Germany Adopts Financial Market Digitalisation Act

On Wednesday, 18 December 2024, the German Bundestag adopted the Financial Market Digitalisation Act (FinmadiG). With the FinmadiG Germany implements and adjusts to the two main European digitalization packages

• the Digital Operational Resilience Regulation for financial services (DORA)
• the Markets in Crypto-Assets Regulation (MiCAR)

Market participants already feared that after the collapse of the German government and the loss of the vote of confidence in parliament on 16 December this key piece of legislation for the digital finance market in Germany would be postponed until after the elections in February. For Crypto-Asset Service Providers (CASPs) it was already expected that this may have the consequence that market participants with an existing license could not have made use of the fast track procedure which is part of the FinmadiG. However, this issue has now been sorted out and the FinmadiG has passed the parliamentary hurdle.

DORA

In Germany, the EU DORA package, in particular the Digital Operational Resilience Regulation for financial services (DORA) will be implemented through the FinmadiG. FinmadiG has been passed last minute, taking into account that DORA will become applicable on 17 January 2025. Without the FinmadiG it would be difficult to enforce DORA in Germany.

DORA - an EU Regulation - is directly applicable in every EU Member State and generally does not require transposition into national laws. However, DORA contains numerous regulatory mandates for Member States, particularly regarding the power of the competent authorities and the sanctioning of non-compliance. FinmadiG concretises these DORA requirements:

• The German Federal Financial Supervisory Authority (BaFin) and the German Bundesbank play a crucial role in the implementation and monitoring of DORA in relation to financial institutions.
  • They have the power to monitor compliance by German financial institutions.
  • In the event of violations, BaFin can issue orders that are appropriate and necessary to ensure compliance. Among other instruments, BaFin may order:
    • Cease and desist from repeating any behaviour in breach of DORA
    • Temporarily or permanently cease infringing practices or behaviour and not to repeat them
    • Ensure that the legal requirements continue to be met, and take corrective and remedial action if necessary.
    • Impose fines of up to EUR 5m

For further details relating to DORA, please find our Quick Guide attached as well as our podcasts series here.

MiCAR

MiCAR is also directly applicable in all EU Member States. However, MiCAR also contains numerous regulatory mandates for Member States to harmonize their crypto-asset frameworks, particularly regarding the licencing of crypto-asset service providers, the categorization of crypto-assets and the power of the competent authorities. FinmadiG concretises these MiCAR requirements:

The FinmadiG introduces the Crypto Markets Supervision Act (KMAG) and amends various other acts in Germany. The KMAG together with the other amendments harmonise the landscape for crypto-assets across the EU and allows German CASPs to offer crypto-asset services across the EU and vice versa. The KMAG provides in particular legal certainty for CASPs regarding a fast track licensing procedure for those CASPs who are already licenced under national law to provide crypto-asset services. It also clarifies in particular the liability of CASPs with regard to their obligations to prepare crypto-asset white papers and the intervention powers of the Federal Financial Supervisory Authority ("BaFin") as the national supervisory authority. In consideration of the long-established regulatory environment German CASPs should be able to adjust to the MiCAR regime quite quickly compared to other EU jurisdictions for which crypto-asset regulation is new and for whom the adjustment phase will take longer.

The FinmadiG also implements additional rules for combating financial crime, money laundering and terrorist financing for crypto-assets. The German government explains further: ‘Providers of crypto-asset services will be obliged – similar to bank transfers – to collect, transmit and make available information about the originators and beneficiaries of the crypto-value transfers they carry out, in order to facilitate the tracing of financial flows in the case of crypto-value transfers.” The previous national crypto-value transfer regulations will be replaced by the directly applicable European law of the new EU Money Transfer Regulation.

For further details please also see the linked video and podcast:

Financial Market Digitalisation Act - Video