In July 2019, the German Federal Government published the Government Draft for the implementation of the amending directive to the 4th EU Money Laundering Directive. From now on, so-called "Crypto Assets" such as security tokens and crypto currencies have been incorporated into German law, specifically the German Banking Act (BA) as financial instruments. At the same time, all companies that manage digital access keys (private keys) for investors, such as wallet operators, are now subject to BaFin supervision.
The new legislative adaptations pose new challenges to the entire blockchain ecosystem. With regards to the adaptions, a company offering crypto custody services may only op-erate its business if it does not provide other banking or financial services. As a conse-quence, traditional financial services providers de facto are being forced to offer custody services for digital assets through a subsidiary.
Possibility of Passporting within EU?
Within the EU, registered financial service providers can carry out transactions in other EU countries via the Passporting mechanism. However, Passporting is not applicable to the custody of crypto assets, as it is not a financial service within the meaning of the Eu-ropean Directive. Accordingly, all financial institutions domiciled in the EU that wish to con-tinue providing financial services in Germany must also apply for a licence to address German investors.
What does this mean for Swiss Custodian?
For Swiss custodians of Crypto Assets, this means that they too must apply for a license in Germany if their services are also directed at German customers. If Swiss custody companies are offering their services to German clients, it is therefore advisable to take a close look at the new legislation.
Companies seeking a licence must inform BaFin of their intention in the early quarter of 2020 and submit a full application by 30 June 2020. A transitional solution is envisaged for providers being already active in the crypto custody business before 1 January 2020. They must apply for an according permit within six months.