Month: January 2024

FinmadiG and KMAG – Implementation of European crypto-financial market regulation in Germany

By Annabelle Rau on 29. January, 2024

Posted In Crypto Regulation, Financial Services

The German legislator has responded to the harmonization of European financial market regulations: In October 2023, the Federal Ministry of Finance published the draft bill for the Act on the Digitization of the Financial Market (Finanzmarktdigitalisierungsgesetz – “FinmadiG“), followed by the publication of the government draft of the FinmadiG just one month later.

MiCAR, DORA and money transfers – what does the FinmadiG implement?

The FinmadiG is intended to implement the following EU regulations on digital financial market regulation:

Markets in Crypto-Assets Regulation (“MiCAR”): The first EU-wide uniform set of rules for markets in crypto assets (we provided information here, for example)
The EU DORA package (Digital Operational Resilience Act): The financial sector-wide EU regulation of cybersecurity, ICT risks and digital operational resilience
Revision of the EU Transfer of Funds Regulation (TFR): Including regulating the collection and disclosure of customer information in crypto transfers

New regulations on the terms “crypto assets” and “crypto custody business”

The FinmadiG is intended to harmonize the German definition of crypto assets with the European MiCAR standard. The term crypto assets will be removed from the catalogue of financial instruments of the German Banking Act (“KWG“), which means a realignment of the regulatory coverage of crypto assets. In future, crypto assets as defined by MiCAR will be directly covered and regulated by MiCAR.
At the same time, a new term – cryptographic instrument – will be introduced. This is intended to cover digital assets that do not fall within the scope of MiCAR (e.g. security tokens within the meaning of MiFID II) and must therefore continue to be regulated by the KWG and the German Securities Institutions Act.
Consequently, the previous national crypto custody business will also be renamed “qualified crypto custody business”. In future, it will apply to the custody of crypto assets that do not fall under MiCAR but qualify as cryptographic instruments within the meaning of national regulations.
In future, both issuers and providers of crypto services will therefore have to check exactly which crypto asset term the respective tokens fall under and which supervisory regime will subsequently apply.

MiCAR supervision by BaFin: the new Crypto Markets Supervision Act (KMAG)

The German Federal Financial Supervisory Authority (“BaFin“) is responsible for the supervision of crypto assets, issuers, and service providers within the meaning of MiCAR. To regulate its powers and sanctions in connection with the new regulation, a separate Crypto Markets Supervision Act (“KMAG”) is to be created.
The KMAG also addresses the possibility of a simplified licensing procedure for institutions that are already regulated. The exact structure of the simplified procedure is then to be regulated by a separate ordinance to be issued by the BMF.

Digital resilience of the financial sector: implementation of DORA

DORA addresses the digital operational resilience of financial companies in a standardized manner to create a common framework for the effective management of cyber security and ICT risks. BaFin recently published its own DORA information page on this.
To implement DORA, the FinmadiG provides for numerous amendments to national supervisory laws. This also includes authorization bases for BaFin orders in the event of violations of DORA as well as the introduction of administrative offenses that can be punished with a fine.

Crypto and money laundering: implementation of the TFR

The FinmadiG also aims to adapt national regulations to the requirements of the updated EU Funds Transfer Regulation. In future, crypto service providers will have to collect, transmit and make available information on the originators and beneficiaries of the transfers of crypto assets they carry out. In addition, such crypto service providers will continue to be considered obliged entities under money laundering law within the meaning of the Money Laundering Act (“GWG“).

Outlook

The form in which the implementation proposals of the FinmadiG will find their way into legislation remains to be seen. In particular, the dual regulation of crypto assets under MiCAR on the one hand and security tokens under MiFID II on the other, which was already laid out in MiCAR, will continue to challenge legal practitioners in the future. It is to be hoped that the German legislator will find a way of implementation that is comprehensible and legally secure in practice.

Update for securities institutions: German Securities Institutions Owner Control Ordi-nance published

By Annabelle Rau on 17. January, 2024

Posted In Banking Law, Financial Services

On January 15, 2024, the German Securities Institutions Owner Control Ordinance was published in the Federal Law Gazette and thus entered into force today, January 16, 2024.

Owner control procedures for securities institutions

The Securities Institutions Owner Control Ordinance regulates the material and formal requirements for the acquisition of a significant shareholding in a regulated securities institution (so-called owner control procedure).

A significant or qualified shareholding is defined as the direct or indirect holding of shares in a company that represents at least 10% of the capital or voting rights of this company or that otherwise enables the exercise of significant influence over the management of this company.

Specification of the notification of the acquisition of shareholdings by the ordinance

Anyone intending to acquire such a significant shareholding or increase an existing shareholding must notify BaFin (Section 24 (1) WpIG). The Securities Institutions Owner Control Ordinance specifies how this notification must be made.

The checklists in the ordinance are useful in particular, e.g. for

Notification of the acquisition or increase of a significant shareholding by a natural person
Notification of the acquisition or increase of a significant shareholding by a non-natural person

The regulation now contains notification forms for both constellations. In addition, it contains the forms for information on the required reliability of the interested acquirer, on the presentation of complex shareholding structures and on the disposal or reduction of a significant shareholding.

Outlook

With the entry into force of the German Securities Institutions Owner Control Ordinance, there is now finally an owner control procedure tailored to securities institutions. The previously necessary recourse to parallel regulations from other German supervisory laws no longer applies. Interested acquirers should familiarize themselves with the requirements for the acquisition of a significant shareholding in a securities institution at an early stage to be able to initiate the process with BaFin as well prepared as possible.

SEC approval for crypto ETF

By Dr. Frederic Peine on 11. January, 2024

Posted In Crypto Regulation

Yesterday, on January 10, 2024, the US Securities and Exchange Commission (“SEC”) made the long-awaited decision by the crypto scene to allow the listing and distribution of exchange-traded funds (“ETFs”) that track the price of the cryptocurrency Bitcoin, so-called Bitcoin spot ETFs. Specifically, 11 of these Bitcoin spot ETFs were approved by SEC, including those from major market players such as BlackRock, Ark Investments and Fidelity. The approval decision was preceded by a false report shortly before the SEC decision, which once again led to considerable market distortions. The approval took a year-long coordination process between the parties involved and the SEC, including a legal dispute in the USA last year regarding the approval of a Bitcoin spot ETF, in which the SEC was ordered by the court to review its legal assessment of Bitcoin spot ETFs. With the approval decision, the SEC has now complied with this, but has also pointed out, that Bitcoin is speculative and volatile and that Bitcoin has already been used to finance illegal activities in the past. The SEC is still not a supporter of Bitcoin. Nevertheless, the general expectation in the market is now a significant increase in crypto investments and a correspondingly strong rise in market capitalization, as institutional investors are now also more likely to have access to crypto investments (via ETFs).

The Bitcoin Spot ETFs approved by the SEC are not initially available in Germany. The approval only applies to the USA. It remains to be seen what impact the SEC decision will have on the German regulatory practice of the German supervisory authority (BaFin) in the future. Under the current legal situation, a comparable structure is not possible for ETFs launched and domiciled in Germany, as here in Germany ETFs are prohibited from investing in just one asset.

You can find the link here.