On 18 December 2024, the German Bundestag passed the Financial Markets Digitization Act (FinmadiG) on the last legs of the current minority government consisting of the SPD and the Greens. It passed the Bundesrat before Christmas without any further amendments, meaning that it entered into force after publication in the Federal Law Gazette just in time to implement the transition to the regulatory regime of the EU Markets in Crypto Assets Regulation (MiCAR) under national law. The previous definition of crypto assets under national law in the German Banking Act (KWG) and Investment Firms Act (WpIG) has thus finally been deleted and consigned to the realm of legal history. Crypto assets within the meaning of the KWG and the WpIG are now, for the purposes of national law, exclusively crypto assets as defined by MiCAR and therefore digital representations of a value or a right that can be electronically transferred and stored using distributed ledger technology or similar technology. However, the previous definition of crypto assets in accordance with the KWG and WpIG was not the only unilateral move by German legislators in matters of crypto regulation prior to the MiCAR regime. Since 2011, BaFin has consistently taken the view that Bitcoins and similar cryptocurrencies i.e. so-called currency tokens are also to be classified as units of account and thus as financial instruments within the meaning of the KWG and WpIG. The question is whether the qualification of currency tokens as units of account is still possible after the FinmadiG came into force or whether the application of the new regulatory regime for crypto assets under the FinmadiG and MiCAR has led to the silent departure of units of account from crypto regulation.
Prior to MiCAR Crypto Assets and Units of Account Could Both Be Given at the Same Time
Under the superseded national crypto regulation, crypto assets were designed as a so-called catch-all provision, meaning that tokens could qualify as both a crypto asset and another form of financial instrument from the KWG or WpIG instrument catalog. In principle, this hybrid classification was not harmful and could even be helpful in individual cases. For example, cryptocurrencies that had the legal status of money could not fall under the definition of crypto assets under the KWG and WpIG, but could still qualify as a unit of account and therefore still be a regulated financial instrument. In such cases, regulation under the KWG and WpIG could apply to business activities with corresponding tokens, as intended by the legislator. Under the new regulation based on MiCAR, this is more difficult, especially as the regulation under KWG and WpIG differs from that under MiCAR in terms of its regulatory content. It is therefore necessary to be able to assign tokens to one of the two regulatory regimes in a legally secure and unambiguous manner. The legal situation following the going into force of the FinmadiG therefore no longer provides for crypto assets under German law and clarifies that crypto assets within the meaning of the KWG and the WpIG are crypto assets within the meaning of MiCAR. Tokens that are not classified as crypto assets under MiCAR may qualify as cryptographic instruments in individual cases. However, it remains problematic that bitcoins, for example, clearly qualify as a unit of account and thus as a financial instrument under the KWG and WpIG according to the administrative practice not yet abandoned by BaFin, but at the same time also as a crypto asset within the meaning of MiCAR. Which regulatory regime should apply in such cases?
BaFin Should Prioritize MiCAR over National Regulation
It is obvious that MiCAR should take precedence over purely national regulation under the KWG and the WpIG for the regulatory classification of tokens. Unfortunately, the German legislator has failed to include a clarification in the law in this regard, which would have been possible without any problems as part of the far-reaching amendments to the two federal laws. However, sufficient clarification could also be achieved in practice by BaFin finally abandoning its administrative practice of classifying bitcoins and comparable clones as units of account. It dates back to a time when there was no codified regulation for crypto tokens and has done its duty at the latest since the FinmadiG and MiCAR came into force. As far as can be assumed, there would be no regulatory gaps. A departure from the classification of currency tokens as units of account would also be expedient and welcome with regard to the standardization of the law applicable in the EU, which is necessary for the realization of the European single market.
Attorney Lutz Auffenberg, LL.M. (London)
Attorney Lutz Auffenberg, LL.M. (London) is the lawyer responsible for advising on all matters relating to crypto regulation under MiCAR, KWG and WpIG at our law firm.
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