The Amended Directive to the 4th EU Money Laundering Directive will go into force in Germany on January 1, 2020. Some of the main changes impact how the German Banking Act and Payment Supervision Services Act relate to crypto, including crypto exchanges having plans to operate in Germany and German users as well. This directive will lead to far-reaching changes.
The new law defines crypto-assets said if a digital representation of a value is not issued or guaranteed by a Central Bank or public authority, it will not have the legal status of currency or money. However, it is based on agreement or practice is accepted by natural or legal persons as means of payment or exchange or is used for investment purposes and that is transferred, stored and traded electronically.
Crypto-asset becomes a financial instrument
For both banks and existing cryptocurrency custody providers, certain measures will need to be satisfied by the end of the year, including the acquisition of a license from Germany’s financial regulator BaFin. This includes popular exchanges such as Binance, Litebit, and Kraken if they wish to continue doing business in Germany must notify BaFin of their intention before 1 February and submit the application before 30 June 2020.
In order to obtain the necessary approval and licensing, companies will have to fulfill specific requirements. They must have a legal German entity comprising of at least two directors who operate in Germany by the start of 2020.
This is to specifically exempt digitally stored and transferred paper money, but include both payment and security tokens. Although, the German Federal Financial Supervisory Authority (BaFin) already considers security tokens as financial instruments in other categories.
Custody is considered a new financial service
Also, the concept of ‘passporting’, whereby a registered provider in one EU state doesn’t need separate registration to try to business across the remainder of the EU, won’t apply to crypto-custody. All foreign companies wishing to offer crypto-custody services must apply for a license. If this is often not done, the exchanges are going to be forced to discontinue their service for German users.
Interestingly, companies that already provide banking or financial services won’t be ready to offer crypto-custody services thanks to heightened IT – security risks. This means that institutions wishing to supply custodial services must do so through a subsidiary.
Still, wallet developers and providers are not protected by the new law, as they only provide an interface to the blockchain. Since the private key’s not kept by the wallet provider, Bitcoin wallet services like Electrum, Guarda or Atomic wallet are not subject to the new regulations. On the other hand, crypto payment service providers, BitPay are affected. The company had already announced its withdrawal from Germany in July 2019 due to the upcoming changes.
Germany is not friendly with Crypto
Germany and many other countries in the EU like France, Portugal, United Kingdom, etc. do not welcome Cryptocurrency to their country. France and Germany publicized a joint statement on Sept. 13, 2019, that directly pointed out Facebook’s proposed cryptocurrency Libra as potentially harmful to the financial sector, warning that it could block the coin’s authorization in Europe.
Particularly, France’s finance minister, Bruno Le Maire, and his German counterpart, Olaf Scholz, said in the joint statement that their respective countries are willing to tackle cryptocurrency challenges, such as financial security, investor protection, prevention of money laundering and terrorism financing.
The German Federal Parliament has also expressed about cryptocurrency on its website that Bitcoin is not real money.
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