Fintech Market Overview

This article does not constitute legal advice.

Digital assets in Germany


The items related to fintech have been permanently and actively debated in Germany, and the discussion involves the financial sphere actors, as well as politicians and legislative regulative bodies. The general point to be discussed is whether the existing legal basis ensures proper opportunities to promote blockchain-based business models along with a sufficient level of security for market. Eventually, the legal basis adopted all over the EU in the sphere of cryptoassets and an EU-level sandbox model have been offered by the European Commission as an integral part of the Digital Finance Package.1

Since 2020, as the federal legislative body of Germany put into force the relevant statutory provisions in compliance with which crypto values are identified as financial instruments aimed at financial licensing goals and crypto custody business; all and all, they became subject to licensing provisions as per the German Banking Act (KWG). The next year, in 2021, there were introduced substantial amendments to the German securities legislation: thus, the German authorities focused primarily on implementation of electronic securities. This means, that Germany demonstrated commitment to the pan-European approach aimed at dematerializing securities.2

The country's legislation has made some adjustments due to the generic "same business, same risk, same regulation" hike. The sphere of cryptocurrencies and cryptoassets gained some changes in the regulatory qualification of its activities in 2020. The implementation of the Fifth EU AML Directive dealt with this issue. It made changes to German law based on the topic of cryptocurrencies. The German legislator decided to introduce a legal definition such as "cryptocurrency values". This procedure was carried out as part of the implementation package. This legal definition was included by the legislator in the catalog of financial instruments according to the KWG. Now cryptocurrency, having become a legal definition thanks to the Fifth EU AML Directive, has the right to be used as a means of inestimation. Also, this new legal definition can be referred to as both coins and tokens, and may be eligible to have a niche in different types of virtual units of value.3

The law, effective January 1, 2020, on the application of the Fifth EU AML/CFT Directive in Germany, explains whether these tokens and cryptocurrencies are funds for terrorist financing and whether they can be used to make illegal money transfers. Based on the KWG and WpIG, this law introduced in Germany created a comprehensive definition of cybercurrencies as such and made a detailed description of these types of currencies from a financial perspective. Tokens with exchange and payment functions (e.g. cryptocurrencies) and tokens used for investments (e.g. security tokens and investment tokens) are types of tokens that are widely used in financial transactions. Cryptocurrencies and tokens can be used in various transactions: buying and acquiring cryptocurrencies in the service provider's own name at the expense of others, advising on the purchase or sale of cryptocurrencies, or operating a platform on which cryptocurrencies can be traded. The above operations may fall within the scope of regulated services and require a license from the KWG, in particular for core brokerage activities, investment brokerage activities, investment advice or the operation of a multilateral trading platform. When complying with the general statutory requirements of the KWG, securing cryptocurrencies or private crypto keys may require a KWG license. Compliance with the obligations spelled out in this law (KWG or WpIG) is mandatory for service providers. From this point on they are considered GwG subjects. These users have the following obligations: to conduct customer due diligence, to use an appropriate and high-quality system to manage all kinds of risks, such as terrorism and theft of funds. Most importantly, users are required to notify the Financial Security Unit in the event of suspicious transactions. Transparency registry reporting should also be an integral part of the subjects' work. Obtaining a KWG license and complying with German AML/CFT legislation is considered an important procedure. And this procedure was mandatory even before the implementation of the Fifth EU AML/CFT Directive into German law. The administrative practice of BaFin used the term "financial instrument" in the meaning of KWG, which influenced the aforementioned procedures.4

Entities related to the fintech business are entitled to a license from BaFin, notwithstanding these changes in the licensing regime. Using this license, these entities, becoming obligated restrictionists, can claim to be subjects of AML requirements. This regime is in constant evolution. July 2021 was the period when the European Commission published an AML/CFT package including proposals for three regulations and an EU-wide directive. The package automatically obliges entities in the AML/CFT regime to comply with their obligations. These subjects are: crowdfunding service providers, mortgage intermediaries, consumer credit providers. Objects are all types of cryptocurrencies. The revision of Regulation (EU) 2015/847 on information accompanying money transfers (i.e., the Wire Transfer Regulation (WTR)), which will also apply to the transfer of crypto assets, is part of this package. The German Federal Ministry of Finance issued a temporary Crypto Asset Transfer Regulation (CATR) to ensure the traceability of cryptoasset transfers until the changes to the WTR take effect. The duty of care applicable to German-based institutions and affiliates involved in crypto-asset transfers applies to CATR. This law began in October 2021 Until the WTR revision is finalized, this bill will have an impact.5

Smart contracts in Germany

Fintech in Germany

Fintech in other countries

Let's introduce you

Germany Fintech Lawyers

Denis Polyakov

Denis Polyakov

Comprehensive legal services for businesses on corporate, tax law, cryptocurrency legislation, investment activities

Viacheslav Losev

Viacheslav Losev

Legal support for FinTech and Blockchain projects

Kristina Berkes

Kristina Berkes

Participation as a lawyer at investment venture funds, leading venture M&A deals in IT, supporting iGaming and business assets

  1. https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en
  2. http://www.bmwi.de/Redaktion/DE/Publikationen/Digitale-Welt/blockchain-strategie.pdf?__blob=publicationFile&v=22
  3. http://www.fsb.org/wp-content/uploads/P101018.pdf
  4. https://thelawreviews.co.uk/title/the-financial-technology-law-review/germany
  5. https://ec.europa.eu/info/publications/210720-anti-money-laundering-countering-financing-terrorism_en