German cryptocurrency regulatory rules officially take effect in January 2020, financial institutions are not allowed to provide custody services

In July 2019, the German federal government announced a draft government implementing the "Amendment of the European Union's No. 4 Money Laundering Directive." From now on, "cryptographic assets" including securities tokens and cryptocurrencies have been incorporated into German law-the "German Banking Law" treats them as financial instruments. At the same time, all companies that manage digital keys (private keys) for investors, such as wallet operators, are now subject to BaFin supervision.

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The amended anti-money laundering directive will enter into force in Germany on January 1, 2020. Some key changes affect the relationship between the German Banking Law and Payment Supervision Services Act and cryptocurrencies.

The new law has a somewhat awkward definition of crypto assets:

"(Crypto asset) is a digital expression of value that is not issued or guaranteed by a central bank or public authority and does not enjoy the same legal status as currency, but based on contracts or practices, it can be used by natural or legal persons Means of transaction or electronic transfer, storage and trading for investment purposes. "

This definition specifically exempts fiat money stored and transferred in digital form, but includes payments and securities tokens. Nevertheless, the German Federal Financial Supervisory Authority (BaFin) has considered securities tokens as other types of financial instruments.

German cryptocurrency custody service providers will have to apply for a license from BaFin after January 1, 2020. Companies that are already conducting relevant business can receive a grace period if they can notify BaFin before February 1 and submit their applications by June 30, 2020.

Interestingly, companies that already provide banking or financial services will not be able to provide password escrow services because of the increased risk of information technology security. This means that financial institutions wishing to provide escrow services can only conduct this business through subsidiaries.

In addition, the updated rule also introduces the concept of a "pass", that is, a registered financial provider in one EU country does not need to repeat the registration for conducting business in other EU countries, but it is not applicable to crypto asset custody because this is not the EU Defined financial services. Therefore, if a Swiss custodian is already registered, it still needs to apply for a German license to start its business.

In August this year, the cryptocurrency payment processor BitPay has stopped serving in Germany because the regulator announced in July that it will update the cryptocurrency regulations.