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Germany’s Federal Financial Regulator Warns Investors Over Bulgarian Crypto Broker

Bulgarian crypto broker, 5 Capital, has been offeringfinancial services to investors without being approved by the Germany financial watchdog, the Federal Financial Supervisory Authority (BaFin). This is against the regulations that guide crypto firms in Germany, as every crypto firm is expected to apply from and obtain an authorized license from BaFin before entering into operation.

In the report, BaFin pointed out that the mentioned Bulgarian crypto broker, which is based in Sofia, offers German customers contracts for difference (CFDs) that supposedly expose them to cryptocurrency instruments.

As a way to keep Germany crypto market safe and reliable, crypto firms operating in Germany are expected to apply for a license from BaFin by the end of 2019 as the new anti-money laundering (AML) regulations have been put in place.

Being wary of the cryptocurrency industry, BaFin has been warning investors about the potential risks associated with the market, especially Bitcoin and other cryptocurrencies. It also warned clients over initial coin offerings (ICOs), informing them of the high risk often associated with various unrealistic technological claims and even scams projects. It focused on brokers who do not provide negative balance protection, which exposes investors/customers to unlimited losses.

BaFin then encouraged traders to be careful while on the 5 Capital website. They advised clients against funding an account or investing via this specific company, strongly warning that non-compliance would not receive any assistance if he/she is duped. What this means is that if 5 Capital ever wishes to function, it has to apply for a license and be in full compliance with BaFin regulations by the end of the year.

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German Financial Regulator Officially Classifies Cryptocurrencies as Financial Instruments

The German Federal Financial Supervisory Authority (BaFin) released a new guideline on classifying cryptocurrencies as financial instruments. The BaFin has taken crypto classification one step further as the previous guidelines only covered security tokens.

In a press release issued on March 2, BaFin described crypto as a “digital representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically.”

The fifth EU Money Laundering Directive (AMLD5) began on Jan. 1, and BaFin’s new crypto classification has been a move to adopt a new directive. The process of the AMLD5 adoption would involve changes to Germany’s Banking Act and Payment Supervision Services Act.

License for crypto custody

Companies that are interested in offering crypto custody services in Germany would need to obtain a license from the regulator to be able to offer their services in the country. BaFin has so far received around 40 applications from banks.

German Stock Exchange Boerse Stuttgart has recently announced that its subsidiary Blocknox will begin providing digital asset and cryptocurrency custody services to institutional clients. With new regulations for Germany-based crypto services introduced in January 2020, Blocknox revealed that it has already informed the supervisory authorities for its intent to apply for the required license. This means that Blocknox can provide custody services on a provisional basis. The company intends to submit the final application before the specified deadline to become a regulated financial service provider.

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German Authorities Clamps Down on 'Shitcoins club' Bitcoin ATM Operations

Germany’s financial regulator (BaFin) has moved to stop the operations of a popular Bitcoin ATM operator in the country. Known by the name Shitcoins Club, the German financial regulator said that Shitcoins club’s operations are illegal as it operates without either a banking or a proprietary license.

Germany as a whole has about 67 operational bitcoin Automated Teller Machines and Shitcoins Club operates about 17 Bitcoin, Litecoin, and ether ATMs in the country. With this clampdown, a substantial portion of Germany’s crypto ATMs will likely go offline. One of the major concerns according to the sources quoted on the local news site Handelsblatt is the ease with which crimes could be perpetrated using the Bitcoin ATMs.

“If a person with criminal energy wanted to launder money with Bitcoin machines, this would in some cases be entirely possible,” Handelsblatt reported quoting Professor Philip Sandner. In the case of Shitcoins Club, it is mainly as a result of improper Know Your Customer Procedures the organization adopts.

Germany is a crypto-friendly nation that encourages the emergence of blockchain and cryptocurrency service providers. Earlier in the year, the BaFin received more than 40 applications from German banks to provide cryptocurrency custody services. A similar service was unveiled by the German Stock Exchange Subsidiary Blocknox while expectations of more players billed to soar in the coming months as the European giant has the legislative backing.

Bitcoin ATMs Become a Trend

Although every country is trying to adjust its legislation to enable blockchain and cryptocurrencies to thrive, most countries are not slowing down when it comes to the emergence of Bitcoin ATMs. Bitcoin ATMs reign supreme in East and South London as the residents have reportedly overcome their fears of crypto scams.

Asian countries including South Korea also have a surge in Bitcoin and Bitcoin Cash ATM transactions and there is a general belief that the full blockchain adoption and integration will only be realized by the global democratization of digital technologies through crypto ATMs.

Germany’s Financial Regulator Warns Binance Over Stock Token Offering

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Germany’s federal financial supervisory authority, BaFin, has warned Binance crypto exchange about the risk of being fined for offering tokenized stock trading service without first publishing an investor prospectus.

