Crypto custody licenses in Germany – where are the banks?

While one FinTech after the other is grabbing a coveted crypto custody license, one hears from classic German commercial banks: nothing. Is Germany’s financial sector oversleeping the Bitcoin revolution?

Crypto Germany has regulatory security. Since December 12, 2019, the law for the implementation of the amending directive to the fourth EU money laundering directive has been in force in this country and thus also the offense of crypto custody business.

Companies that want to store digital assets such as crypto currencies for third parties (so-called custody) must first apply for a crypto custody license from BaFin with immediate effect. More precisely: who

  • Crypto values ​​or private cryptographic keys that are used to hold, store or transfer crypto values
  • for others
  • stores, manages and secures,

must with the BaFin Obtain written permission as stated in the financial regulator’s leaflet.

So whoever has complained about a lack of regulation – here it is. But the licenses are few and far between. As of October 2021, BaFin issued exactly three crypto custody licenses in Germany: Coinbase Germany, Kapilendo and recently also the Munich start-up Tangany are the only three companies that could get hold of such a license.

While Coinbase Germany already received permission to carry out the crypto custody business in June of this year, Kapilendo was the second company to follow on September 15 and Tangany recently at the beginning of October. BaFin originally received 28 applications. It is not known whether the other 25 will still be granted or whether they have already been rejected, as BaFin does not make any statements about waivers.

Coinbase license caused a stir

The fact that Coinbase of all places received the first notification has caused quite a sensation in the Bitcoin scene. After all, with a market value of around USD 60 billion, the company is not only one of the world’s largest crypto companies, but also one of the largest FinTechs ever. For comparison: Deutsche Bank currently has a market capitalization of “only” 26 billion US dollars.

The allegations that Coinbase was given preferential treatment here, however, throws off the responsible financial supervisory authority. We were informed via e-mail that “the permit applications are generally processed in chronological order [werden]. The duration of a permit procedure depends largely on the type, scope and completeness of the application. As soon as an examination has shown that the legal requirements have been met, a corresponding permit is granted. “

In other words: Coinbase was simply faster than the competition and was able to provide all the necessary documents.

Crypto Custody: An Opportunity for Banks?

The fact that the market capitalization of a US Bitcoin exchange is now more than twice as large as that of Germany’s largest credit institute shows once again that a change of power is looming in the financial sector. Nevertheless, the remaining 25 applicants could also include large German commercial banks.
At least that’s what Martin Janda, blockchain expert at NTT DATA thinks. He said to BTC-ECHO:

“Crypto custody opens up a unique opportunity for banks to turn this development around. I would recommend the banks to take advantage of this opportunity to be able to offer services in a completely new business area in the future. “

NTT Data has only recently made an appearance in terms of crypto custody. As an author, Janda has written a working paper on the state of affairs in terms of Bitcoin custody. The paper with the title “Successfully implementing solutions for crypto custody with NTT DATA” states:

However, the advantages of safe and convenient crypto custody are great, especially when it comes to customer loyalty. In addition, professional crypto custody is the core for new investment and financing solutions as well as for holistic, token-based ecosystems with digital identities as a comprehensive access option.

In other words: Nothing works in the financial sector these days without a crypto strategy.

After all: Commerzbank and Deutsche Bank are getting closer

After inquiring at BaFin, however, we were unable to find out whether or not major German banks were among the applicants for custody licenses. There is currently no discernible crypto-specific strategy from banks such as Commerzbank. On the contrary: in February of this year, the bank had embarrassed itself with an anti-Bitcoin report. The document was a hodgepodge of classic FUD and inconsistent lines of argument such as the lack of “intrinsic value” of Bitcoin. The document also revealed glaring gaps in knowledge.

The bank argued that Bitcoin was nothing more than a “shadow currency” that is mainly used by criminals. Attentive readers of BTC-ECHO know, however, that black market currency No. 1 is still the US dollar and cryptocurrencies make up an ever smaller proportion of criminal transactions.

“The issue is still not taken seriously by the banks. The crypto sector still has a wicked image, ”said Janda.

In the meantime, Commerzbank is at least slightly approaching the topic of crypto currencies. A company spokesperson told BTC-ECHO:

“We are working intensively on the subject of crypto assets, that is, on the safekeeping and trading of non-physical assets. To this end, we entered into a cooperation with the Deutsche Börse Group and FinTech 360x in spring 2021. In addition, we are pursuing our own digital asset strategy and are also planning our own offers for our customers in the coming years. “

Banks could lose touch with the 21st century

It is more than necessary for traditional banks to catch up with the 21st century. But it will soon be too late for that: Partly due to the low interest rate policy, the classic lending business has long ceased to be lucrative. Coinbase and Co. are meanwhile preparing to overtake the traditional financial sector.

Not much has been heard from Deutsche Bank these days either. With Alexander Bechtel, they have an established crypto professional in their own ranks. However, this has not yet led to any concrete success.

Only one document from the World Economic Forum from 2020 indicates the Deutsche Bank’s crypto strategy. It says:

“Deutsche Bank aims to develop a fully integrated custody platform for institutional clients and their digital assets that seamlessly connects to the broader cryptocurrency ecosystem.”

We wanted to know to what extent these plans had already materialized, but we couldn’t reach Deutsche Bank for a statement by the editorial deadline.

But one thing is certain: if the banks do not want to miss the boat with the 21st century, they should do their utmost when it comes to crypto custody.

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