by Third-Party Content
2 months ago
Since January 1, 2020, the new German crypto law has been in effect. Here, two leading German experts offer their views on what it means for the blockchain space, crypto and the economy.
The new German crypto law stipulates that every company that provides financial services related to crypto assets – in particular, custody – needs a license from the country’s financial authority BaFin as of January 1, 2020. In a new section of the German Banking Act (KWG), crypto-custody business is classified as a new financial service and a newly permitted activity. A service provider that offers custody for owners of crypto assets or so-called private keys commercially requires a license from BaFin in accordance with § 32 KWG. However, providers of storage space such as Web hosting or cloud offers are not considered to be in the crypto safekeeping business and require no BaFin license.
Companies that have been providing such services since before the new crypto law went into force will be grandfathered until November 2020. Firms entering the German market after January 1, 2020, require a license. Obtaining the license incurs approximately US$ 100k in fees, meaning that some startups could be driven out of the market
Why did the German government pass the law?
A thriving blockchain and crypto-asset ecosystem has emerged in Berlin over the past four years. Most of the startups welcomethe neregulation, giving rise to an easy exchange between government officials and tech entrepreneurs, Berlin being the nation’s capital. As a result, administration staff and politicians have had the opportunity to learn about the technology.
At some point, government officials at the Federal Ministry of Finance and BaFin saw the value of blockchain technology for future business models as well as its importance for German industry. In addition, German authorities saw Asian crypto exchanges arising, Bitcoin being used for shady payments, anti-money laundering (AML) issues etc. This further increased the pressure to provide a clear legal framework. German’s government concluded that providing startups and companies the necessary legal certainty for them to invest in new products and services represented a huge opportunity.
Against the backdrop, it becomes clear that Germany does not seek to limit the size of the blockchain industry. Quite the opposite: German government and financial authorities see the value of the technology as well as the legal uncertainty that hinders development. A further factor nudging German decision-makers in this direction is the fact that neighboring countries like Switzerland, Liechtenstein and Baltic nations have embraced blockchain technology as a promising development.
The new law also means foreign (Asian) crypto exchanges seeking access to the German market need to play by the local rules: blockchain businesses need to apply for a BaFin license and, in some cases, even need to set up a German subsidiary, enabling national authorities to take legal action when appropriate.
Does the law favor incumbents at the expense of smaller newcomers?
There can be no denying that the need for a crypto BaFin license is a hurdle for startups. Some of them will get the license and take the hurdle. Others will not.
But the license offers incumbents opportunities to tap into new technological business models. Currently, startups and incumbents are forming cooperation agreements to identify future business opportunities in areas custody of digital assets, Bitcoin for institutional investors etc. This means digital assets can thrive because custody, which is at the heart of the new law, is the cornerstone. If you get it right, digital assets, tokenization, new business models, etc. can be built on top of it. On this foundation, startups can build new business models on the foundation of custody. This is good news for the German crypto space – and for the German economy.
About the authors
Prof. Dr. Philipp Sandner is head of the Frankfurt School Blockchain Center (FSBC) at the Frankfurt School of Finance & Management. In 2018, he was ranked as one of the “Top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. Further, he belongs to the “Top 40 under 40” – a ranking by the German business magazine Capital. The expertise of Prof. Sandner, in particular, includes blockchain technology, crypto assets, distributed ledger technology (DLT), euro-on-Ledger, initial coin offerings (ICOs), security token offerings (STOs), digital transformation and entrepreneurship. You can contact him via email, via LinkedIn or follow him on Twitter (@philippsandner).
Dr. Johannes Blassl works as a lawyer in Frankfurt am Main in the area of banking and capital markets. He advises companies and banks among other issues on the use of blockchain technology in the financial sector. In addition, Dr. Blassl is a lecturer for international securities trading and compliance at the EBS Law School in Wiesbaden and for capital markets law at the University of Applied Sciences Mainz. You can contact him via email or via LinkedIn.
This piece reflects the authors’ personal opinions and does not necessarily represent the views of Blocks99 as an independent media portal.