DLT and cryptocurrencies
FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
Using crypto currencies for the banking business is a relatively new trend. It is not yet used by most of the companies or people and the actual scope of application still must be figured out. At the end of 2021, German Savings Banks (Sparkassen), stated they are looking into offering the ability to trade virtual currencies for their customers. They hope to increase the usage of crypto currencies like they helped increase the usage of mobile payment solutions by introducing Apple Pay.
Obligations and requirements to provide financial services using crypto currencies described above
In Germany, crypto currencies are deemed to be financial instruments, which are regulated according to the German Banking Act (Kreditwesengesetz – KWG).
Whether a license is required in this context depends on the business model. Providing custody, trading, and/or distribution services such as broking, trading on account or exchanging activities might trigger a licence requirement. License costs depend on the specific business model and result from fixed and time spent costs. Fixed costs typically range from EUR 3,262.00 to EUR 10,114.00 and additional time spent costs depend on the complexity of respective business model. To provide the crypto custody business in Germany an initial capital of at least EUR 150,000.00 is required.
Regarding banking business and financial services, anti-money laundering and data protection regulation is also to be complied with.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
In addition to the national (German) regulation of crypto assets, the EU regulation on markets for crypto assets (MiCA) is expected to come into force in 2022. Insofar as distributed ledger technology-based tokens are subject to this regulation, they and related services may then in principle only be issued by regulated and/or licenced companies.
Market size for financial services using crypto currencies and biggest companies in this business area
In 2021 the market for financial services using crypto currencies was still growing. Several online broker services, including Trade Republic and Scalable Capital, started offering the ability to trade crypto currencies in 2021.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Companies in the business area of crypto currencies which have the necessary technical and regulatory expertise are hardly established yet. However, a competition for the most efficient, customer-friendly providers who promise market participants protection, legitimacy, and security (race to the top) is already visible. On the other side, a competition between European legislators for the lowest regulatory requirements (race to the bottom) may emerge, too. In such a competition, pure FinTech companies and established banks also compete with foreign crypto exchanges. Here, market participants must keep in mind that the passporting of a crypto custody permission is not (yet) possible and crypto asset providers need the permission of German regulators to address the German market.
The most prominent and assumingly the most discussed blockchain project is the invention of the Digital Euro, a digital blockchain-based version of the Euro currency. The Digital Euro will probably be issued by the European Central Bank, although the details are still being worked on. Blockchain-based currencies will be a hot topic over the next couple of years.