The new Financial Market Digitisation Act

The financial market is in a state of constant change due to its contact with constantly and rapidly evolving information technology. Crypto assets are one of the most important transformative technologies in the financial sector. German and European legislators are currently focussing more and more on them. The most important legal developments include the Regulation on Digital Operational Resilience in the Financial Sector ("DORA"), the Regulation on Markets in Crypto Assets ("MiCAR") and the Regulation on the Transmission of Funds Transfer Information ("Funds Transfer Regulation").

The new Financial Market Digitisation Act

The German legislator intends to transpose these key European measures into German law with the new Financial Market Digitisation Act ("FinmadiG") and thereby comprehensively specify them. The focus of the draft published by the Federal Ministry of Finance on 23 October 2023 is primarily on the newly introduced Crypto Markets Supervision Act ("KMAG"). The KMAG is intended to create a proactive and modern supervisory architecture that enables institutions to be monitored throughout their entire life cycle. In addition to the traditional powers, such as information and audits or powers vis-à-vis management bodies, supervisory powers that are linked to the digital infrastructure are therefore also included.

Independent supervisory framework

A key focus in the implementation of MiCAR in the FinmadiG is the implementation of the requirement for supervisory powers and the involvement of the Federal Financial Supervisory Authority ("BaFin"). At the same time, European terminology is used in order to achieve a harmonised "supervisory language". The enforcement of the authorisation requirements for crypto asset issuers and service providers anchored in the MiCAR is made possible by specific regulations - e.g. on unauthorised business and the ordering of an immediate cessation.

Transfer of authorisations

By contrast, a simplified procedure is intended to facilitate the transfer of existing national licences to the MiCAR regime within a certain time frame. The FinmadiG also introduces significant changes to the German Banking Act (KWG). The introduction of the new terms "cryptographic instruments" and "qualified crypto custody" into the German Banking Act in particular is causing enormous confusion, meaning that the legal categorisation of various financial instruments and token (types) and the assessment of existing obligations will require a detailed examination of various legal sources in future.

Risk assessment for transactions with self-hosted wallets

In addition, there are further provisions - in particular those implementing the DORA. There are relevant amendments to the Money Laundering Act regarding the implementation of the Money Transfers Ordinance, such as the introduction of increased due diligence obligations when transferring crypto assets from or to a self-hosted address. As a result, crypto assets will be reassessed at national level through the "European lens" and their previous subsumption and regulation will be adapted accordingly.

Ferdinand Grieger and Sevdalina Markova have written more about the specific obligations provided for in the FinmadiG and the resulting risks as well as the development of the planned simplified procedure for transferring German licences and much more in their article "Das FinmadiG: Kryptodienstleister und -emittenten im Fokus" in the journal for the law of the digital economy #ZdiW, Schwerpunktheft #DigitalAssets 11/12 from 2023.