The international trade of crypto assets is becoming more and more attractive to professional traders. Even though the overall market capitalization of the crypto market is still extremely low in comparison to the market capitalization of the established capital markets, the independence from exchange trading hours and the volatility that are associated with crypto assets are potentially so profitable that more and more professional traders are entering this market. With the increasingly professional approach to investments in the crypto market, a likewise increase in the usage of modern investment tools which detect trends or even place buy and sell orders on the basis of artificial intelligence can be observed. A somewhat milder precursor to such investment-bots can be found in the sending of trading signals with attached buy or sell recommendations. These trading signals are often provided either via messenger services like Whatsapp or Telegram or via email or they are even made publicly available via a website. But is the provision of trading signals a regulated activity that the signal provider has to coordinate with the supervisory authorities?



Financial services can be subject to an authorization requirement. This is the case with activities that include the offering of personalized investment advice to customers or their representatives with regards to certain financial instruments in consideration of the individual situation of the investor. According to the German Banking Act (KWG) financial instruments in this sense are also crypto assets such as Bitcoin, Litecoin or comparable cryptocurrencies. Global recommendations that are published by service providers via information distribution channels or that are intended for the public are not investment advice in the regulated sense. Trading signals that simply analyze general trends of the crypto market and provide buy or sell recommendations on this basis can therefore not be investment advisory in the aforementioned sense of the KWG. They always lack the personal reference to the investor.



Notwithstanding any authorization requirements, companies or individuals that are neither already authorized as securities service providers, financial investment management companies or as investment companies have a reporting obligation to BaFin if they offer investment recommendation services. However, this reporting obligation is only triggered according to the WpHG if the recommendations that are provided relate to financial instruments in the sense of the MiFID II. Crypto assets are qualified as financial instruments only according to the German KWG and not according to MiFID II. The reporting obligation therefore does not apply to signal providers that only provide their services with regard to the crypto market. This could of course be different in case of trading signals that relate to tokenized financial instruments that qualify as financial instruments in sense of MiFID II such as tokenized stocks or tokenized securities.


Attorney Lutz Auffenberg, LL.M. (London)





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