A month ago we wrote that the collapse of the German government coalition was creating problems with implementing the EU’s cryptocurrency regulation MiCA, because it had failed to pass legislation. However, on Wednesday the German parliament (Bundestag) finally passed the bill, the Digitalization of Financial Markets Act (Finanzmarktdigitalisierungsgesetz of FinmadiG). Apparently, it was added to the agenda at short notice. Parliament responded to industry requests to ensure the legislation was in place before MiCAR comes fully into force on December 30.
FinmadiG isn’t only about crypto and MiCAR as it also impacts other EU laws such as DORA and the Transfer of Funds Regulation. However, for MiCAR it introduced the Supervision of Crypto Markets Act (KMAG), the piece of legislation that supplants Germany’s old crypto rules with MiCAR.
Technically MiCAR is a regulation, so it does not require local laws. However, legislation was required to designate BaFin as the regulator. Without that, BaFin could not award licenses. That would have allowed EU firms with crypto licenses from other countries to operate in Germany, but German firms would not have been able to operate in the EU.
Additionally, MiCAR has grandfathering clauses allowing firms with existing licenses to continue to operate for up to 18 months, with each jurisdiction deciding on the transition period. The new German legislation specifies a year.
Different EU MiCAR transition periods
However, this week the European regulator ESMA noted that the varying transition periods mean crypto asset service providers (CASPs) need to get new authorizations under MiCAR sooner rather than later. For example, if a German CASP doesn’t have a new license by July 2025, they cannot operate in EU countries that have imposed a six month transition period. That includes Latvia, Hungary, Netherlands, Poland, Slovenia and Finland. Lithuania’s transition is five months, and four jurisdictions had not specified the timing when ESMA published its note.
We believe ESMA may have been responding to a letter from the Electronic Money Association (EMA) and three EU crypto trade bodies. They highlighted that the latest regulatory technical standards for licensing were only endorsed by the European Commission at the end of October. That doesn’t give national authorities much time to adopt them or for CASPs to apply.
