Financial Crime World

Regulatory Framework for Tokens in Germany: A Comprehensive Overview

Introduction

In recent years, there has been a significant growth in the use of tokens as financial instruments in Germany. The regulatory framework surrounding these tokens is governed by the Banking Act (KWG) and the Investment Code (WpIG). This article will provide an overview of the key points related to the regulation of tokens in Germany.

Definition of Financial Instruments

  • Units of Account: Tokens qualify as financial instruments under the KWG, but not under MiFID II. They are considered units of account, which is a broader term that encompasses virtual currencies like cryptocurrency tokens.
  • Virtual Currencies: The definition includes digital representations of value that are not issued or guaranteed by a central bank and do not enjoy currency status.

Regulatory Approach

BaFin has taken a practical approach to regulating cryptocurrencies by treating them as units of account since 2013. This approach was reinforced in its:

  • 2018 ICO Notice: Emphasized the need for token issuers to comply with relevant regulations.
  • Second Notice on Prospectus and Licence Requirements: Provided guidance on the requirements for token issuances.

Amendments to the KWG

The implementation of Directive (EU) 2018/843 into German law has amended the KWG to explicitly include cryptoassets as financial instruments. This definition is broad, encompassing a wide range of tokens, including:

  • Security Tokens: Used for investment purposes.
  • Digital Representations of Value: That are not issued or guaranteed by a central bank and do not enjoy currency status.

Inclusion in WpIG

Upon enactment of WpIG, cryptoassets were also included in its list of financial instruments. This covers a wide range of tokens, including security tokens used for investment purposes.

Uncertainty Around Utility Tokens

There is still uncertainty about whether utility tokens that neither serve as means of exchange or payment nor for investment purposes will qualify as financial instruments under the KWG and the WpIG in the future.

By understanding the regulatory framework surrounding tokens in Germany, businesses and individuals can better navigate the complex landscape and ensure compliance with relevant regulations.