The banking world is becoming virtual: New business areas

The banking world is becoming virtual: New business areas

December 2019 – A clean slate: The recently passed law implementing the new EU Money Laundering Directive will allow banks to trade and crypto currencies such as Bitcoin and keep them in custody from 2020. This represents a milestone for financial institutions and their customers, but also leaves some questions unanswered.

Let’s start with the advantages: 

If it becomes possible to buy, hold and keep crypto currencies via the bank from 2020, Bitcoin & Co. will most probably arrive in the mainstream. Because then investors who are interested in crypto currencies but are deterred by the procedure on the exchanges or by the reporting on hackers will be able to get involved. Because the institution bank is associated particularly with conservative humans with security. And in general, users feel more comfortable with an interface they already know – from online banking, for example – especially if they are not so well-versed in technology.

A new business model for banks

In principle, the banks also have reason to rejoice, as they in turn can benefit from a new business segment. What the concrete implementation will look like – will the bank account and deposit simply be supplemented by a wallet? Will there be a Bitcoin machine in the anteroom of the branch next to the ATMs? – is still unclear.

When the banks get in. Of course, this is difficult to predict now. You’d think a neo-bank like N26 or a direct bank like Comdirect would have that gut feeling rather than Postbank. But that will come to light.

An important point with the law, by the way, is the custody point. And that is actually a small surprise. Because the draft still contained a so-called “Trennungsgebot (separation requirement)” that strictly separates normal regulated banking transactions and cryptographic transactions. Accordingly, the banks would probably have been allowed to start trading, but would have had to resort to external service providers for the custody inevitably associated with this or would have had to set up corresponding subsidiaries. This step has now become obsolete thanks to the pressure of the Finance Committee, which advocated the deletion of the separation order.

Licensing also compulsory for custodians who are already active

In order to be able to enter into the new business model with trading and custody of crypto currencies, a license is required which is issued by the German Federal Financial Supervisory Authority (BaFin). At present, this only works through expressions of interest; BaFin can only accept applications once the law is in force. So from January 2020.

However, this also applies to all companies that manage virtual access keys for investors and thus also to existing exchanges and platforms such as Kraken or Binance, whose business model is based partly on this. They have to notify BaFin in writing by 1 February 2020 that they are applying for a permit and will do so by 30 June 2020.

And that’s not all: in order to continue to be admitted to trading in Germany, they need a branch office in Germany with at least two directors who “must be professionally suitable and reliable”, according to the conditions in the documents on the admission of banks and financial service providers as well as payment and e-money institutions on the BaFin website.

This begs the question: Will Kraken, Binance & Co. follow this complicated path at all? How high is the proportion of German customers, so that the effort is worth it? If they don’t apply for a license, what happens to the German clientele? Or will new cooperation models emerge in which they work with licensed custodians? There are still a few question marks here.

Crypto scene and consumer protection criticise

But like any real medal, a virtual coin also has a downside. Expelled crypto fans take a critical view of the development. After all, Bitcoin was developed as a counter-model to the classic currencies after confidence in the banks was shaken by the financial crisis in 2008. The Peer2Peer system and the resulting independence from banks and countries make up the crypto currencies and basically attack the classic financial institutions and transactions. “Awesome. Then I can park my BTC with the guys, who should become superfluous by Bitcoin” writes a user in the forum of Especially since it has to be considered that wallets at a bank can undoubtedly be assigned to a person – namely the account holder. Of course – it is not for nothing that this is about a money laundering directive. However, this is not accepted uncritically.

The crypto community also doubts whether the banks will be able to set up the necessary infrastructure in the short time available. Another point: Where do the banks get their crypto currencies from? From unregulated exchanges (possibly for licensing reasons mentioned above)? The security of the banks as custodians is also questioned. And: What happens to the crypto currencies in a bank or currency crash?

Criticism also comes from consumer protection. Niels Nauhauser, financial expert at the Baden-Württemberg Consumer Centre, expresses doubts about sales by financial institutions to the Handelsblatt: “Basically, banks sell a wide variety of financial products if the commission is right. If they are allowed to sell crypto currencies and store them for a fee, there is a risk that they will sell their customers assets with a total loss risk without the customer knowing what they are getting into.


The new regulation represents a major step forward for us in financial services. Especially in the area of wallets and payment, questions frequently arise in our discussions about STOs. Such connections are often too abstract for investors from the traditional investment world. It will now be exciting to see which banks will seek to obtain a custody licence and how the already established wallet providers, who store or keep keys for cryptographic values for their customers, will deal with this.

If the banks recognize and perceive the potential, this will, in our opinion, have a major impact on the acceptance of cryptoassets. The hope remains that the first gloomy scenarios that are already on the net will not come true. Because they rumour that this type of regulation will ultimately mean that the entire cryptobusiness will only be run under the umbrella of banks. That would be fatal – with all due respect for the speed and commitment of the German government in the matter of cryptographic values.