Germany -- Licensing Requirements Regulatory Overview

Cryptocurrency Licensing Requirements in Germany

Germany requires mandatory licensing from BaFin (Federal Financial Supervisory Authority) for all entities providing crypto-asset services, including exchanges, custody providers, and payment processors.[1][4][5]

Licensing Framework

The regulatory regime operates under two primary legal structures:

• German Banking Act (KWG): Since January 2020, crypto custody has been regulated as a financial service requiring a BaFin license.[1][2]
• Markets in Crypto-Assets Regulation (MiCAR): Applies EU-wide as of the end of 2024, establishing harmonized licensing requirements for crypto-asset service providers throughout the EU.[1]

Licensed Activities

Entities requiring BaFin authorization must obtain licenses for specific activities:[2][5][6]

• Safekeeping, administration, and safeguarding of crypto assets or private keys
• Operation of trading platforms (cryptocurrency exchanges)
• Exchange services (conversion between fiat and crypto, or between different crypto assets)
• Custody and wallet management services

Individual use of cryptocurrency for personal investment does not require licensing.[4]

Capital Requirements

Minimum capital of €125,000 is required for custody licenses.[2][3][6] Other crypto-asset activities, such as working with crypto securities, require higher thresholds starting at €150,000.[6]

Capital adequacy must be documented through bank accounts and audited financial statements, with quarterly reporting requirements.[3]

Key Operational Requirements

All licensed providers must comply with:

• Fit-and-proper requirements: At least one managing director must be reliable, sufficiently qualified, and experienced in crypto custody business.[2][3]
• Professional liability insurance: Minimum €1,000,000 covering custody service operation risks.[3]
• IT security procedures: Per BAIT (BaFin Guidance on IT Requirements), including encryption, access controls, and incident response.[3]
• Customer asset segregation: Complete separation of client and proprietary crypto assets required.[3]
• AML/CFT compliance: Full adherence to the German Money Laundering Act (GwG) with customer identification and transaction monitoring.[3][4]
• Know Your Customer (KYC): Verification of all transaction parties' identities.[4]

Local Presence Requirement

German domicile is mandatory. Only entities established in Germany can obtain a license under the German Banking Act.[2] While crypto custody business may be relevant for service providers domiciled outside Germany, generally only German-domiciled entities can obtain licenses.[2] Service providers from other EU/EEA member states cannot currently rely on passports to provide crypto custody services in Germany, as the regulation is based on autonomous German legislation rather than harmonized European law.[2]

Grandfathering Provision

Service providers already engaging in crypto custody activities in Germany as of January 1, 2020 may qualify for grandfathering exemptions, but those commencing such activities after this date do not benefit from this provision.[2]

Application Process

The licensing application involves:[3]

1. Establishing a German legal entity (GmbH, AG, or bank) with proper corporate governance
2. Preparing a comprehensive business plan describing crypto custody offerings, technology platform, and security procedures
3. Documenting capital adequacy with €125,000 minimum through bank accounts and audited financial statements
4. Submitting formal application to BaFin

Timeline: 6-12 months[3]

Fees: €10,000-50,000 for application plus €5,000-30,000 for annual BaFin supervision[3]

Regulatory References

• German Banking Act (KWG): § 1(1a) Sentence 2 No. 6[3]
• Markets in Crypto-Assets Regulation: EU 2023/1114[3]
• German Securities Trading Act (WpHG)[3]
• German Money Laundering Act (GwG)[3]
• BAIT (BaFin Guidance on IT Requirements)[3]