The entry into force of the Future Financing Act (Zukunftsfinanzierungsgesetz) already marked the birth of “crypto funds” in Germany in 2023 by enabling direct investment in crypto-assets for mutual funds (within the meaning of Sections 221 and 261 KAGB). With the Financial Market Digitisation Act (Finanzmarktdigitalisierungsgesetz), which entered into force at the end of 2024, this idea has now been completed considering the background of MiCAR with a reference to its concept of crypto-assets.
Since an investment in crypto-assets is associated with new, specific risks, BaFin has put the first draft of a circular on the Obligations of depositaries and capital management companies for investment funds investing in crypto-assets (the “Circular“) for consultation (06/25). It is intended to set a basic framework of minimum regulatory requirements for direct investments in crypto-assets by funds and is therefore highly relevant in practice. As a circular, it does not have the quality of a real legal norm, but it reflects the administrative practice applied by BaFin.
Obligations of the depositary
In principle, the obligations of the depositary that already result from formal black-letter law and the Depositary Circular (Verwahrstellenrundschreiben) continue to apply and are to be supplemented by the Circular as a matter of priority, if necessary.
In addition, according to the Circular, BaFin also requires:
- Obligations prior to taking on a mandate. In this respect – in view of the high volatility of crypto-assets – processes must be created in advance that enable the depositary to record and continuously assess the market risk in an informed manner.
- Sufficient material and human resources. In principle, this affects all levels and in particular the professional qualifications of the managing directors. Here, BaFin recognises that previous practical experience in particular with regard to such a young asset class is usually only available to a limited extent. It therefore enables a build-up based on theoretical knowledge over a period of 6 months.
- Appropriate organizational precautions and mandatory technical precautions. This includes IT systems and processes and is particularly true if the depositary holds private keys to the crypto-assets. Then a special “crypto concept” is needed.
In addition, as with other assets, a distinction must be made depending on whether the crypto-assets are depositable within the meaning of Sections 72 or 81 KAGB. Decisive in this regard will be the individual case. In this respect, it is astonishing that BaFin applies a broad term “crypto-asset” in its Circular and does not exclude MiFID financial instruments within the meaning of Article 2 (4) MiCAR. MiCAR consistently distinguishes between “crypto-assets” and (possibly also issued on a DLT basis MiFID-) “financial instruments”, to which MiCAR does not apply accordingly. BaFin’s statements on its understanding of “crypto tokens”, referred to in the Circular and most of which date from 2022 and have long since become obsolete, are unhelpful.
The same applies with regard to the remarks on the custody of (BaFin) crypto-assets, because a clear distinction would clarify that DLT-based MiFID financial instruments are MiFID financial instruments and not MiCAR crypto-assets. Where the KAGB and the AIFMD refer to the concept of MiFID financial instruments for the assumption of custody, there would have been no need to discuss this.
Finally, BaFin points out that additional authorisations may be required, in particular for any provision of the crypto custody business in relation to MiCAR crypto-assets.
If the result of the individual case examination is that the (MiCAR) crypto-assets are not depositable, the depositary would accordingly be subject to the obligations for non-depositable assets under section 81 (1) no. 2 KAGB (or section 72 (1) no. 2 KAGB). These include an obligation to determine ownership or a corresponding legal position, the examination and assurance of the allocation and access possibilities of the crypto-asset (including any rights of third parties), the recording in a continuously maintained inventory. In addition, it may be contractually necessary to ensure that the depositary has access to the crypto custodian’s systems.
In addition, the general control obligations of the depositary (cf. §§ 76 and 83 KAGB) would apply. In particular, it must examine whether the acquisition of crypto-assets is compatible with the investment strategy and restrictions and whether the acquisition transactions are in line with the market.
Obligations of the capital management company
The capital management company (“KVG“) must take into account the same risks as the depositary, so that similar consequences follow with regard to a direct acquisition of crypto-assets.
First, an extension of the license, which includes the direct acquisition of crypto-assets, should be applied for, if necessary, because previous licenses may be limited to other assets. In this respect, BaFin clarifies here that the catalogue of assets is static in its understanding and that changes are not covered by a previous license. In this respect, it should also be noted that custody by the KVG itself would not be possible.
In the KVG, too, sufficient resources and knowledge and experience of the staff must be ensured, if necessary by employing experienced external experts. The managing directors must also have sufficient professional qualifications, whereby the same period of six months applies as for managing directors of the depositary.
In addition, the processes of the KVG must be adapted accordingly and a New Product Process must be carried out prior to the first investment in crypto-assets. Above all, this would have to map the associated possibly increased risks and their sound management, as well as provide specifications for best execution and market fairness control and valuation.
Circular as a guardrail
Both depositaries and asset management companies, especially if they already have established processes for other financial instruments, should be able to create functioning and supervisory structures for direct investments based on the requirements of the Circular as a guideline and taking into account the specific risks of crypto-assets.
If you want to offer crypto funds in Germany, you should first check whether the license to do so is sufficient. Particular attention should then be paid to the (technical) resources and know-how of the employees – and to the final version in which the draft will be published after the consultation has been concluded.
