On its last days, the grand coalition gave the German crypto industry a parting gift in the fall of 2021 with the national Travel of Crypto Assets regulation. Since the ordinance came into force, crypto service providers regulated under the German Banking Act (KWG) or the German Investment Firms Act (WpIG) have been required to collect, store and transmit information on crypto transactions conducted by them or with their assistance to any crypto service provider involved on the counterparty side of the transaction in order to prevent money laundering. If crypto service providers are not involved on both sides of the transaction, involved crypto service providers must nevertheless obtain and store data on the transaction, such as names and addresses as well as blockchain addresses of the parties to the transaction, and also take risk-appropriate measures. In particular, they are obliged to check the plausibility of crypto transactions. However, the new regulation did not spark joy. Rather, vigorous criticism of the national Travel of Crypto Assets regulation was quickly voiced. The main points of criticism were that at the time of entry into force, there was already a proposal from the EU Commission to revise the EU Travel of Funds regulation, so that the national Travel of Crypto Assets regulation could only be a transitional regulation from the outset and, secondly, that the obligations arising from the regulation exclusively affect German market participants, which makes it considerably more difficult to fulfill the obligations, particularly in the case of international crypto asset transfers.
New Version of the National Travel of Crypto Assets Regulation with New Deadlines for Exemptions for Crypto Service Providers
The Federal Ministry of Finance has created a new version of the national Travel of Crypto Assets regulation with effect from May 27, 2023. The only relevant new provision here is to be found in the transitional provisions of the ordinance. There, it is now ordered that crypto service providers already active on May 27 2023 and prior to that who, through no fault of their own, are unable to fulfill the obligations arising from the ordinance, or are unable to do so completely, must notify BaFin of this by June 30, 2023. Corresponding notifications must then be substantiated to BaFin by July 31, 2023 at the latest. The justification must contain information on the reason for the impediment and describe what measures the crypto service provider will take to ensure that the obligations under the national Travel of Crypto Assets regulation are fulfilled as quickly as possible. In addition, it must be outlined what other risk-adequate measures will be taken during the non-compliance with the obligations under the regulation in order to minimize the risk of money laundering in crypto transactions. If the justification is sufficiently plausible, crypto service providers are initially exempt from the obligations of the national Travel of Crypto Assets regulation. If the justification is not sufficient, BaFin will notify the crypto service provider no later than two months after the receipt of the justification. For companies that do not offer regulated crypto services until after May 27, 2023, the notification, along with the justification, must be made upon commencement of business. Crypto service providers that already submitted a justified notification for exemption under the original national Travel of Crypto Assets regulation do not have to submit a new notification.
EU Transfer of Funds Regulation to Directly Supersede National Crypto Securities Transfer Regulation
The exemption from the obligations under the National Travel of Crypto Assets Regulation will apply for a maximum period of twelve months, which may, however, be extended by another twelve months if the crypto service provider can explain why, contrary to its original plans, it was unable to remove the impediment to fulfilling the obligations after all. In any case, however, the national Travel of Crypto Assets Regulation will cease to apply on the day on which the new version of the EU Travel of Funds Regulation enters into force. The national regulation will thus be immediately replaced by the new EU Travel of Funds Regulation. As the new version has already been adopted by the EU Parliament and is expected to enter into force soon, unlike initial applications for exemption, extensions of the exemption under the national Travel of Crypto Assets Regulation will in all likelihood be very rare. This will probably only come into consideration in cases where crypto service providers assumed in their justification to BaFin that they would be able to remove the impediment within a few weeks.
Attorney Lutz Auffenberg, LL.M. (London)