Digitization of payment transactions
The topics of crypto assets, crypto currencies and especially crypto custody are becoming more and more important. This means that the trend is toward digitization of payment transactions and the financial industry.
It is based on distributed ledger technology (DLT) – the technology of “distributed ledgers” – whose best-known technical implementation at present is the blockchain architecture. The main difference with traditional monetary systems and financial instruments is that transactions are legitimized in a decentralized manner and stored with the participants. Trust and security against manipulation, which in the traditional environment are ensured by a central authority – such as a bank – are achieved here via transparency and cryptographic processes. Ownership of crypto assets is represented by possession of a private cryptographic key.
New, forward-looking business areas for banks and financial service providers
For banks and financial service providers, this development offers great opportunities to open up new forward-looking business areas. In particular, in the crypto custody business, they can hold, manage, and secure crypto assets or associated private cryptographic keys for their customers.
Even if the central instances as trust anchors are eliminated in the field of DLT, banks can use their expertise in the implementation of regulatory requirements as well as their existing competencies in dealing with cryptographic processes (e.g., in authorization, online banking, or PIN security) to establish a good starting position in the market of services for crypto assets and cryptocurrencies.
Crypto custody business regulation
Legal certainty, uniform requirements and an appropriate regulatory standard are needed for the acceptance and use of the new technologies.
To this end, the Act Implementing the Amending Directive to the Fourth EU Money Laundering Directive included crypto custody as a new financial service in the KWG at the beginning of 2020. In addition, the EU Commission launched a digital finance package in September 2020, the contents of which include the Proposal for a regulation on Markets in Crypto-assets (MiCA) and a pilot project for DLT-based securities. In June 2021, a digital alternative to the classic paper certificate was also created when the Act on the Introduction of Electronic Securities (eWpG) came into force. Finally, in July 2021, the European Central Bank (ECB) gave the go-ahead for the trial phase of the digital euro.
Crypto custody and the Digital Euro are forward-looking tools that can strengthen Germany’s and Europe’s competitiveness. However, the regulatory framework for this is still very much in flux. For example, the technical design of the digital euro has not yet been decided. Introduction is not expected before 2023. The EU’s new MiCA regulation is also still being voted on.
Together to the individual crypto service
We follow the exciting developments in the field of crypto assets, crypto currencies and the Digital Euro for you and support you in the realization of your crypto custody service. We would be happy to inform you about the opportunities to get involved in this innovative sector.
