Germany’s new special fund rules - a ray of hope for crypto assets

On 22 April 2021, the Fondsstandortgesetz (FSG) - a law intended to strengthen Germany as a fund location – was passed by the Bundestag and could unleash large-volume investments in crypto assets.

The FSG will allow open-ended domestic special AIFs with fixed investment terms to invest up to 20% of their assets in crypto assets.

The measure is regarded as a strong signal as to Germany’s position as a financial investment hub, and experts believe it will nurture the crypto industry generally by further legitimising this asset class.

The ability to acquire crypto assets will be limited to special funds which are open only to institutional investors. This limitation results from the remaining legal uncertainties, particularly with regard to the custody of the funds’ assets by the custodian.

Furthermore, the Bundestag's Finance Committee argued that a direct acquisition of crypto assets for mutual funds should also be postponed for reasons of investor protection. These vehicles, though, can still gain exposure to the crypto market through indirect investments, for example, through notes or certificates.

With this step Germany is looking to push its digital initiative to create a stable and reliable regulatory infrastructure for crypto assets. It follows shortly after Germany opened the path to e-securities allowing investment funds, amongst others, to offer their units on an electronic basis.