The latest Anti-Money Laundering (AML) regulations in Germany will dictate to German cryptocurrency companies and exchanges to hold licenses issued by the Federal Financial Supervisory Authority (BaFin) starting next year.
Since the evolution of Bitcoin (BTC)trade since its inception in 2009, the primary target of blockchains and cryptocurrencies has been to establish an unregulated and decentralized transaction systems. But just like many other technological prospects, Bitcoin has been vulnerable to human evil time and time again.
In recent years, thousands of money laundering cases have been observed where Bitcoins and some other cryptocurrencies were used to transact dirty money within countries. According to the reports, approximately $2.5 billion worth of Bitcoin was transacted through cryptocurrency exchanges with lax AML regulations until 2018.
All of this has resulted in a heated discussion in different blockchain communities across the world, whilst governments and regulatory authorities have been questioning decentralized and unregulated blockchain systems.
Like many other countries, Germany has taken some measures to prevent money laundering in the country and has decided to regulate German cryptocurrency companies according to their latest Anti-Money Laundering regulations. The German draft version of the German Banking Act (KWG) adds cryptocurrency transaction to the financial services catalog, and a crypto asset is defined as a new financial tool.
A BaFin spokeswoman stated:
“This license will be extended in the future to service providers who convert virtual currencies into legal [fiat] currencies, as well as providers of electronic purses, so-called wallets. This should serve to combat money laundering and terrorist financing.”
Furthermore, companies that operate any Bitcoin-related businesses will be required to comply with the Money Laundering Act in the future. The classification of crypto businesses as financial service providers also triggers a licensing requirement, as these companies falls under BaFin’s supervision, which will monitor compliance with anti-money laundering regulations. Only commercial trading of cryptocurrencieshas been subject to Bafin’s approval so far.
According to BaFin’s spokeswoman, classifying crypto assets as financial instruments has a clarifying function, as all sorts of administrative practices were occasionally called into question.
For and Against the New Crypto Regulation
These cryptocurrency regulations have met a lot of criticism from within the country as well as outside criticism. In a conversation with the German news outlet FAZ, member of the Bundestag Frank Schäffler refers to a key issue in the government’s draft in which the promotion of new digital technologies such as blockchain was in the foreground. “The government is now forcing cryptocurrency trading platform providers to leave the country and its policies and seek another EU location for their businesses.”
Christian Schmies, partner of the law firm Hengeler Mueller, takes a much more favorable view of the Money Laundering Directive Bill. “This is not limited to a minimal implementation, but goes beyond it with additional requirements, which is welcomed.”
According to Schmies, until no there has been a lack of adequate market regulation for crypto assets and applications of blockchain technology. Despite many possibilities, he believes that the crypto market still has a negligible importance compared to the classical conventional financial market.
