The German Parliament (Bundestag) has passed on Dec. 18 the Act on the Digitalization of Financial Markets (Finanzmarktdigitalisierungsgesetz – FinmadiG), marking an important step towards incorporating key elements of the European Commission’s Digital Finance Strategy into German law.
The main goal of the FinmadiG is to align Germany with upcoming European Union (EU) rules on crypto-assets, digital operational resilience and money transfers.
Strengthening Oversight, Not Directly Regulating Crypto
Rather than directly regulating crypto assets themselves, the new legislation focuses on strengthening oversight of the companies operating within the digital finance space.
This translates to stricter scrutiny of crypto exchanges and other service providers, with a particular emphasis on preventing fraudulent activities and market manipulation. By holding these entities accountable and promoting transparency, FinmadiG seeks to foster a safer and more secure environment for all participants in the crypto market.
The new law addresses three EU regulations:
- Markets in Crypto Assets Regulation (MiCA): Effective from Dec. 30, 2024, MiCA establishes a comprehensive framework for crypto-asset services, including issuance, trading, and custody. The FinmadiG includes “grandfathering” provisions, allowing existing German-licensed crypto-asset service providers to operate under their current licenses until Dec. 31, 2025, while offering a fast-track application for obtaining a MiCA license.
- Digital Operational Resilience Act (DORA): Applicable from Jan. 17, 2025, DORA strengthens the security requirements for information systems in the financial sector, impacting a wide range of institutions, including crypto-asset service providers. It mandates robust ICT risk management, incident reporting, and governance controls.
- Revised Transfer of Funds Regulation (TFR): Coming into effect on Dec. 30, 2024, the revised TFR tightens regulations on information accompanying fund transfers, including crypto-assets. This regulation aims to enhance transparency and traceability, bolstering measures against financial crime.
As these are EU regulations, they apply directly in member states. Germany’s Act complements these regulations where permitted, such as with the grandfathering provisions for crypto-asset service providers.
Combating Market Abuse and Promoting Transparency
Germany’s FinmadiG also introduces the Crypto Markets Supervision Act (Kryptomärkteaufsichtsgesetz – KMAG). This law primarily focuses on implementing MiCA’s operational rules within Germany.
KMAG defines the role and powers of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) in overseeing crypto-asset providers under MiCA.
The law also establishes a system of penalties for violations of both the KMAG and MiCA.
In general, the new legislation empowers Germany’s financial regulator to more closely supervise crypto companies. This includes conducting audits and investigating potential money laundering or market manipulation. These expanded powers strengthen BaFin’s ability to ensure compliance and protect investors.
Additionally, stricter accounting and auditing rules will be required to prevent misrepresentation of crypto assets in financial reports, especially for publicly traded companies.
The law also targets market manipulation in the crypto space, such as pump-and-dump schemes, by bringing these activities under BaFin’s supervision, and increases liability for crypto service providers, holding them accountable for negligence in safeguarding customer funds or security breaches.
The FinmadiG now awaits approval by the Bundesrat on Dec. 20, followed by signature by the Federal President and publication in the Federal Law Gazette, the official promulgation channel for federal laws. These final steps are expected to be completed before Dec. 30.
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