Companies that commercially grant customers loans generally need, if they are subject to German banking supervisory law, a BaFin authorization for the lending business. According to the applicable legal provisions, this banking activity is reserved for companies with a full banking license. According to the legal definition of the German Banking Act (KWG), acceptance credits and money loans are considered lending business. BaFin generally places low demands on the definition. According to its administrative practice concerning the temporary granting of money it is irrelevant if interest or collaterals are contractually agreed upon or if the lender finances the business via burrowed funds. Relevant however is that the loan is a money loan which is given by the provider at the start and returned to him at the end of the duration in money. A provider that e.g. grants his customers money for a duration of five years and receives, as contractually agreed upon, a certain amount of preset securities at the end does not conduct a lending business in the sense of the German Banking Act (KWG). The loan has to be repayable in a way that the nominal value and the repayment claim are both denominated in money.

According to BaFin’s administrative practice the temporary granting of cryptocurrencies is not a lending business that would be subject to authorization. With this reason for authorization being inapplicable, the providers of crypto loans are still subject to authorization by BaFin according to the German Banking Act (KWG) if the cryptocurrencies in question are deemed units of account and therefore financial instruments and the providers operate in or from Germany. The loaning of e.g. Bitcoins, Litecoins, Ether or Monero, which are all financial instruments according to BaFin, can be, under certain circumstances, considered proprietary trading if the provider conducts the business commercially or not merely occasionally. The decisive point is that the borrower of a crypto loan obtains the full power of disposition over the received units with the transfer of the units onto his own blockchain wallet to which he holds the private key. At the end of the crypto loans duration the borrower has to transfer the received number of crypto units back to the lender. He therefore bears the full market price risk during the duration of the loan. Overall this might amount to a classic derivative forward transaction. The crypto loan might be a derivative forward transaction and therefore a financial instrument according to the German Banking act (KWG).

Proprietary trading that is subject to authorization in accordance to the German Banking Act (KWG) can occur in four different variations. It is conducted in particular if the provider continuously offers to buy and sell financial instruments, which he has acquired on his own account with his own means at his own prices. In all four variations it is necessary that the proprietary trader trades financial instruments on his own account.

Attorney Lutz Auffenberg, LL.M. (London)