Crypto custody in Germany

A bank has always held securities for its clients in a custody account. Germany applied that idea to crypto before the EU did: when it carried the amended fourth EU anti-money laundering directive into national law, it added crypto custody business to the Banking Act (KWG). BaFin's guidance notice (in German) quotes the definition: the custody, administration and securing of crypto-assets or of private cryptographic keys that serve to hold, store or transfer crypto-assets, for others. Firms that already did this had to notify BaFin and file a full license application within a transition period.

This early start means that many German custodians have run under supervision for years. Tangany in Munich worked under a KWG crypto custody license before it received its MiCA license, and Commerzbank became the first full-service bank in Germany with such a license. The general answer What is crypto custody? and the page Crypto custody: how it works explain the difference between custodial and self-held keys.

For bitcoin, ether and stablecoins, the EU's Markets in Crypto-Assets Regulation now applies. Custody and administration of crypto-assets for clients is a licensed crypto-asset service under MiCA, with 150,000 euros in minimum capital, segregation of client assets from the custodian's own and liability for losses from incidents such as a hack, unless the custodian proves it was not at fault. BaFin (in German) let firms with a KWG custody license move to MiCA in a simplified procedure based on its gap analysis, and they could keep working under the old license until BaFin decided on the new one.

Crypto securities are the exception. A token issued under the Electronic Securities Act (eWpG) is a financial instrument and therefore outside MiCA, so safeguarding the private keys for such securities stays a business under the Banking Act. BaFin calls it qualified crypto custody (in German), and it needs a license under section 32 KWG. A bank that wants to hold both bitcoin and tokenized bonds for its clients therefore deals with two regimes. The page on digital assets in Germany sorts the token types.

Some banks build custody themselves. Commerzbank holds the assets of its corporate clients and works with Crypto Finance, a Deutsche Börse subsidiary, for trading. Deutsche Bank is preparing its own MiCA custody service for bitcoin, ether and the stablecoins USDC, EURC and EURAU. Crypto Finance (Deutschland) in Frankfurt received four BaFin licenses for trading, settlement and custody and is the sub-custodian behind Clearstream's crypto custody, where bitcoin appears in the same custody report as a client's bonds.

Others buy it. Boerse Stuttgart Digital keeps the coins for DZ BANK's meinKrypto wallet in the app of the Volksbanken and Raiffeisenbanken and for DekaBank's offer to the savings banks; its custody company was the first German provider with an EU-wide MiCAR license, lists more than 5 billion euros in custody and names Munich Re as insurer. Tangany sells custody as a service: a broker or bank connects through an API and keeps the customer relationship, and Tangany holds more than 3 billion euros for over 60 institutional clients. Landesbank Baden-Württemberg offers crypto custody through Bitpanda's institutional platform.

Three questions fill the agenda. The first is staking: a custodian with the right MiCA scope can stake coins such as ether for clients, as Tangany and Crypto Finance do, and each bank has to decide whether it passes the rewards and the slashing risk on to customers; the page on crypto staking explains the mechanics. The second is stablecoins: Tangany received a BaFin payment services license for e-money tokens, because holding and transferring euro stablecoins can require one on top of MiCA.

The third is the travel rule. Every transfer from a German custodian carries the names of sender and recipient under the EU Transfer of Funds Regulation, and a transfer to a self-hosted wallet needs extra checks; the answer What is the travel rule? covers the details.

Finance Loop brings custody teams from banks, exchanges and specialist custodians together in Germany, Austria and Switzerland, with events in Frankfurt, Munich, Berlin and Hamburg. It connects the finance, IT and AI communities.

Tangany is an event partner of Finance Loop, and a speaker from Tangany was on the program of the Digital Finance Night that Finance Loop hosted during the Crypto Assets Conference. Custody and MiCAR compliance were topics of the Forum für Digitale Vermögenswerte, where Finance Loop was a partner, and Blockdaemon, which provides institutional staking and node infrastructure, is also a Finance Loop partner. At Capital & Code in Frankfurt, where Finance Loop is a media partner, Dr. Ming Schuhmacher of Deutsche Bank discusses use cases, custody and new payment rails for stablecoins with BitGo and Hercle.

Any firm that holds crypto-assets or their private keys for customers. For crypto-assets under MiCA it needs a MiCA authorization from BaFin; for crypto securities under the eWpG it needs a license for qualified crypto custody under section 32 KWG. A person who keeps the keys to their own coins needs no license.

Commerzbank holds crypto for corporate clients, DZ BANK offers meinKrypto to customers of the Volksbanken and Raiffeisenbanken with Boerse Stuttgart Digital as custodian, DekaBank uses the same partner for the savings banks, and LBBW works with Bitpanda. Deutsche Bank is preparing its own service.

MiCA requires a custodian to keep client crypto-assets separate from its own assets and to hold enough of each asset to cover client claims, so the coins belong to the clients and not to the custodian's estate. The custodian is liable for losses from incidents it caused. This is the main difference to leaving coins on an unlicensed platform.

Yes. Custody specialists meet at the Crypto Assets Conference and at Digital Finance Night in Frankfurt, at the Forum für Digitale Vermögenswerte and at Finance Loop events in Munich, where Tangany is based. Dates are in the events calendar.