Nowadays, there are many different ways in which money is digitally usable. Scriptural money can only be created virtually by credit institutions and is used among the involved payment institutions in electronical form whenever a payer initiates a transaction. Also on the side of the payment initiating payer digital tools such as banking apps are used. In addition to scriptural money there is another legal form of digital money in the European Union. Since the first e-money directive 2000/46/EC came into effect, which in the meantime has been repealed by the second e-money directive 2009/110/EC, e-Money is defined as every electronically, including magnetically stored monetary value as represented by a claim against the issuer which is issued on receipt of funds for the purpose of making payment transactions, and which is accepted by a natural or legal person other than the electronic money issuer. Since the creation of Bitcoin in 2009, there are blockchain based payment units, that can also be considered as a digital form of money. With scriptural money, e-money and cryptocurrencies there are at least three different forms of digital money.


Interestingly, the definition of e-money according to the e-money directive does not preclude the issuing of e-money on a blockchain basis. It is legally and technically possible for a central administrating issuer to create a smart contract on a blockchain and issue standardized and tokenized payment tokens. If the issuer would guarantee the possibility to exchange these tokens back at any time into legal tender, they would qualify as e-money according to the definition. The decentralized allocation and storage of the tokens would not lead to a different result, since the definition only requires the storage of the units. Therefore, the tokens would not necessarily have to be stored with the emitter. But would these e-money tokens also fall under the definition of the new financial instrument of crypto assets and would they therefore be both, e-money and a financial instrument according to the German Banking Act (KWG)?


According to the newly introduced definition in the KWG, crypto assets are digital representations of value that is not issued or guaranteed by a central bank or any other public authority and does not possess the legal status of currency or money, but is accepted by natural or legal persons as a means of exchange or payment on basis of an agreement or actual practice or which serves investment purposes and which can be stored, traded and transferred electronically. According to this definition, e-money tokens can be crypto assets. The scope of the definition is restricted in the second sentence of the definition itself which states that e-money units are not crypto assets. A qualification of e-money tokens as crypto assets is therefore impossible according to the legal wording. If a service provider would offers to customers the storage of their e-money tokens, a BaFin authorization for crypto custody services would not be required.


E-money tokens as a form of e-money would also be subject to the German Payment Services Act (ZAG), in which the German legislator integrated the provisions from the second e-money directive. As shown above, the tokens could not be defined as crypto assets. That however does not automatically mean that e-money tokens cannot qualify as financial instruments according to the KWG at the same time. Under its administrative practice, BaFin qualifies e-money units as units of account and therefore as financial instruments in the sense of the KWG. Providers that e.g. offer brokerage services in regard to e-money tokens or the option to buy and sell e-money tokens on a regular basis and commercial scale can therefore be subject to BaFin authorization according to the KWG. The mere custody of e-money tokens for customers on the other hand would not be subject to authorization, because the KWG requires an authorization only for custody services regarding fiat money, securities or crypto assets.

Attorney Lutz Auffenberg, LL.M. (London)