Commerzbank, one of the largest banking institutions in Germany, has announced that it has applied for a crypto custody license from the country’s Federal Financial Supervisory Authority (BaFin). This is the first time a major bank in Germany has made a move toward cryptocurrencies, as the demand for crypto-related services and investments grows among its clients.
What is a crypto custody license and why is it important?
A crypto custody license is a regulatory approval that allows financial institutions to store and trade digital currencies for their clients. Since January 1, 2020, this license has been mandatory for any business that wants to offer crypto services in Germany, according to the law that implements the EU’s Fifth Anti-Money Laundering Directive. The law also aims to protect investors and prevent money laundering and terrorist financing through cryptocurrencies.
Operating crypto services without the proper license carries the risk of a criminal penalty of up to five years in prison for the persons responsible. However, the law also provides generous transitional provisions for organizations that had already been conducting related transactions before the directive came into force.
Who are the other players in the German crypto market?
According to BaFin, it has received 25 applications for the crypto custody license so far and has already approved four. The first company to earn the license was Coinbase Germany, the local subsidiary of the US-based crypto exchange, in June 2021. The most recent approval was granted to Upvest, a Berlin-based fintech firm that offers crypto custody solutions for businesses, in March 2023.
Other notable applicants include Bitwala, a crypto banking platform that partners with Solarisbank, a digital bank that also holds a crypto custody license; Börse Stuttgart, the second-largest stock exchange in Germany that operates a crypto trading venue called Bison; and Finoa, a crypto custody and staking provider that works with institutional investors.
What are Commerzbank’s plans for crypto services?
Commerzbank, which serves over 18 million customers and over 70,000 institutional clients, intends to offer the planned crypto custody services to primarily institutional clients, such as asset managers, pension funds, and corporates. A spokesperson from Commerzbank confirmed to local media outlet Börsen-Zeitung on April 14 that it “applied for the crypto custody license in the first quarter of 2023.”
If approved, Commerzbank will be able to offer exchange services as well as custody and protection of crypto-assets, such as Bitcoin and Ethereum. The bank has been involved in blockchain projects since 2018 and has conducted some of the first transactions on a distributed ledger technology (DLT) platform for securities lending with other major banks. In August 2021, the bank also partnered with a DLT startup to develop blockchain-based digital marketplaces for existing asset classes such as art and real estate.
How does Germany compare to other countries in terms of crypto regulation and adoption?
Germany is considered one of the most progressive and crypto-friendly countries in Europe and the world, as it has introduced a number of reforms, regulations, and initiatives to foster the adoption of blockchain technology and cryptocurrencies. For instance, in 2020, Germany passed a law that allows banks to sell and store cryptocurrencies for their customers, making it the first country in the EU to do so. In 2021, Germany also allowed special funds, which manage around €1.8 trillion of assets, to invest up to 20% of their portfolios in crypto-assets.
Moreover, Germany has been supportive of the development of a digital euro, a central bank digital currency (CBDC) that could complement or replace cash in the future. The Bundesbank, Germany’s central bank, has been testing the technical feasibility and potential benefits of a CBDC in collaboration with the European Central Bank and other national central banks.
On the other hand, Germany also faces some challenges and risks in the crypto space, such as the increasing competition from other jurisdictions, the lack of clarity and consistency in some aspects of the regulatory framework, and the potential threats from cyberattacks and fraud. Therefore, Germany needs to balance its innovation and regulation efforts to ensure the security and stability of the crypto market, as well as the protection and empowerment of its users.