On 3 January 2025, BaFin published a guidance notice on crypto-asset services in accordance with Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (“MiCAR”). The BaFin guidance notice on crypto-asset services under MiCAR (“Guidance Notice”) contains, among other things, interpretation notes on crypto-asset services and specifies when an authorisation requirement exists with regard to the provision of crypto-asset services. This article focuses on the interpretation notes on crypto-asset services.
Table of Contents
Interpretation Notes on Crypto-Asset Services
The information sheet contains interpretation notes on the various crypto value services:
a) Custody and Administration of Crypto-Assets on behalf of Clients
According to Art. 3 (1) no. 16 lit. a and no. 17 MiCAR, the crypto-asset service of custody and administration of crypto-assets on behalf clients is defined as “the safekeeping or controlling, on behalf of clients, of crypto-assets or of the means of access to such crypto-assets, where applicable in the form of private cryptographic keys”.
This definition corresponds to the first alternative of the definition of crypto custody business business[1] that existed until 30.12.2024 from the German Banking Act (Kreditwesengesetz “KWG“) (“the custody, management and safeguarding of crypto-assets or private cryptographic keys used to hold, store or dispose of crypto-assets for others, as well as the safeguarding of private cryptographic keys used to hold, store or dispose of crypto securities for others in accordance with Section 4 (3) of the German Electronic Securities Act“), so that BaFin correctly refers to the principles of interpretation of the crypto custody business.
Accordingly, the custody of crypto-assets is to be understood as the safekeeping of crypto assets as a service for third parties.
The “administration of crypto-assets” is to be understood as the ongoing exercise of rights arising from the crypto-asset. According to BaFin, it is irrelevant that the MiCAR definition of the safekeeping and administration of crypto-assets on behalf of clients does not define “administration” accordingly.
The “safekeeping ” from the MiCAR definition is to be understood as the digital storage of the private keys of third parties and/or the storage of physical data carriers (e.g. a USB stick or a sheet of paper) on which such private keys are stored. As before, the provision of storage space (e.g. by web hosting or cloud storage providers) is not covered by the scope as long as the respective service provider does not also promise or offer to secure the crypto-assets.
The mere production or distribution of hardware or software for safekeeping crypto-assets or private keys that are operated by the clients themselves (e.g. self-hosted wallet) is also excluded from the scope, provided that the providers do not have access to the stored crypto-assets or private keys. Accordingly, wallet providers with corresponding access options fall under the scope.
Custody of own crypto .assets is also excluded from the scope, as custody is not carried out for clients. It is irrelevant whether the safekeeping is carried out by the provider itself or by its employees or shareholders on the basis of the division of labor.
b) Provision of Transfer Services for Crypto-Assets on behalf of clients
In addition to the repetition of the MiCAR definition, BaFin points out that crypto custodians or wallet providers may provide the crypto-asset transfer service if, in the context of staking, they offer to transfer the tokens held in custody to a smart contract on the blockchain where the tokens are then staked.
Staking refers to a blockchain-internal mechanism of a proof-of-stake blockchain in which a defined quantity of tokens are used to validate blockchain transactions. The crypto values on the blockchain are bound to a node in the network (so-called “validator”). The aim of this mechanism is to decentralise and secure the blockchain. This contribution rewards those who contribute to the security of the network with their tokens.
According to BaFin, which correctly refers to recital 93 of MiCAR, validators, nodes or miners in the context of staking and pure structural services do not fall under the scope.
It is not entirely clear from Bafin’s explanations whether staking services and/or offering of staking generally fall under the scope of crypt- asset transfer service or only the specific transfer service. Staking could also be understood as administration of crypto-assets, as staking could be understood as the exercise of rights arising from the crypto-asset.
Furthermore, BaFin states in line with recital 93 of MiCAR that e-money tokens can only be transferred by authorised payment institutions.
c) Crypto-Asset Services that correspond to MiFID II Investment Services
Art. 60 (3) MiCAR specifies which crypto-asset services correspond to which MiFID II investment services. In this context, Bafin refers to existing guidance notices regarding the interpretation of the remaining crypto-asset services:
- With regard to the crypto asset service of operating a trading platform for crypto-assets, BaFin refers to the BaFin guidance notices on the statutory definition of operating a multilateral trading facility in accordance with Section 1 (1a) sentence 2 no. 1b KWG and operating an organised trading facility in accordance with Section 1 (1a) sentence 2 no. 1d KWG. BaFin also points out that the regulation also covers systems that facilitate the pooling of trading interests and that a contract does not necessarily have to be concluded within the system.
- With regard to the crypto-asset service of exchanging crypto-assets for funds and the crypto-asset service of exchanging crypto assets for other crypto-assets, BaFin refers to the BaFin guidance notice “Information on the statutory definitions of proprietary trading and proprietary business”. As in the case of financial instruments, proprietary business regarding crypto-assets is not subject to authorisation, “as a contract must be concluded with (and for) clients, i.e. a contract concluded exclusively in one’s own interest does not fulfil the criteria“.
- With regard to the crypto-asset service of executing orders for crypto-assets on behalf of clients, BaFin refers to the BaFin guidance notices on contract broking in accordance with Section 1 (1a) sentence 2 no. 2 KWG and on principal broking service in accordance with Section 1 (1) sentence 2 no. 4 KWG.
- With regard to the crypto-asset service of placing crypto assets, BaFin refers to the BaFin guidance notices on underwriting business in accordance with Section 1 (1) sentence 2 no. 10 KWG and on placing business in accordance with Section 1 (1) sentence 2 no. 1c KWG.
- With regard to the crypto-asset service of receiving and transmitting orders for crypto-assets on behalf of clients, BaFin refers to the BaFin guidance notice on investment brokerage in accordance with Section 1 (1a) sentence 2 no. 1 KWG.
- With regard to the crypto-asset service of providing advice on crypto-assets, BaFin refers to the guidance notice on investment advice in accordance with Section 1 (1a) sentence 2 no. 1a KWG.
- With regard to the crypto-asset service of portfolio management on crypto-assets, BaFin refers to the BaFin guidance notice on portfolio management in accordance with Section 1 (1a) sentence 2 no. 1a KWG.
Translation Errors
Furthermore, BaFin draws attention to some translation errors in the German version of the MiCAR in the context of describing the respective crypto-asset services. Unfortunately, there are numerous translation errors throughout the German version of MiCAR, so that the German version of the MiCAR should not be read without the English version. It is to be hoped that these translation errors will be corrected, as some of them are not insignificant
Conclusion
The Guidance Notice provides more legal certainty regarding the interpretation of the respective crypto-asset services. In particular, credit is to be given to BaFin for referring to existing interpretation notes regarding comparable financial services and/or investment services and for pointing out translation errors in the German version of MiCAR.
[1] The German Financial Market Digitisation Act (Finanzmarktdigitalisierungsgesetz “FinmadiG“) has, among other things, amended the KWG to the effect that the crypto custody business has been removed as a financial service, as the administration and custody of crypto-assets now falls within the scope of MiCAR. Instead, the KWG now includes the qualified crypto custody business as a financial service, which covers the safekeeping and administration of cryptographic instruments and the securing of private keys to cryptographic instruments, crypto securities, crypto fund units and securities that can be transferred and stored using DLT or similar technology.
