Analysis | Bank attitudes are negative, German cryptocurrency policy is "good" than expected

Author: Luo Tao

On January 1, 2020, the updated "Fifth European Money Laundering Directive" (Fifth European Money Laundering directive) officially included encryption services within the scope of legal protection. The new bill will provide banks with more efficient and extensive support for cryptocurrency-centric operations, so many people have high hopes for the bill, thinking that Germany is further from the "cryptocurrency paradise".

Up to now, the bill has been implemented for nearly four months, but the implementation process has not been as smooth as the lawmakers expected. There are many obstacles to the custody application. There are many unknown whether the "cryptocurrency paradise" vision can be realized.

The policy of the new bill is "good"

  • Cryptocurrencies are regarded as "new financial instruments"

According to the latest guidance of the German Federal Financial Supervisory Administration (BaFin) on March 2, cryptocurrency is defined as "Crypto Values" as a " new financial instrument ", allowing banks to be approved under the premise of approval The provision of cryptocurrency custody services has changed Germany's persistent resistance to cryptocurrency-related trading activities.

BaFin extends the definition of financial instruments to "all types of digital assets", and cryptocurrencies can enjoy the same legal services as traditional "securities tokens" such as stocks and bonds. It should still be noted that although the cryptocurrency meets the definition of financial instruments, from the BaFin description of the cryptocurrency, the cryptocurrency is not exactly the same as other digital assets. It lacks the endorsement of the German government ’s credit and the digital assets issued by the central bank. (CBDC) also has an essential difference, but it does not affect the legal holding of cryptocurrencies in Germany and normal media exchange activities.

"Cryptocurrency is a form of digital asset that has not been issued by any central bank or guaranteed by a public institution, and is not necessarily linked to the currency prescribed by law, but has the legal status of currency or money, and can be accepted as a medium of exchange for natural or legal persons, and Can be transferred, stored and traded electronically. "
  • New requirements for cryptocurrency custody

Cryptocurrency custodians must obtain the permission of the regulatory agency before they can provide cryptocurrency custodial services to customers in Germany. For institutions that have already launched cryptocurrency custodial services in Germany, they must prepare for application by March 30, 2020 , And the application is completed before November 30, 2020.

The new law is not limited to German companies, but also applies to foreign companies that conduct business in Germany. Those companies that have obtained cryptocurrency custody licenses in other EU countries still need to apply for approval under German law before they can continue to engage in cryptocurrency custody business in Germany.

It can be seen that the new bill reserves sufficient preparation time for institutions that have carried out custody business to apply for licenses. At the same time, the non-migration of “licenses” improves the access of foreign companies, in order to regulate the order of the German cryptocurrency trading market and enhance custody The overall credit of the platform has outstanding significance. The relaxation of the policy has opened the door for the development of the crypto business and attracted a large number of platforms. According to the local media report on February 11, BaFin has received cryptocurrency custodian applications from more than 40 banks and other financial institutions.

Unexpected "internal obstacles"


At the beginning of the promulgation of the new bill, lawmakers were optimistic about the future of cryptocurrency development, but some scholars still pointed out their concerns about the new bill:

  • Financial expert Niels Nauhauser is concerned about the excessive marketing activities undertaken by banks to expand their business scope, and that banks have attracted customers in various ways and ignored investment risk warnings, causing unnecessary losses for investors.
  • German financial commentator Fabio De Masi also issued a warning to the bank that the bank's cryptocurrency profitability should not be at the expense of financial consumer protection.

Judging from the current practice, the above concerns did not have any impact on the application activities of the crypto platform. On the contrary, according to the latest report of Coindesk on April 7, the German bank refused to open a bank account for the cryptocurrency startup, the negative attitude of the bank It became the most unexpected "internal barrier" of the authorities.

Crypto Storage Deutschland, the German branch of Crypto Storage AG, opened a bank account with the current bank after being rejected by about 15 banks, and finally obtained a German cryptocurrency custodian license.

It can be seen that the license application process of cryptocurrency startups is very tortuous, and banks that refuse to provide accounts have become the first obstacles in the application chain. The reason is that banks do not understand the cryptocurrency industry, and the bill does not provide clear rules to guide them. Therefore, cryptocurrencies with many uncertainties are not too attractive for German bankers who are trying to avoid risks. .

In fact, some scholars pointed out earlier that the bill left blanks in some provisions, such as the law does not explain how to effectively supervise cryptocurrency custodian platforms that use multi-party computing, and whether a cryptocurrency custodian platform that does not explicitly apply for a license must be set up in Germany. There are branches, and no qualification restrictions are imposed on the directors of the cryptocurrency custody platform (including blockchain technology experience and banking industry experience, etc.).

Although BaFin gave guidance in early March and early April on the types of encryption companies that can be regarded as custodians and the conditions (including IT and security conditions, and the professional level required by directors) required by companies applying for licensing, However, there are still uncertainties in the rules of cryptocurrency company account opening in German banks:

First , the procedural requirements of the license application are not clearly defined, and the guidance is not legally binding, and the cryptocurrency company applying for the license cannot be required to comply with it;

Second , the guidance does not give a detailed explanation of the type of cryptocurrency escrow, and there are legal risks in bank discretion;

Third , BaFin's current supervision focuses on AML / KYC (anti-money laundering / knowing your customers). The supervision dimension has certain limitations, and there are still many operational risks in practice.

It is undeniable that the new bill allows cryptocurrency companies to enter the German market itself is an improvement, and the custody service license also gives cryptocurrency companies "bright development prospects." However, the defects of the system cannot be ignored, and the practical obstacles in the application process of the cryptocurrency company cannot be avoided. Whether Germany can become the first choice of the cryptocurrency company, it is necessary to further improve the rules to resolve the bank's "knot".