BaFin Classifies Crypto as Financial Instrument

The regulator mandated licensing of all crypto custody by November.

Germany’s Federal Financial Supervisory Authority, popularly known as BaFin, released guidance on Monday, classifying digital assets as financial instruments.

Per the financial regulator, virtual currencies are “a digital representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically.”

The regulator also clarified that the definition of crypto by several entities, including the Financial Action Task Force (FATF), overlaps, which formed the base of its classification.

The guidance also pointed out that the broad definition of crypto was prepared, as digital assets ​​that are not accounting units did not fall under any of its previous categorizations.

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Clarifying crypto regulations

This came after the regulator updated its existing anti-money laundering (AML) laws, mandating companies offering crypto custody to obtain licenses. It also clarified that it would not penalize any unlicensed entity already offering such services. These firms only need to show their intention to obtain such a license by March 31 and apply for one by November 30.

According to a local report, more than 40 German banks are now seeking BaFin’s approval to offer digital asset custody services in the country.

“According to the wording of the regulation, it is not necessary that crypto values ​​or private cryptographic keys that are used to hold, store or transfer crypto values ​​are stored, managed and secured at the same time,” BaFin stated (translated from German).

“For the purposes of this provision, custody means taking the crypto values ​​into care as a service for third parties. This primarily includes service providers who store their customers’ crypto values ​​in a collective inventory without the customers themselves being aware of the cryptographic keys used.”

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