When the European legislator decided to introduce the first piece of codified regulation for the crypto market with the fifth AML directive, he also decided to use the term virtual currencies to describe Bitcoin, Litecoin and comparable, blockchain-based units of value. The German legislator on the other hand did not implement the term virtual currency and the corresponding definition into national law when he transposed the provisions of the fifth AML directive into the German Money Laundering Act (GWG). Instead, the German legislator decided to introduce the term crypto asset and a corresponding definition to the German Banking Act (KWG) in an attempted to cover almost every blockchain-based phenomena. In Germany, crypto assets are therefore financial instruments in the sense of the KWG as of the 1st of January 2020. They are defined as digital representations of value that are neither issued nor guaranteed by a central bank nor any other public authority and that do not possess the legal status of currency or money, but are 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. The German legislator excluded crypto-based e-money instruments as well as digital means of payment that can only be used in a limited business model from this definition. Germany took a separate route in this matter which is not quite helpful to the harmonization of the European crypto regulation.
EU COMMISSION USES THE TERM CRYPTO ASSET IN ITS DRAFT REGARDING THE MICA REGULATION
Simultaneously with the publication of its Digital Finance Package in September of 2020, the EU Commission also released its draft for a uniform regulation of the crypto market. With the Markets in Crypto Assets Regulation (MiCA), the EU Commission intends to provide a reasonable regulation regarding the creation and offer of crypto tokens and stable coins, as well as a uniform obligation to obtain authorization for crypto-related business models throughout the entirety of the European Union. If passed, the MiCA regulation would be directly applicable to all market participants throughout the European Union. Contrary to EU directives, the regulation would not need to be transposed into the respective national law in order to be legally effective. In the context of the MiCA regulation, the EU Commission also proposed a definition of the term crypto asset. The proposed definition differs substantially from the one which was introduced by the German legislator in the KWG at the beginning of this year. A crypto asset according to MiCA shall be defined as a digital representation of value or a right that can be stored and traded electronically using distributed ledger technology or comparable technology. In addition to that, the MiCA regulation in its current form would also introduce subcategories of crypto assets and it also includes a definition of the term distributed ledger technology itself. These subcategories would be asset-referenced tokens, e-money tokens, utility tokens and other crypto assets. The MiCA draft also provides definitions for the subcategories.
WHAT ARE THE MOST IMPORTANT DIFFERENCES BETWEEN THE DEFINITIONS OF CRYPTO ASSETS IN THE KWG AND THE PROPOSED MICA DRAFT?
At first glance, the definitions already differ substantially in length. While the MiCA definition utilizes subdefinitions for specific designs of crypto assets, the German solution tries to provide a uniform definition for all manifestations. In addition to that, there are also content-related differences. While the German definition relates to the absence of an issuance or guarantee by a central bank or any other public authority and furthermore to a potential usage as a means of payment or as an investment vehicle, the proposed MiCA regulation does not. The later result from the specific subdefinitions. Therefore, it seems that the European solution is preferable to the German one. The European solution is way better suited to correctly and accordingly tackle the different possible applications of the distributed-ledger-technology. It therefore looks as if the German legislator will have to abolish its unique, specific solution in a timely manner.
Attorney Lutz Auffenberg, LL.M. (London)
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