Regulating Crypto Assets in Germany: A Framework for Financial Stability
Overview
Germany’s regulatory framework for crypto assets and digital currencies is designed to ensure financial stability while addressing the risks associated with these emerging technologies. The German Federal Financial Supervisory Authority (BaFin) plays a crucial role in overseeing companies that provide services related to crypto assets.
Warnings and Risks
- Highly speculative nature: BaFin has issued warnings about the risks associated with payment tokens, crypto assets, and other digital currencies, highlighting their highly speculative nature.
- Lack of regulation: The lack of clear regulations can lead to market volatility and increased risk for investors.
Supervisory Practice
BaFin supervises companies in Germany that provide services related to crypto assets, including:
- Crypto trading platforms
- Firms operating crypto ATMs
- Companies conducting crypto custody business or operating crypto securities registers
These companies are subject to BaFin’s guidelines and requirements to ensure compliance with regulatory standards.
Authorisation Procedures
Companies wishing to provide crypto custody business or operate crypto securities registration require authorisation from BaFin. This authorisation is subject to certain requirements, including:
- Compliance with regulatory standards
- Demonstration of adequate risk management practices
IT Risks and Cybersecurity
The increasing dependency on functioning IT infrastructures highlights the significance of IT risks, which are a result of cyber attacks in the financial sector. BaFin has established a new organisational unit for IT security issues and issued minimum requirements for IT infrastructures.
Ensuring Financial Stability
The overarching objective of all efforts by financial regulators and supervisors is to ensure financial stability. The Financial Stability Committee (FSC) is responsible for macro-prudential oversight in Germany, which serves to:
- Limit systemic risk
- Improve the resilience of the financial system
By regulating crypto assets and addressing associated risks, BaFin plays a crucial role in maintaining financial stability in Germany.