from January 1st, must have a license – otherwise there is a threat of the business being stopped by the Federal Financial Supervisory Authority (BaFin). To conduct business without permission is even a criminal offense.

Due to the extremely tight deadline, however, there is a transitional period which makes it possible for providers to continue operating the business for the time being.

In order to comply with the rules and still be able to address the German market, the following actions must be taken:

  1. All parties that want to file such an permission request – which we assume will be many, give the relatively large German market – must indicate that by February 1st, 2020.
  2. After that, the parties have to file there complete permission request no later than June 30th, 2020.

It is important to note here, that only those companies that have demonstrably already addressed the German market and do not carry out any other activity requiring a permit under the German Banking Act (KWG) will be given the opportunity to apply for a permit at all.

If a company fails to comply with both of the above points or cannot prove that it has addressed the German market, it cannot – like the other companies – benefit from the „provisional“ granting of such a license. This means that if a crypto exchange or a custodian provider wants to actively open up the lucrative German market for itself, it or it can only do so after holding the permission in its hands – while its competitors may still operate under temporary permission and occupy important market shares.

DLC Distributed Ledger Consulting GmbH therefore recommends all market participants to whom the new law might apply:

1. securing the (still possible) market cultivation by notification of the submission of an application for permission.
2. if necessary before: creation of the basic basis for the notification of a permit application.
3. submitting an application for a permit.

DLC Distributed Ledger Consulting will be happy to assist interested parties and coordinate the relevant steps. Thanks to our good network, we are also particularly helpful in the selection of a suitable legal advisor – since it is particularly important in this special field to work together with the right partners immediately.

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