In Germany, the commercial trading in most goods is permissible without any specific authorization. However, anyone intending to provide services relating to securities or other financial instruments needs an authorization from the German financial market supervisory authority BaFin. As a successful application for such authorization is very complex and expensive, many companies try to avoid it.
Proprietary business subject to authorization due to new provision?
At the beginning of 2018, the German Banking Act (Kreditwesengesetz; “KWG”) was amended. According to its new provision, proprietary business conducted as a member of a multi-lateral trading facility would in principle also be subject to authorization:
Anyone wishing not only to conduct banking business or to provide financial services […] but also to engage in proprietary business, also needs written authorization from BaFin for this activity. The foregoing applies irrespective of any conduct of banking business or provision of financial services […] even if the company engages in proprietary business as a member or participant in an organized market or a multi-lateral trading facility or with a direct electronic access to a trading place or with commodity derivatives, emission allowances, or derivatives based on emission allowances. (Section 32 (1a) of the German Banking Act).
And what is more:
The purchase and sale of financial instruments for one’s own account which does not constitute proprietary trading […] (proprietary business) is also deemed to be a financial service if the proprietary business is conducted by an undertaking that
1. conducts this business commercially or on a scale which requires commercially organized business operations without already being classified as an institution for any other reason, and
2 belongs to a group of institutions, a financial holding group, a mixed financial holding group or a financial conglomerate which includes a CRR credit institution. (Section 1 (1a) 3rd sentence of the German Banking Act).
The proprietary business consists in the commercial purchase and sale of financial instruments for one’s own account, including cryptocurrencies like bitcoin, ripple and co. As a consequence, anyone, who regularly purchases or sells bitcoins at a cryptocurrency exchange like Coinbase or Bitfinex for the purpose of generating profit would need an authorization.
BaFin confirms no authorization requirement for proprietary business
While the wording of the law implies this broad understanding, an inquiry by WINHELLER to BaFin revealed that trading in bitcoin and other financial instruments continues to be permitted without authorization, provided the trading is exclusively in one’s own name and on one’s own account. In our opinion, this exception is definitely justified as this type of proprietary business involves no concerns regarding the stability of the financial system or consumer protection that could require the BaFin’s supervision.
No license requirement if business activity is designed appropriately
The differentiation between business activities that require an authorization and those that do not is often difficult and always a question to be decided on a case-by-case basis. Often our team will be able to avoid the authorization requirement by a suitable design of our clients’ business activities. However, if a specific business activity requires a BaFin authorization, we will assist you in any and all matters concerning the application.