The European crypto space is to receive a fully comprehensive set of rules through MiCA. Lutz Auffenberg explains whether the wait is worth it.
The provision of services related to crypto assets has long been regulated under financial supervision law in Germany. Service providers who wish to offer financial commission transactions or proprietary trading activities relating to crypto assets in Germany, for example, require a permit from BaFin under either the German Banking Act (Kreditwesengesetz, KWG) or the German Securities Institutions Act (Wertpapierinstitutsgesetz, WpIG). The mediation of supply and demand regarding the conclusion of contracts for crypto transactions or the operation of crypto exchange platforms are also subject to authorization as investment brokerage or as the operation of a multilateral trading system under the KWG or WpIG.
Companies that want to offer corresponding services in the future are currently faced with the question of whether it is even worth applying to BaFin for a corresponding permit. This is because the new EU Regulation on Markets in Crypto Assets (MiCA) will introduce an independent licensing regime for crypto service providers as of its validity 18 months after its promulgation in the Official Journal of the EU. In about two years at the latest, it will therefore be possible in any case to apply to BaFin for a permit to provide crypto services under the MiCA. Crypto trading activities will then basically be regulated according to the MiCA regulations.
BaFin application for permission according to KWG or WpIG still makes sense
Applying for a permit under the KWG or WpIG for companies planning to provide crypto services still makes sense in many cases. For one, ambitious companies with coherent business models regularly lack the time to wait for the new MiCA to apply. In addition, under the MiCA rules, firms will not need an additional authorization under the MiCA if they already have a corresponding authorization under European securities regulation relating to financial instruments. As a result, securities institutions licensed to engage in financial commission business and proprietary trading, for example, will also be allowed to provide these activities in relation to crypto assets under MiCA without having to apply for an additional MiCA permit. As a result, German securities institutions will be able to use their permits with respect to crypto assets immediately upon MiCA becoming applicable throughout Europe.
BaFin licenses issued under German supervisory law will thus also be passportable in the area of crypto services in the future. Special features exist for the financial services of crypto custody and crypto securities registry management, which are only nationally regulated in Germany under the KWG. While according to the MiCA crypto custody should in any case be able to be provided by securities institutions with a license for the custody of financial instruments, crypto securities registry management refers solely to the registry management to crypto securities according to the German Electronic Securities Act (eWpG). Therefore, crypto securities registry management can also be exclusively permitted in the future by BaFin in accordance with the German Banking Act (KWG).
MiCA permit will not be sufficient for certain business models
In individual cases, even a MiCA license may not be sufficient for certain business models. This will be the case, for example, if a company wishes to offer services relating to tokenized securities within the meaning of European securities regulation under the second EU Markets in Financial Instruments Directive (MiFID2). This is because financial instruments within the meaning of MiFID2 are precisely not to be regulated by MiCA.
This should also apply if a financial instrument covered by MiFID2 is tokenized, i.e. transferable on a blockchain. Companies that therefore want to trade tokenized financial instruments within the meaning of MiFID2 regulation will still need a financial supervisory license under the KWG or the WpIG to do so in the age of MiCA. A permit under MiCA, on the other hand, will not be suitable for the implementation of such business models. As a result, applying for a permit under the KWG or the WpIG in Germany is still worthwhile in most cases for companies with business models related to crypto assets.
