Amid a turbulent political landscape in Germany, the country’s transition to the EU’s new MiCA regulation has faced significant challenges. This article examines BaFin’s efforts to adapt its established CASP licensing regime to the MiCA framework and explores the political uncertainty that has surrounded developments. As part of our ongoing series on global crypto legal regimes, we provide a comprehensive look at the regulatory transformations shaping digital asset governance.
As the implementation date for MiCA approaches at the end of 2024, each EU member state is required to set up a process for crypto-asset service providers (CASPs) to undergo the appropriate notification or licensing requirements within the defined transition period.
Pre-MiCA Regulations in Germany: A Crypto-Friendly Legacy and its Challenges
Since January 2020, crypto-asset businesses in Germany have been obliged to apply for a domestic CASP license via BaFin. Following the implementation of the EU’s Fifth Anti-Money Laundering Directive, German regulators enhanced the new rules with a definition of crypto-assets, along with a licensing requirement for custody providers.
In 2023, the German Parliament passed an act called “Zukunftsfinanzierungsgesetz”, or the Future Financing Act, which enables German entities to issue digital securities as on-chain tokens.
This proactive approach to crypto regulation earned Germany a reputation as being a relatively crypto-friendly country. Furthermore, the existence of an established licensing regime has enabled BaFin to introduce a simplified procedure that will allow existing license holders to continue operating under MiCA.
MiCA Transition Timeline: How Germany Plans to Streamline CASP Licensing for Crypto Businesses
Since July 2024, BaFin has been in consultation with businesses wishing to operate as a CASP in 2025 under the new MiCA rules and has issued detailed information and FAQs on its website. While MiCA allows for an 18-month transition period, Germany aims to conclude the transition within 12 months by December 30, 2025. All German CASPs must have a full MiCA license by this date.
The previous BaFin licensing regime required all CASPs to register regardless of their size or existing financial operations. Under those rules, any traditional bank launching crypto-asset services in Germany has been subject to the same registration requirements as any brand-new crypto exchange operator.
However, Article 60 of the new MiCA regulation provides an exemption to “certain financial entities” from the requirement to obtain a CASP license. Regulated credit institutions, securities depositories, investment firms, and others that are already licensed or regulated under established EU financial regulations can use a simplified notification procedure that allows them to extend existing operations to digital assets. Qualifying entities must notify the domestic regulator at least 40 days in advance of launching CASP operations.
Navigating BaFin’s Notification Procedures for MiCA Compliance
The German interpretation of MiCA only allows formal notifications to be lodged once the regulation comes into force on December 30, 2024. However, BaFin has been accepting preliminary information concerning Article 60 notification procedures since July 1, 2024, and full information about what must be included in the notification is detailed on the regulator’s website.
Qualifying entities must submit their notifications to BaFin 40 days in advance of launching any CASP service provision, and send a copy to their regional office of the Deutsche Bundesbank (German National Bank).
CASP Licensing in Germany: Transition Rules and New Application Processes
Entities not qualifying for an Article 60 exemption must obtain a CASP license to continue operating under MiCA. The route to doing so will depend on whether the CASP is currently registered with BaFin, undergoing a registration process with BaFin, or obtaining a CASP license for the first time under the new MiCA rules.
Transitional arrangements
BaFin has introduced a simplified process designed to smooth the transition for companies that already hold a CASP license. Applications for the simplified procedure can be made until August 31, 2025, while BaFin will complete all decisions by the end of December 2025.
Companies already licensed under the existing regime as of December 29, 2024, can continue operating under their current license until a decision is received under the simplified process or until the end of December 2025, when the German MiCA transition period ends.
The application for the simplified procedure will need to specify particular information, including:
- confirmation that the business model has not changed;
- an updated business plan specifying which crypto asset services are to be provided and in which member states;
- policies and procedures for compliance with chapters 2 and 3 of Title V of MiCA, a description of the procedures regarding conflicts of interest, and a description of the procedures for handling complaints under Article 71 of MiCA.
Supplementary information relating to the type of services may also be required, according to the list of service categories provided on the BaFin website
If a company has already lodged an application to BaFin under existing rules and it’s not yet approved by December 30, 2024, a new or updated application will be needed under the new MiCA rules.
New licenses
New applications made from the end of December onwards are subject to MiCA rules. Entities not already licensed by BaFin under the existing regime can only lodge a MiCA application after it comes into effect at the end of December. However, since July 2024, BaFin has been accepting preliminary information with a view to smoothing the process for new CASPs once MiCA comes into law.
Detailed information on the application procedure for new applicants can be found in the MiCAR implementation documentation issued by BaFin.
What the German Government Collapse Means for MiCA Implementation
In November 2024, Germany’s ruling coalition government collapsed, leaving the MiCA transition in a precarious state. MiCA is structured as an EU regulation, meaning it takes effect automatically in member states without the need for specific legislation to be enacted at the domestic level.
However, some elements of the MiCA implementation, such as the requirement to appoint a domestic financial regulator, needed to be implemented into national law.
In Germany, the Digitalisation of the Financial Markets Act (FinmadiG) and its core component, the Supervision of Crypto Markets Act (KMAG) assign MiCA responsibilities to BaFin. On 18th December 2024, the German Parliament passed FinmadiG at the eleventh hour, paving the way for BaFin to begin issuing MiCA licenses from 30th December.
With the legal basis for MiCA now in place at the EU and domestic level, the outcome of the 2025 German election is relatively inconsequential for CASP operations.
Digital Asset Market Opportunity for German CASPs
Now that the political and regulatory issues have been resolved, the horizon looks bright for German CASPs. The country’s otherwise favorable attitude to cryptocurrencies has created fertile ground for banks to launch a CASP offering, while adoption is growing rapidly among the country’s younger demographics.
In September 2024, Commerzbank announced a partnership with Deutsche Börse subsidiary Crypto Finance to offer crypto trading and custodial services to institutional clients. Around the same time, DZ Bank teamed up with Börse Stuttgart to provide crypto services to the former’s cooperative bank network, comprising some 700 members. Deutsche Börse has since become one of the first to obtain BaFIN approval to expand into digital assets under MiCA.
Currently, only around 11% of the general population holds cryptocurrency, but adoption and intent are significantly more notable among millennials. 22% of those aged 28 to 43 years old currently hold crypto, while 33% of the same age group intend to invest in crypto in the coming twelve months.
It’s worth noting that these numbers do not reflect any rise in interest in crypto investing resulting from the post-US election price rally, where BTC exceeded $100,000 for the first time.
Wyden Infinity: Building Fully MiCA-Compliant Digital Asset Businesses
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A key advantage of the Wyden platform is that it offers true best execution through market-wide connectivity to over 55 trading venues and a smart order routing system that carries out price comparisons and order splitting to achieve the optimal execution terms. Transparency is built into the system via real-time pre- and post-trade data, and Wyden’s standalone accounting system offers a fully auditable transaction trail.
Integration with custody partners, such as Copper, Metaco, and Fireblocks, also means Wyden maintains an auditable record of transaction flows between custody and trading with automated liquidity management solutions that ensure an uninterrupted trading experience. Core banking integrations ensure smooth reconciliation and support the assimilation of a new digital asset offering into established workflows.
Contact us today for an initial discussion about implementing a MiCA-compliant digital asset offering in your organization.
Please note that the above article does not constitute legal advice.