Generally speaking, cryptocurrency tokens constitute financial instruments (units of account) within the meaning of the German Banking Act (Kreditwesengesetz – KWG). Therefore, undertakings and persons that arrange the acquisition of tokens, sell or purchase tokens on a commercial basis, or operate secondary market platforms on which tokens are traded are generally required to obtain authorization from BaFin (Federal Financial Supervisory Authority) in advance.
Based on the specific formulation of the contract for each ICO, BaFin decides on a case-by-case basis whether the offeror is required to obtain authorization pursuant to KWG, Investment Code (Kapitalanlagegesetzbuch – KAGB), Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) or Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) and whether they must fulfil prospectus requirements.
The fact that BaFin classified Bitcoin and comparable virtual currencies as units of account, does not mean that all cryptocurrencies will fall under the supervisory regime. As the mere sale of said instruments constitutes neither a banking transaction nor a financial service, an obligation to obtain a permission under the Banking Act can be excluded. Regulation under the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz; “ZAG”) can also be ruled out given that no transfer of amounts of national money or e-money is involved.
On the other hand, ICOs established outside of Germany yet clearly targeting German investors might still be subject to German supervisory laws. Having your website, whitepaper or any other (marketing) materials in German might already be considered as targeting German investors.
Late February, Bafin published another statement regarding ICOs. It talks about the definition of cryptocurrency tokens as they include the characteristics of securities, currencies and even digital products that makes them hard to understand and regulate. BaFin has defined them as units of account. Also, they don’t fall under the securities regulation in Germany. Germany’s jurisdiction requires that Initial Coin Offering administrators are to check if a regulated instrument such as security or financial instrument is considered to meet potential legal demands without cutting corners. From this statement it seems Germany follows a similar path as Switzerland. Bafin also published requirements for companies to obtain a license for operating an exchange platform (which, on first sight, do not look to strict):
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