The catalyst: A recent amendment of German AML classifying crypto-custody as a financial service.

About 40 banks have applied to Germany’s Federal Financial Supervisory Authority, or BaFin, for licenses to operate custody services for digital assets. (Coingeek)

Bafin last month released new guidelines that will impact firms offering or intending to offer custody services for digital assets such as cryptocurrencies and tokens. Effective January 1, 2020, depository or custody services for crypto assets stand classified as a financial service under the German Banking Act.

A ‘crypto depository service’ is “the safekeeping, administration and securing of crypto assets or private cryptographic keys which are used to hold, store or transfer crypto assets, for others (crypto depository service).”

Accordingly, the financial regulation of such entities who offer crypto-custody now falls within the purview of Bafin and anti-money laundering regulations.

Why the rush for approvals?

Banks are eyeing a huge opportunity for custody of crypto assets in the mass market. Prospective investors in cryptos have been deterred by the problems surrounding cryptos’ safekeeping. These include hacking, loss of private keys, and fraudulent operators in the market.

Solaris is among the first banks to apply for a custody license.

“We have been dealing intensively with the topic of crypto custody for a year and a half,” said Michael Offermann, head of crypto banking at Solaris. “The new regulation in the new Money Laundering Act is a good time to start, practically.”

A time limit now comes into force for licensing. Companies that have already been providing crypto services before January 1 have until November 30, 2020, to comply – a kind of “transitional” period. However, they must inform Bafin by March 31 of their intentions to apply for a license. This also applies to foreign companies currently active in these services.

However, entities contemplating entering the field for the first time cannot do so without a license. Once licensed, they would become regulated cryptocurrency custodians.

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