BaFin, a German regulator, has just set guidelines so as to clarify the status of cryptocurrencies in Germany. According to the guidlines, the country officially recognized cryptographic assets, such as Bitcoin (BTC), as a financial instrument. Moreover, the depositors of such assets (including trading platforms) are regarded as financial institutions and, in order to be able to operate legally in the country, it is necessary for them to obtain a license from the regulator.
The German regulator explains the status of cryptocurrencies in the country
2020 is a disruptive year for Germany because of the fact that both German banks as well as other regulated financial institutions are now able to manage cryptocurrencies on behalf of their clients. The situation changed like that as a consequence of Berlin adopting amendments to the draft law that implements EU law on anti-money laundering (the Fourth EU Directive).
Now, the Federal Financial Supervisory Authority of Germany, that is Bafin, has set guidelines explaining the current status of cryptocurrencies in Germany. In a press release published yesterday, a German regulator describes cryptocurrencies as:
"...a digital representation of value that has not been issued or guaranteed by a central bank or public body and does not have the legal status of a currency or money. At the same time, a crypto can represent an agreement for, or an actual exercise of, a payment or investment. It can be accepted as a medium of exchange by natural or legal persons and be transmitted, stored and traded electronically."
Cryptocurrencies, depending on their design, are generally regerded as financial instruments, and their exchange is classified as the regulated categories of banking transactions and other financial services. What is more, service providers offering the exchange of not only virtual currencies but also other digital assets for a legal tender and vice versa, are considered financial service providers.
At the moment, Germany is one of the few countries in the world where there have been major, positive changes in the regulation of cryptocurrencies. As Julia Magas from Cointelegraph explains, one of the obstacles in implementing blockchain and cryptocurrency technology in the world are regulatory problems:
"The constantly changing nature of the legal framework and the fear of being caught up in legal disputes with regulatory authorities, especially the tax ones, is forcing most small- and medium-sized businesses across the globe to work with blockchain from the shadows."
- says Magas.
Nevertheless, in 2019 significant improvements in blockchain and cryptocurrency regulation were noted in a great number of countries. What is more, the attitude towards digital money has changed dramatically in recent years.
Cryptographic companies need permission from BaFin
Thanks to the new rules, banks in the country are able to act as cryptocurrency trustees themselves, instead of relying on external trust services. In other words, banks can legally store, transfer and trade cryptographic assets such as Bitcoin (BTC). It was not a surprise, then, that German fintechs rushed to offer similar services.
The German regulatory authority has explained, however, that it is essential for every organization that wants to carry out banking activities in this country or provide commercial financial services, to have a license from BaFin. Companies operating in the cryptographic sector must, therefore, apply for an appropriate license.
Even though, theoretically, they have time until the end of November, 2020, they must express their willingness to apply for such a license by the end of March. It is not part of the actual application procedure, but an important step towards obtaining the necessary license. As Bitcoin.com reported in February, more than 40 financial institutions have declared their intention to offer services related to cryptocurrencies in accordance with the updated regulations of this country so far.