Germany Banking Act Qualified Crypto Custody Business Regime

The KWG now treats qualified crypto custody business as a financial service. The statutory category covers custody and administration of cryptographic instruments for others, as well as safeguarding private cryptographic keys for others when those keys are used to store or dispose of cryptographic instruments, crypto securities, crypto fund units, or certain domestic and foreign securities transferable or storable through distributed ledger technology or similar technology.

The definition of “cryptographic instruments” is narrower than Germany’s pre-MiCAR crypto custody category. It covers certain digital representations of value that are not issued or guaranteed by a central bank or public authority, are accepted by agreement or practice as a means of exchange or payment or serve investment purposes, and can be transferred, stored, and traded electronically. It expressly excludes e-money, limited monetary values covered by payment-services exclusions, MiCAR crypto-assets within MiCAR’s scope, and securities within the Securities Deposit Act.

Because qualified crypto custody business is a KWG financial service, the general KWG permission rule applies where a person conducts financial services in Germany commercially or on a scale requiring a commercially organised business. BaFin’s public materials describe the qualified crypto custody business as generally permission-required. Applications are assessed within the ordinary KWG licensing architecture, including resources, managers, business plan, organisation, and related supervisory information.

The regime should not be read as a substitute for MiCAR authorisation. Since MiCAR applies across the EU to crypto-asset services, custody and administration of MiCAR crypto-assets generally sit under MiCAR and Germany’s Crypto Markets Supervision Act (KMAG). The KWG qualified crypto custody category functions as a national perimeter for instruments and key-custody situations not absorbed into the MiCAR crypto-asset service framework.

Section 26b KWG adds asset-segregation rules for institutions operating the qualified crypto custody business. Customer cryptographic instruments and private cryptographic keys must be kept separate from the institution’s own instruments and keys. If instruments of multiple customers are pooled, the institution must ensure that each customer’s share in the pooled holdings can be determined at all times. The provision also restricts the institution from disposing of customer instruments or keys for its own account or for another person without the customer’s express consent.

Section 46i KWG provides a complementary insolvency allocation rule. A cryptographic instrument held for a customer in qualified crypto custody is treated as belonging to that customer, subject to an exception where the customer has consented to dispositions for the account of the institution or third parties. The same statutory allocation extends to customer shares in pooled custody and to separately held private cryptographic keys. This profile does not assess how a court would resolve every insolvency fact pattern.

FinmadiG was published in the Federal Law Gazette in December 2024 and the KWG qualified crypto custody amendments are treated here as operative from December 30, 2024. Section 65a KWG provides that institutions holding a KWG crypto custody permission on December 29, 2024 are deemed to have permission for qualified crypto custody under the wording effective December 30, 2024. Editors should review this profile alongside Germany’s KMAG and the EU MiCAR profile because the practical boundary depends on the asset and service being analysed.