The grand coalition passed the Crypto Asset Transfer Regulation of the Federal Ministry of Finances nearing the end of its tenure of office in late September 2021. It thereby subjected the crypto industry to yet another piece of regulation. The regulation intends for comprehensive obligations for crypto service providers which are involved in transactions of crypto assets. These obligations are similar to those of the European Funds Transfers Regulation (EU/2015/847) which stipulates obligations for payment service providers. According to the latter, banks and other payment service providers are obligated to collect, store and submit detailed information concerning payors and payees of transactions of fiat-money in which they are involved. The reason for the grand coalition to pass this regulation is their aspiration to implement the recommendation of the Financial Action Task Forces (FATF). This with the intention to transpose the so-called Travel Rule into respective national law. The Travel Rule has been published already in 2019. The FATF recommends their members to obligate crypto asset service providers that are involved in crypto transactions to collect, store and submit data related to the payor and payee of the crypto transaction.

Crypto Asset Transfer Regulation Went into Effect Despite Fierce Criticism of the Industry

During the very short consultation period of just two and a half weeks, fierce criticism was raised by the German crypto industry. This in the end could not stop the transposition of the ministries’ draft and the Crypto Asset Transfer Regulation went into effect. One major criticism was the fact that it would be impossible for the affected crypto asset service providers to implement measurements to fulfil the obligations in such a short period of time. After all the regulation went into effect on the first of October 2021. While the collection, storage and transfer obligations resulting from the EU Funds Transfers Regulation for payment service providers of traditional fiat payment transactions is taken into account by the respective Core Banking Systems (CBS) used by the individual payment service providers and technical solutions exist within these CBS, as of now there are no technical support tools in existence for the implementation of the Crypto Asset Transfer Regulation and the obligations stipulated by it. The time period of six days between the passing of the regulation and it going into effect was simply too short for developing. Another very valid criticism was the fact that the EU commission presented it’s draft bill concerning the expansion of the obligations from the EU Funds Transfers Regulation to crypto asset transfers in the summer of 2021 – and thereby prior to the Crypto Asset Transfer Regulation going into effect. It was therefore obvious from the moment in which the Crypto Asset Transfer Regulation went into effect that the German regulation will be a short-term solution until the European regulation goes into effect. Therefore, German crypto service providers are at this moment at a severe disadvantage compared to their European competitors, because they have to fulfil the additional administrative obligations resulting from the Crypto Asset Transfer Regulation.

BaFin Provides Form for Making Use of Exemption

The Ministry of Finance included a transitional regulation into the Crypto Asset Transfer Regulation in order to provide the market participants with the option to correctly fulfil the obligations from the Crypto Asset Transfer Regulation. According to the exemption, affected crypto asset service providers which were already involved in crypto transactions prior to the first of October 2021 may inform BaFin until the 30^th of November 2021 that they are guiltlessly unable to completely or partially comply with the regulation. BaFin provided a form for this last week. The appendix of the form also contains the information, that a justification for the utilization of the exemption has to be provided until December 31^st, 2021. According to the appendix, a valid reason and justification is e.g. the lack of a technical implementation possibility. Crypto asset service providers have to verify that they are indeed investing serious effort to find a technical solution, e.g. by joining professional associations that are working on a technical solution. Crypto asset service providers may be exempt from the obligations of the Crypto Asset Transfer Regulation for up to twelve months. An extension for another twelve months is possible according to the regulation. The complete utilization of the transitional regulation could mean that German crypto asset service provides may not have to fulfil the German Crypto Asset Transfer Regulation at all, depending on the speed of the European legislator. Should the revised version of the EU Funds Transfers Regulation go into effect within the next two years it will take precedence over any national regulations. It is therefore possible that the Crypto Asset Transfer Regulation of the grand coalition turns out to be an expensive and useless paper tiger. Only businesses which become active after the notification period is over will be directly affected and they will have to fulfil the obligations of the regulation immediately.

Attorney Lutz Auffenberg, LL.M. (London)

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