Numerous crypto-currency inquires presented to the German Federal Financial Supervisory Authority (Bafin)
Germany's Crypto Custodian Licensing: A Closer Look
Germany's Federal Financial Supervisory Authority (BaFin) has been busy processing crypto custodian license applications since the beginning of 2020. By the end of June 2021, 27 applicants had submitted their applications, with one license having been issued.
The first and only license, granted on June 28, went to the crypto trading platform Coinbase. The Federal Government announced this license grant in response to a minor parliamentary inquiry by the FDP. The identity of the other applicants remains undisclosed, but BaFin continues to process their applications within a rigorous regulatory framework.
Since January 1, 2020, it has been mandatory for German providers to obtain a BaFin permit to hold cryptocurrencies on behalf of customers. This licensing is part of compliance with the Markets in Crypto-Assets (MiCA) regulation and German law, requiring thorough evaluation of an applicant's security, compliance, and risk management capabilities.
The licensing process involves strict asset segregation and regular auditing for licensed crypto custody institutions, emphasizing strong investor protection. BaFin does not process applications simultaneously for competitors, and each application can raise different regulatory issues, which may require a varying degree of review.
Institutions aiming for quicker market entry might partner with established regulated custodians or choose sub-custody models to operate promptly while their own licensing proceeds. As of the current date, there are 26 applications in process with BaFin, following the first license granted to Coinbase. BaFin anticipates issuing further permits within a few weeks.
It is essential to note that the transition period for all active crypto custodians to submit an application for approval to BaFin ended by the end of November 2020. Companies based outside Germany may require a BaFin permit if their offer is directed at German customers.
The financial supervisory authority, BaFin, is subordinate to the Ministry of Finance. The European passporting system does not apply to the crypto market, so providers cannot simply operate in other EU countries with the permit of their home country.
While specific names beyond Coinbase are not publicly detailed, it is clear that BaFin handles these applications within a rigorous regulatory framework aligned with EU-wide harmonization efforts. For precise, up-to-date information, BaFin’s official releases or direct inquiries are recommended. The applicants have expressed concerns about the speed of application processing and potential unfair competition, but the Federal Government's response states that each application's processing time may differ due to the unique regulatory issues involved.
- Given the regulations, it is evident that the insurance industry and finance sector will play a significant role in the future of the cryptocurrency industry in Germany, as all providers must comply with BaFin's stringent security, compliance, and risk management standards to hold cryptocurrencies on behalf of customers.
- The issuance of crypto custodian licenses by BaFin, such as the one given to Coinbase, underscores the growing importance of the finance sector in the wider acceptance and adoption of cryptocurrencies, creating a safer environment for investors in the crypto market.
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