BaFin

Boerse Stuttgart Digital subsidiary receives final approval for crypto custody

With the licensing of the German exchange’s blocknox service, it now offers fully regulated brokerage, trading and custody.

Boerse Stuttgart Digital, the digital asset brand of the Boerse Stuttgart exchange group, announced March 30 that its blocknox service had received final licensing from the German Federal Financial Supervisory Authority (BaFin) to operate as a crypto custodian. Boerse Stuttgart Group now offers fully regulated brokerage, trading, and custody of digital assets, it said.

Its final licensing makes Boerse Stuttgart Digital the first “established market participant […] Licensed to hold cryptocurrencies in custody without any acquisitions,” Boerse Stuttgart Group CEO Matthias Voelkel said. Boerse Stuttgart Digital said European banks, brokers, asset managers and family offices could incorporate its services into their own offerings. It operates exchanges in Germany, Sweden and Switzerland and has an office in Ljubljana, Slovenia, as well.

Related: Institutional crypto custody: How banks are housing digital assets

Bitcoin Group SE, operator of the German bitcoin.de crypto trading platform, acquired Bankhaus von der Heydt, which was licensed for crypto custody, in December. German asset manager DZ Bank partnered with Swiss Metaco to offer crypto services, including custody, in February.

Boerse Stuttgart Digital has been providing custody services through blocknox under a provisional license since crypto custody regulations were introduced in Germany on Jan. 1, 2020. It had begun offering trading services to German residents in the prior month and introduced a trading app in 2021. Boerse Stuttgart Digital received its final custody licensing ahead of several other contenders, including Binance.

Global exchange group Nasdaq announced plans on March 24 to set up a limited-purpose trust company to offer crypto custody services under the supervision of the New York Department of Financial Services. This comes after the United States Securities and Exchange Commission moved to impose new rules making it harder for cryptocurrency exchanges to custody crypto by expanding rules originally formulated in 2009.

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German regulator BaFin suggests a ‘case-by-case’ approach for NFTs

Given the difficulties with classification, BaFin highlights the freedom of nonfungible tokens from licensing demands.

The Federal Financial Supervisory Authority of Germany (BaFin) is not ready to classify nonfungible tokens (NFTs) as securities. The agency suggests classifying the NFTs on a case-by-case basis. 

On March 8, the BaFin journal published an explanatory note considering NFTs legal classification. At this point, the regulators don’t see how NFTs meet the criteria to be considered securities. However, in the future, BaFin may consider NFTs as securities if, for example, 1,000 NFTs embody the same repayment and interest claims.

According to another reservation, if an NFT contains documentation of exploitation rights or ownership, such as a promise of distribution, it could be considered an investment.

The agency recommends a case-by-case approach to classifying NFTs as a “crypto asset.” But, according to BaFin, the chance that NFTs will represent a “crypto asset” is even smaller than the investment classification, given the lack of immediate exchangeability. The lack of standardization also spares NFTs of “e-money” status.

Given the difficulties with classification, BaFin doesn’t expect NFTs to comply with the licensing requirements of the Payment Services Supervision Act. And, except for fungibles, which fall under the financial instrument category, NFTs are also free of BaFin’s Anti-Money Laundering supervision. NFTs separately considered “crypto assets” would need to comply with AML supervision.

Related: German DZ Bank adds digital currencies to asset management services

According to the metaverse platform Metajuice, almost three out of four of the NFT collectors on its platform purchase NFTs for status, uniqueness and aesthetics. Only 13% percent of survey participants said they buy NFTs to resell them in the future.

Germany’s financial regulator orders Coinbase to address ‘business organization’ practices

In effect since Oct. 27, BaFin’s order referred to Coinbase’s Germany arm outsourcing some operations “essential for conducting banking business or providing financial services.”

The Federal Financial Supervisory Authority of Germany, also known as BaFin, has issued an order related to the business organization of Coinbase’s local arm in accordance with the country’s banking laws.

In a Nov. 8 notice, BaFin said it had issued the order to Coinbase Germany GmbH for violations of “proper business organization” under the German Banking Act. According to a copy of the legislation made available by the United States Commodity Futures Trading Commission, Coinbase’s Germany arm should have “suitable arrangements for managing, monitoring and controlling risks and appropriate arrangements by means of which the institution’s financial situation can be gauged with sufficient accuracy at all times” and provide certificates of audit related to appropriate reports on its annual accounts.

BaFin referred to Coinbase’s Germany arm outsourcing some of its operations as “essential for conducting banking business or providing financial services.” The order has been in effect since Oct. 27.

“An audit of the annual financial statements revealed organizational deficiencies at the institute,” said BaFin. “The regularity of the business organization was not given in all audited areas.”

In a written statement to Cointelegraph, a Coinbase spokesperson said the exchange was “cooperating fully” in its efforts to address the findings of the annual audit report:

“Coinbase considers regulation a business enabler and the process to undertake the measures identified by BaFin has already begun. We have developed a remediation plan fully addressing each finding of the audit report to address BaFin’s concerns. To date, we have made substantial progress on this plan.”

Related: German BaFin official calls for ‘innovative’ EU-wide DeFi regulation

Germany’s financial watchdog first issued Coinbase’s local arm a license allowing the exchange to custody digital assets in the country in July 2021. The move followed German lawmakers passing legislation requiring firms aiming to provide crypto services to receive BaFin approval starting in January 2020.