Operating a business model in Germany that is based on or related to cryptocurrencies requires a BaFin authorization in most cases. BaFin qualifies Bitcoin and comparable cryptocurrencies as units of account already since 2011 and as of 2020 crypto assets will be legally classified as financial instruments in the German Banking Act (KWG). Moreover, BaFin also clarified that crypto tokens can, in certain cases, be financial instruments in the form of securities, asset investments or shares in investment funds. Therefore, blockchain startups can be subject to the German Banking Act (KWG). They therefore must be BaFin authorized prior to the start of their commercial activities. The road to authorization can be long and hard and requires meticulous and thorough planning. Not only professionally competent and reliable managing directors and a sustainable business plan but also sufficient funding that is risk appropriate and that ensures operations at least in the starting phase of the business must be shown to BaFin in order to successfully apply for authorization. But are the requirements for crypto service providers the same as for traditional financial service providers?


The question of how much capital a blockchain startup must have available prior to and during operations in order to successfully apply for and maintain a BaFin authorization cannot be answered differently as for any traditional financial service providers. The amount depends on the specific kind of financial service or banking activity that the applicant intends to offer. As a rule of thumb, it can be said that businesses offering services which neither grant the service provider a right of disposition regarding customer monies or securities nor of dealing with financial instruments for own account must have available at least 50.000 Euros at any time. If the applicant shall have the right of disposition regarding customer monies and securities but does not trade financial instruments for own account, the minimum is 125.000 euros. If the company shall trade financial instruments for own account, the minimum is 730.000 euros. In this context it is important to emphasize that cryptocurrencies such as Bitcoin, Litecoin, Dash or Iota are, according to German supervisory law, considered neither as money in a legal sense nor as securities. Therefore, crypto financial service providers do not need to show more than 50.000 euros of starting capital just because they offer safekeeping services for their customer’s cryptocurrencies on own accounts on behalf of the customers. This will be especially important as of 2020 for the newly regulated crypto custody service providers. All of this does of course not apply to the safekeeping of security tokens for customers in case those qualify as securities under MiFID II and must be treated as such.


The European Capital Requirements Regulation (CRR) obliges businesses falling under its provisions to have a certain equity ratio at any time on basis of extensive and complicated rules. CRR-regulated institutions are therefore obligated to constantly evaluate their equity and risk positions. They also have to maintain a sufficient equity ratio at any point in time. Luckily, CRR regulations are seldomly applicable to crypto financial service providers. Only credit institutions and investment firms are subject to the corresponding directive. Credit institutions in the required sense are businesses that take in deposits or other repayable customer funds and give out loans for their own account – activities that – according to the directive – can only be conducted with money and not with cryptocurrencies. Investment firms in the sense of the CRR are exclusively companies being regulated by the Markets in Financial Instruments Directive (MiFID II) and cryptocurrencies are not defined as financial instruments by this directive. Therefore, crypto financial service providers can only be subject to the CRR if they conduct activities that are related to security tokens, because these have to be qualified as financial instruments with regards to MiFID II.

Attorney Lutz Auffenberg, LL.M. (London)

I.  https://fin-law.de

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