BitCoin-Trading: German Court Ruling vs. BaFin’s Understanding

The Higher Regional Court of Berlin - KG (4. Strafsenat), Urteil vom 25.09.2018 - (4) 161 Ss 28/18 (35/18) - has decided that BitCoin-trading in the German market does not require a regulatory license. Unlike BaFin (the Federal Supervisory Authority), the criminal court does not qualify BitCoins as “unit of accounts” and/or “e-money” and denies the need of a banking license for those trading with BitCoins.

Already in 2011, BaFin qualified BitCoins and comparable payment tokens as financial instruments in the form of “units of account”. According to BaFin, these are units that are comparable to foreign currencies and are not denominated in legal tender. These include value units that have the function of private means of payment in ring swaps as well as any other substitute currency that is used as a means of payment in multilateral clearing groups under private law agreements. Regardless of the European requirements, the German legislator has deemed it necessary to also allow units of account to fall under banking supervision. A central issuer shall be irrelevant for payment token trading (this is the permanent practice of BaFin as confirmed in its recent publication from August 2018). The criminal court however, argues with the strict wording of the law and the intention of the German legislator. The comparability of units of accounts with foreign currencies, i.e. foreign book money, as expressly stipulated by the legislator, only permits the conclusion that units of account should make it possible to compare goods and services within different countries by using a generally valid and comprehensible unit. BitCoin or any other payment token were not considered by the German legislator falling into this category. The definition of unit of account gives no flexibility to include BitCoin and other payment token. An analogues application of the law is not allowed due to the criminal consequences, illegal BitCoin business may bring to the traders. In other words, the public must be able to understand an act is illegal, based on the clear definition given by the legislator. Such clarity is not provided for an analogues interpretation by the German authority.

With respect to e-money, the criminal court argues similarly against BaFin’s understanding, that neither the definition of e-money nor the intention of the legislator requires BitCoin and payment token to be qualified as regulated business. According to the legal definition, e-money is any electronically stored value in the form of a claim against the issuer issued in exchange for payment of an amount of money in order to effect payment transactions and accepted by natural or legal persons other than the issuer. BitCoin is not covered by this definition since it already has no issuer (please note that the court did not apply this argument for other payment tokens; probably since these usually have an issuer). The court also argues that Bitcoins were already in circulation at the time of the introduction of the payment services law, and other crypto currencies were also being created. Nevertheless, the legislator has refrained from expressly regulating these in the respective German laws and from placing them under the supervision of BaFin.
Although it is not the first time that a German court rules against a too extensive interpretation of specific laws by BaFin, it remains to be seen if the legislator does not recognize the decision as a trigger for further legislative measures.