Crypto values vs. crypto values – On the dissonance between German and European cryptoregulation
Fachanwalt Lutz Auffenberg has specialised in the field of fintech and innovative technologies with his law firm Fin Law. In particular, block chain technology and its regulation is the focus of his work. In his guest commentary he deals with the dissonance between German and European cryptoregulation.
When the European legislator created the first piece of codified regulation in the cryptographic market in the course of its fifth anti-money laundering directive, he chose the term virtual currencies to cover Bitcoin, Litecoin and similar blockchain-based value units. When it became necessary to transpose by Bitcoin System app the requirements of the fifth anti-money laundering directive into national law, the German legislator nevertheless refrained from introducing a definition of virtual currencies into the Money Laundering Act and instead introduced its own definition into the German Banking Act (KWG) with the term „crypto values“, which was intended to cover as many block-chain phenomena as possible.
In Germany, crypt values have therefore been financial instruments under the KWG since 1 January 2020. They are defined as digital representations of a value that has not been issued or guaranteed by any central bank or public authority and does not have the legal status of a currency or money, but is accepted by natural or legal persons as a means of exchange or payment on the basis of an agreement or actual practice or serves investment purposes and can be transferred, stored and traded electronically. The German legislator has exempted from its definition e-money instruments as well as digital means of payment which can only be used in limited ecosystems. Germany thus followed an independent path that was not exactly conducive to harmonising European cryptoregulation.
EU Commission takes up the concept of cryptographic values in the draft MiCA Regulation
With its publication of the Pact for the Digitalisation of the Financial Market in September 2020, the EU Commission also presented a draft for a uniform, Europe-wide regulation of the cryptomarket. With the Markets in Crypto Assets Regulation (MiCA), the Commission wants to ensure uniform licensing requirements for crypto-related business models within the Union and, beyond that, appropriate regulation of the creation and supply of cryptook and stable coins.
The MiCA Regulation would be directly applicable to all market participants within the European Union and would not have to be transposed into national law to take legal effect, as is the case with directives. For the purposes of the MiCA Regulation, the EU Commission also proposed a definition of the term cryptographic values. However, the definition differs considerably from the term which the German legislator had just included in the KWG at the beginning of the year.
According to MiCa, crypt values would be digital representations of values or rights that can be electronically transmitted and stored using distributed ledger technology or a similar technology. In addition to the term „crypto value“, MiCA would also provide a definition of the term „distributed ledger technology“ and, according to the current draft, create subcategories of crypto values. These subcategories would be value-referencing tokens, e-money tokens, utility tokens and other crypto-values. The MiCA draft also provides for definitions for the first three forms of appearance.
Differences between the definitions of cryptographic values of the KWG and the MiCA draft?
Even at first glance, the definitions differ considerably in length. While the MiCA definition makes use of further sub-definitions depending on the concrete design of the crypt value, the German solution tries to formulate a uniform definition for all forms of appearance. However, the approaches are also different in terms of content.
For example, the reference in the German definition to a missing issue by publicly legitimised bodies such as a central bank and furthermore to a potential use as a means of payment or investment vehicle is missing in the proposal of the MiCA regulation. The latter result rather from the concretising sub-definitions.
The European solution therefore appears superior to the German legal solution. It is much better suited to the special features and the variety of possible uses of distributed ledger technologies. In contrast, the German legislator will probably have to abandon its special path in cryptoregulation in the near future.