Germany’s financial regulator has said that it has reasonable evidence for suspecting Binance may be violating the nation’s securities laws with regards to the exchange’s recently announced stock tokens service.

On Monday, April 26, Binance made an announcement that it offers stock tokens, priced and settled in the form of the exchange’s own cryptocurrency (Binance BUSD stablecoin), thus giving investors exposure to Apple Inc., Microsoft Corp., and MicroStrategy Inc. shares.

However, the announcement as reported by the Financial Times raised eyebrows across Europe’s regulatory ecosystem, including Germany. This is because Binance’s offering is facilitated through a partnership with German financial service company CM-Equity, which is licensed in the nation.

On Wednesday, April 27, the German regulator stated that there seemed to be no prospectus on the exchange’s website for the Coinbase, Tesla, and MicroStrategy issues, which is a violation of European Union securities laws that could result in Binance, as an issuer, being fined 5 million euros ($6.04 million) or 3% of last year’s turnover.

BaFin’s notice mentioned a company by the name “Binance Germany GmbH & Co. KG,” which the regulator stated that it suspects providing securities in the form of shares token with the terms MSTR / BUSD, COIN / BUSD, and TSLA / BUSD without the required prospectus on the website.

However, the regulator did not mention CM-equity in the notice.

BaFin did not specify what steps it would take next, but the notice highlights potential punishments for violations of the prospectus rule.

Binance has not given immediate comment on the announcement.

New Era of Stock Trading on Crypto Exchanges

Crypto exchanges are entering the tokenized stock trading space by allowing their users to purchase fractions of publicly-traded companies’ shares. For example, Binance has followed the steps of its competitors such as Bittrex Global and FTX to introduce such service with tokenized stocks.

The move is set to make stocks of publicly traded companies be traded as tokens on crypto exchanges so that users can purchase fractional shares using cryptocurrencies. Tesla and MicroStrategy are some of the prominent firms that have made some moves in the rapidly growing crypto space. The development has assisted in boosting Bitcoin’s price and even put the bigger spotlight on cryptocurrencies.

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DLT Finance Receives BaFin Licenses to Launch Trading Platform for Digital Assets

DLT Finance Group, a financial services company, based in Frankfurt, Germany, announced on Tuesday that it has received nine BaFin licenses that gave its approval to launch a digital asset platform targeting global financial institutions.

With the regulatory approval, the digital asset platform now offers a wide variety of regulated digital asset services, including brokerage, trading, custody, staking, and DeFi protocols.

DLT Finance disclosed that its new suite of digital asset solutions includes the following: prime brokerage, direct market access to a dozen liquidity venues, OTC Trading, deposits and withdrawals of crypto for instant trading, crypto custody, facilitation of relevant compliance processes, staking, and access to DeFi and liquidity mining, as well as borrowing and lending.

DLT Finance stated that it designed the digital asset platform to cater to institutional clients’ needs, such as banks, brokers, asset managers, and crypto exchanges, among others.

DLT Finance revealed that it has already partnered with major firms within the digital asset space, including Kraken, Bitstamp, B2C2, and Bittrex.

DLT Finance empowers its customers with one API to seamlessly integrate crypto products into their platforms through its platform.

The unique BaFin licensing arrangement offers an innovative regulatory solution for digital asset markets. DLT Finance said that its customers no longer need their own license, as they can trade legally and securely with the company.

The digital asset platform acts as an institutional counterparty where clients can trade on leading liquidity venues and choose from financial commission brokerage, OTC and direct market access. Customers can also stake assets directly from their custody and access to liquidity mining pools and the world of DeFi.

Furthermore, DLT Finance mentioned its digital asset platform facilitates regulatory compliance of digital asset custody for its clients, offers custom solutions for crypto derivatives, and issuance and placement for tokenized or traditional securities. The platform is streamlined with API access and direct online banking integration.

While existing solutions only facilitate closed-end systems, DLT Finance empowers its customers to create an open system in which assets can be directly deposited and withdrawn. Such developments are set to improve access and regulatory cover for digital assets significantly, thus attracting new participants into the crypto landscape.

Coinbase Ordered by BaFin to Ensure Proper Business Reorganization

The German offshoot of American cryptocurrency trading firm, Coinbase Global Inc has been ordered by the Federal Financial Supervisory Authority known as BaFin to ensure it achieves a proper business organization.

For the order that came into effect at the end of October became necessary as the regulator said it found a number of inconsistencies in some aspects of the company’s operations when it conducted an audit of its financial statement.

BaFin specifically noted that Coinbase is directly violating the standards put forth by the German Banking Act.

The press release issued by the regulator made reference to Section 25a (1) of the Act, a provision that mandates companies to maintain adequate risk management procedures. Additionally, the section of the law also requires firms tagged as GmbH to maintain adequate staffing, as well as putting adequate emergency processes bordering on its information technology system and employee remuneration.

