The Markets in Crypto Assets Regulation (MiCAR), which will take legal effect for crypto service providers in the European Union as of December 30, 2024, is very closely oriented to the services known from MiFID2 regulation when it comes to the activities to be regulated. In this respect, one of the crypto services that can only be provided in the future on the basis of a MiCAR license will also be the acceptance and transmission of orders for crypto assets for clients. The provision itself does not clarify from whom the orders are to be accepted and to whom they are to be transmitted. In this respect, it is not clear at first glance which specific crypto service is meant by the wording. However, a corresponding formulation for the description of a financial service requiring a license can be found in relation to financial instruments in Annex I of MiFID2. There, as is well known, the somewhat awkward wording means investment brokerage in relation to financial instruments covered by MiFID2 regulation. Crypto service providers, who therefore broker supply and demand between two parties without themselves becoming a party to an exchange contract for crypto assets in order to work towards the conclusion of a contract between these two parties, are to be regulated as crypto investment brokers in the future and must obtain a MiCAR license for their activities.

Requirements for a MiCAR License for Investment Brokerage with Crypto Assets

In order to successfully obtain a MiCAR license, a corresponding license application must be submitted to BaFin in Germany. The license application requires very careful preparation. Applicants applying for a MiCAR license at BaFin must first meet the minimum regulatory requirements under MiCAR for crypto service providers. In the case of investment brokerage with crypto assets, these include in particular the maintenance of a minimum capital of 50,000 euros at all times, reliable and professionally suitable directors, and a professional business organization to meet all legal and regulatory requirements. In addition, crypto service providers that wish to engage in investment brokerage with respect to crypto assets must comply with specific compliance obligations under MiCAR. For example, they are required to exercise particular diligence when transmitting client orders to crypto trading platforms and other crypto service providers. In this regard, they must establish and implement procedures and arrangements for the prompt and proper transmission of client orders. Further, MiCAR prohibits them from receiving monetary benefits from trading platforms or other crypto service providers for forwarding client orders. The prohibition serves to ensure that crypto asset investment brokers provide the best possible service to their clients and do not refer them to a crypto service provider that is not optimal for the clients for their own economic interest. Finally, crypto asset brokers must not misuse information about customer orders that have not yet been executed and must take precautions in their business in this regard.

No Tied Agent Under a Liability Umbrella Under MiCAR

The concept of the tied agent known from the field of investment brokerage with financial instruments, which exclusively provides investment brokerage for the account and under the liability of a correspondingly licensed company and which does not require its own BaFin license for this purpose, is not provided for in MiCAR. Consequently, every provider of investment brokerage with crypto assets will in principle have to obtain an independent MiCAR license from BaFin. This is still different for investment brokers brokering crypto assets under the provisions of the German Banking Act (KWG) and Investment Firm Act (WpIG) that are currently still in force in Germany. According to both national supervisory regimes, crypto assets are financial instruments – albeit defined differently than in MiCAR – and thus suitable objects of investment brokerage requiring a license. According to the exceptions regulated in the KWG and the WpIG), this can also be provided without an individual BaFin license by means of a liability umbrella as a tied agent. Such arrangements will no longer be possible in the future under the MiCAR regime. In view of the current liability umbrella regulation under the KWG and the WpIG in Germany, the legislator will have to decide in the near future how to deal with the special regulation for purely national business models, which is not in line with MiCAR. Tied agents currently brokering crypto assets under a liability umbrella should promptly consider obtaining their own MiCAR license in order to be able to operate their business after December 30, 2024.

Attorney Lutz Auffenberg, LL.M. (London)



The lawyer responsible for advising on obtaining a MiCAR license for investment brokerage with crypto assets in our law firm is Attorney Lutz Auffenberg, LL.M. (London).