GERMANY Law and Practice Contributed by: Stephan D. Meyer, Lars Fidan, Elisa Otto and Christian Meisser, LEXR
referencing crypto-assets. Firms offering crypto deriv - atives need authorisation under the WpIG or KWG and must comply with MiFID II’s full conduct, prudential and reporting framework. BaFin has historically taken a restrictive approach to the retail distribution of crypto derivatives, including CFDs. Product intervention measures limit the lever - age available to retail clients and require standard - ised risk warnings. ESMA has also imposed EU-wide restrictions on the marketing, distribution and sale of CFDs to retail investors, including those referencing crypto-assets. 10.9 Decentralised Finance (DeFi) The regulatory treatment of DeFi in Germany remains one of the most complex questions in the current landscape. MiCA explicitly excludes fully decentral - ised services without an identifiable intermediary from its scope. However, both BaFin and ESMA have emphasised that the determination of whether a ser - vice is truly decentralised must be assessed based on the actual degree of decentralisation, not merely the label used. Where a protocol has identifiable governance struc - tures, whether through a foundation, DAO or govern - ance token holders with meaningful control, regula - tors may hold those persons responsible. Front-end operators and deployers are also potential points of regulatory attachment. The practical challenge is enforcement. Fully decen - tralised, permissionless protocols operating without identifiable operators present real difficulties for regu - lators. The European Commission has indicated that DeFi regulation will be a focus of the MiCA review, expected to produce proposals by 2027. 10.10 Regulation of Funds The German Capital Investment Code (KAGB), imple - menting the AIFMD and UCITS directives, governs funds investing in blockchain assets. UCITS funds face strict restrictions on investing in crypto-assets due to eligible asset limitations. Alternative invest - ment funds (AIFs) managed by licensed alternative investment fund managers (AIFMs) have greater flex - ibility and may invest in crypto-assets, subject to the
risk management and disclosure requirements of the AIFMD. BaFin has permitted special AIFs ( Spezial-AIFs ) to invest in crypto-assets within defined limits, and the market has seen growing interest in crypto-focused AIFs and tokenised fund units under the eWpG. The interaction between MiCA and the KAGB/AIFMD is an area of ongoing regulatory development, espe - cially around custody requirements where fund assets include both traditional securities and crypto-assets. 10.11 Virtual Currencies The term “virtual currency” is now largely a termi - nological relic. MiCA uses the broader concept of “crypto-asset”, classified into ARTs, EMTs and other crypto-assets. Bitcoin and similar payment-oriented tokens fall into the “other crypto-assets” category under MiCA Title II. Before MiCA, the KWG defined crypto-assets as “Kryptowerte”: digital representations of value not issued by a central bank, accepted as means of exchange or serving investment purposes. MiCA’s EU-wide classification has superseded this national definition, though some transitional provisions still reference it. For practical purposes, the distinction between “vir - tual currency” and “crypto-asset” no longer carries regulatory significance. What matters is the MiCA NFTs are not regulated under MiCA, which excludes unique and non-fungible crypto-assets from its scope. However, this exclusion has clear limits. NFTs issued in large series or collections, or tokens that are func - tionally fungible or fractionalisable, may fall within MiCA’s perimeter. Under German securities law, an NFT could qualify as a financial instrument if it incorporates investment- like features such as profit participation or revenue sharing. BaFin assesses this on a case-by-case basis. Most pure collectible or art NFTs fall outside the reg - ulatory perimeter, while fractionalised NFTs or those linked to financial returns are likely to be regulated. classification. 10.12 NFTs
325 CHAMBERS.COM
Powered by FlippingBook