“An audit of the annual financial statements revealed organizational deficiencies at the institute. The regularity of the business organization was not given in all audited areas,” the regulator noted in its statement.

Germany remains one of the countries with robust and clear regulations for the cryptocurrency ecosystem.

Despite its positive leanings toward the crypto ecosystem, Germany has maintained a cautious stance alongside other economies in a bid to protect investors from uncertainties that are tied to the nascent crypto ecosystem as seen by the collapse of many crypto heavyweights including Celsius Network, Voyager Digital and Three Arrows Capital (3AC) amongst others.

Coinbase was licensed by BaFin to provide custody-related services last year, marking one of the exchange’s ambitious pushes into the European Union. With the major correction on its internal controls and risk management measures, Coinbase Germany will have to heed the BaFin’s directives in a bid to continue serving its customers in the country.

Bitpanda is Germany's first "European retail" crypto platform.

The news that Bitpanda has secured a cryptocurrency custody license from the German financial organization known as BaFin was published in a post on the company’s official blog, where the announcement was made.

Following the acquisition of this license, the cryptocurrency exchange that maintains its headquarters in Austria is now legally authorized to market its services to individuals who are located in Germany.

In addition to this, Bitpanda said that they were the first retail bitcoin exchange to be founded in Europe to achieve this particular distinction.

As a direct consequence of the collapse of the FTX cryptocurrency exchange, people are paying more attention to cryptocurrency exchanges that do not have any rules and operate outside of a country’s jurisdiction.

Because of this, a significant number of exchangers are working toward obtaining licenses in various nations so that they can provide evidence that they are a trustworthy business.

Bitpanda is now legally regulated in the country of Sweden, joining the ranks of other countries like as Austria, the United Kingdom, Italy, the Czech Republic, and Spain. The number of nations in which Bitpanda is legally regulated has increased with the acquisition of this new license.

In the bitcoin sector, there were already four other businesses that have the license before Coinbase, Kapilendo, Tangany, and Upvest were able to secure it for themselves.

Bitpanda claims that it is the first “European” retail bitcoin platform to acquire the license since its headquarters are located in Austria. This is because Austria is considered to be part of Europe.

Since the collapse of FTX, the subject of how to give licenses to and otherwise govern cryptocurrency exchanges has been at the forefront of public conversation. Specifically, the question is whether or not cryptocurrency exchanges should be licensed at all.

According to Jon Cunliffe, who is the deputy governor of the Bank of England, the BoE plans to set up a “regulatory sandbox” in order to establish how to successfully supervise exchanges in order to discover how to properly oversee exchanges. In addition, the Senate of the United States has started conducting hearings to study efficient methods to regulate cryptocurrency exchanges. These hearings are being held as part of an ongoing investigation.

BaFin Declines to Classify NFTs as Securities, Recommends Case-by-Case Approach

The fact that there is now a discussion going on over the appropriate approach to classify these digital assets is reflected in BaFin’s decision to not recognize NFTs as securities. This argument has been going on for quite some time. Even if there are many who think of non-fungible tokens (NFTs) as investments or crypto assets, there are also others who believe that NFTs are nothing more than one-of-a-kind digital collectibles that have no value apart from the rarity or desirability of their presence. Despite the fact that some individuals regard non-traded stocks and bonds to be investments, this is the case. It is possible that, at some time in the future, the case-by-case method that BaFin utilizes will make it possible to get greater clarification about the classification of NFTs.

Yet, it is difficult to apply current legal frameworks to non-fiat currencies such as NFTs since these assets are not standardized and cannot be exchanged. This makes it difficult to apply existing legal frameworks. Those in charge of regulation are presented with a challenge as a result of this. The phrase “crypto assets” refers to non-fungible tokens that cannot be traded for other currencies and is an exception to this norm. BaFin is under the impression that non-financial transactions will not be in conformity with the licensing requirements outlined in the Payment Services Supervision Act, nor will they be subject to BaFin’s supervision regarding the prevention of money laundering. This is due to the fact that non-bank financial transactions are not regulated in the same manner that payment services are.

Notwithstanding the difficulties that are associated with recognizing them, non-fungible tokens are becoming an increasingly popular category of digital collectibles. This is despite the fact that identifying them may be difficult. The majority of non-fungible token (NFT) collectors acquire NFTs for reasons related to status, distinctiveness, and aesthetics rather than with the purpose of utilizing them as an investment, according to research that was undertaken by the metaverse site Metajuice. As the market for non-traditional assets (NFTs) continues to increase, the legal frameworks that control it will need to change in order to provide investors and collectors a higher degree of transparency and protection. This will be necessary in order to accommodate the market’s growing size.