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Cryptocurrencies

Abstract

This RFC addresses the legal status of cryptocurrencies in Germany and how they should be treated in the context of financial and regulatory law.

Motivation

Within the last decade cryptocurrencies spreaded from all around the world and grew to an ubiquitous topic, leading authorities to adapt regulations and adapt to the patterns that emerged among the cryptocurrencies. In Germany, crypto currencies have been extensively regulated in the meantime, inter alia by guidance notes issued by the Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungen – BaFin).

Elaboration

Cryptocurrencies are not defined under German financial or regulatory law. BaFin currently distinguishes between the following types of token in order to determine whether or not they constitute financial instruments under the German Banking Act (Kreditwesengesetz – KWG), securities under the Prospectus Regulation or the WpPG and/or capital investments under the Capital Investment Act (Vermögensanlagengesetz – VermAnlG) triggering an obligation to prepare a prospectus or information sheet under the Prospectus Regulation/WpPG or the VermAnlG.

Depending on the categorisation of the token and the connected activities potential authorisation requirements under

  • the Banking Act (Kreditwesengesetz – KWG),
  • the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG)
  • or the Investment Code (Kapitalanlagegesetzbuch – KAGB)

Different Tokens

Utility tokens: crypto tokens that give access to certain services or products, similar to an admission ticket or a voucher. The majority of previously known crypto tokens issued in an ICO in Germany belonged to this category. As a general principle, utility tokens do not constitute securities or capital investment. In many cases, tokens like this are also not financial instruments under the KWG.

Payment tokens (also known as virtual currencies): structured similarly to bitcoin, the provider generally intends the tokens to be used as an alternative means of payment. As a general rule, payment tokens do not constitute securities or investment products, but they are normally classified as financial instruments under the KWG.

Security tokens (also known as equity tokens, investment tokens or asset tokens): holders of this sort of token have membership rights or contractual claims on assets that are comparable with those of a shareholder or bondholder (e.g. claims to dividend-style payments, voting rights, repayment claims, interest payments). Security tokens generally constitute securities within the meaning of the Prospectus Regulation and the Securities Trading Act (Wertpapierhandelsgesetz – WpHG), and are also financial instruments under the KWG.

Crypto Assets: The German implementing law of the 5th Anti-Money Laundering Directive has introduced the term crypto asset as an additional type of financial instrument within the KWG which is defined as

  • a digital representation of an asset
  • which has not been issued or guaranteed by any central bank or public authority and which does not have the legal status of a currency or money,
  • but which is accepted by natural or legal persons
    • as a means of exchange or payment on the basis of an agreement or actual practice, or
    • or which serves investment purposes, and
    • which can be transferred, stored and traded electronically’

and which can include tokens as described above.

Cryptocustody Business

German law requires entities engaging in ‘cryptocustody business’ – defined as the business of

  • safekeeping,
  • administration and
  • safeguarding
    • crypto-assets or
    • private cryptographic keys that serve to hold, store or transfer crypto-assets’

to have the appropriate license as a financial services institution to operate. Custodian wallet providers active in Germany must apply to be licensed as a ‘cryptocustody business’. Once licensed, they are subject to the ongoing prudential supervision of BaFin.

Internal references and dependencies

Direct dependancy: RFC-0321: AML and KYC

References to best practice, examples

(List of references to best practice, examples)

Bibliography of selected references

Regulation of Cryptocurrency Around the World available at Library of Congress https://www.loc.gov/law/help/cryptocurrency/world-survey.php

RFC-0361
Contributing authors: Thilo Danz, Partner Financial Regulation, Fieldfisher, Frankfurt
Status of this document: work in progress
Last day modified: 2021-05-18