March 29, 2024

BaFin clarified the rules of work of foreign cryptocurrency companies in Germany

Germany's financial regulator has clarified how the new cryptocurrency custody law will apply to firmswho work outside the country, but serve the German market.

Federal Agency for Financial SupervisionGermany (BaFin) issued guidance in which the regulator stated that firms already storing digital assets for German citizens will not be penalized for not having a license. They will be subject to the same rules as custodial cryptocurrency firms based in Germany.

This means that these companies must alsodeclare your intention to obtain a license by March 31 and apply for a license by November 30. In addition, cryptocurrency companies that until January 1 did not store crypto assets for German customers, but are interested in entering the German market, can not start work before obtaining a license.

“No one can apply right away, so wecame up with such a working mechanism,” — said Carola Rathke, partner at Eversheds Sutherland Germany — a firm that works directly with BaFin to enforce the law.

At the beginning of 2020, BaFin published an application formto a license that is non-binding, meaning firms are not required to use it. The latest guidance notes that firms must submit a “full application” by the November 30 deadline. Rathke explained that cryptocurrency companies should plan to submit applications well before the end of November.

Germany has published a new law in response tothe European Union's fifth Anti-Money Laundering Directive (AMLD5), which requires cryptocurrency companies to implement enhanced KYC/AML procedures. While firms familiar with German financial regulation have already started submitting applications, the industry is dependent on what guidance BaFin will issue over the next few months.

"Here's how it works:the authorities quickly draw up a law, and then find out that it is not very literate, and now, after its adoption, they establish administrative practices,” — said Sven Hildebrandt, head of Distributed Ledger Consulting Group, a consultancy that helps cryptocurrency firms operate in accordance with German regulations.

According to Hildebrandt, in the next 3-5 weekscryptocurrency companies will begin to implement the recommendations from the BaFin management. Hildebrant's DLC Group is currently trying to get BaFin approval to act as a regulatory compliance unit for companies that cannot apply for a license on their own.

Certain parts of the law still needclarification. For example, the regulation says that companies applying for a license must have a German branch with directors who have “the necessary qualities for the job.” However, what kind of skills the leadership should possess is not specified. As Ratke notes, it is likely that the regulator will expect to see directors with experience in the banking sector, as well as with the blockchain.

Due to the entry into force of AMLD5, other countriesThe EU is also beginning to regulate the operation of cryptocurrency companies. For example, in early January, the Austrian financial regulator required cryptocurrency firms to register.

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