The governing coalition in the German Parliament consisting of the SPD, the Green Party and FDP is history. All that is left of the so-called “traffic lights coalition” that started about three years ago is a pedestrian light without a yellow phase. For the federal government, this means that majorities must be sought and formed in parliament for all legislative proposals still to be passed. The support of the opposition parties in the parliament, which have not themselves helped to shape draft legislations that are ready to be voted on, is likely to be granted only in a few cases, particularly in view of the election campaign that began immediately after the end of the governing coalition. The fate of the draft legislation under the Financial Markets Digitization Act (FinmaDiG), which has been on the table for many months, and the associated draft regulations on the MiCAR transition, namely the MiCAR Application Regulation and the MiCAR Transit Regulation, is therefore more than uncertain. It seems very unlikely that the proposals can still be adopted by 30 December 2024. From this date, the provisions of MiCAR will have direct legal effect in their entirety in EU member states. For companies with crypto-related business models, this means that they must have an authorization or notification under the new Regulation on the basis of which they are allowed to provide their crypto services. But what is the legal situation for the German crypto industry if the German legislator does not manage to enact national framework legislation by the time the new regulatory regime under MiCAR comes into force?
Draft of the KMAG is to Create a Legal Basis for the Application for Approval in Accordance with MiCAR
With the Crypto Markets Supervision Act (KMAG), the German legislator plans to create the national legal framework for the implementation of the MiCAR regulations. In particular, the KMAG is intended to define BaFin’s responsibility for supervising compliance with the provisions of the new regime. In particular, BaFin is to be responsible for processing applications for authorization under MiCAR and the ongoing supervision of crypto-asset service providers. Additionally , the KMAG is to establish BaFin’s competence for, e.g. acquisition control proceedings under the new regime and the prosecution of crypto services operated without required authorization under MiCAR. The draft legislation also contains a number of other special rules, such as supplementary provisions to the regulations set out in MiCAR and a comprehensive catalogue of administrative offenses for cases in which it or the KMAG are violated. However, the actual procedures for submitting an application for a MiCAR license or for using the notification option for existing institutions with an existing license under national financial supervisory law are defined by the MiCAR itself, with the exception of a few detailed questions. It is therefore only imperative that the German legislator legally regulates which national authority will be the competent authority within the meaning of MiCAR by the time it comes into force. Without this definition, there will be no legal basis for submitting applications to BaFin under MiCAR, with the result that BaFin will not be able to process such applications.
What Applies to Existing Institutions and Institutions with a Provisionally Granted License in Accordance with Section 64y KWG?
If the German Parliament does not pass the KMAG in time before 30 December 2024, only the MiCAR will apply to existing institutions and crypto service providers already operating legally. The transitional provisions therein stipulate that providers of crypto-asset services that provided their services under current law before 30 December 2024 may continue to do so until 1 July 2026 at the latest or until the date on which they receive an authorization or denial under the provisions of MiCAR. The starting point for the deemed approval is therefore solely the question of whether the company in question provided crypto-asset services under applicable law prior to 30 December 2024. In particular, the wording makes no distinction as to whether a company had a provisional or final license to provide crypto asset services before 30 December 2024. As a result, if the German legislator fails to act on national framework legislation for the MiCAR transition, crypto custodians with a provisional KWG license could also continue to operate their business for the time being. It is true that MiCAR provides national legislators with the option of deciding not to make use of the transitional regulation for crypto asset service providers. However, such a decision is likely to require an active legislative act, which has not yet taken place and is unlikely to be adopted by 30 December 2024.
Attorney Lutz Auffenberg, LL.M. (London)
The lawyer responsible for questions relating to MiCAR, the transition to the MiCAR regime and related transitional provisions at our law firm is Attorney Lutz Auffenberg, LL.M. (London).
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