Germany Approved a Bank-Compatible Crypto Custody Framework

Germany’s Bundesrat approved legislation on November 29, 2019 that would bring crypto-assets and commercial crypto custody into the country’s regulated financial system. The vote completed the measure’s parliamentary approval after the Bundestag passed the amended bill on November 14, 2019.

The Bundesrat’s official record shows consent under Article 105(3) of Germany’s Basic Law, along with adoption of a separate resolution. Signature and publication still remained, so the November 29 action was not yet the law’s effective date. It nevertheless removed the final parliamentary obstacle to a framework scheduled to operate from January 1, 2020.

Crypto custody became a defined financial service

The legislation amended the German Banking Act to define crypto custody as safeguarding, administering or securing crypto-assets—or the private cryptographic keys used to hold, store or transfer them—for other parties. Businesses conducting that activity commercially, or on a scale requiring a commercially organized operation, would need authorization from the Federal Financial Supervisory Authority, BaFin.

The measure also added crypto-assets to the Banking Act’s list of financial instruments. Its definition covered electronically transferable, storable and tradable digital representations of value that were not issued or guaranteed by a central bank or public authority, lacked legal status as currency or money, and were accepted for exchange or payment or used for investment purposes. Specified forms of electronic money were excluded.

This did not make bitcoin legal tender, turn crypto-assets into bank deposits or establish government protection against price loss. The regulated object was principally the financial activity and the institution performing it.

Parliament removed a proposed separation rule

One of the most consequential changes made during committee review was deletion of a proposed separation requirement. The government’s earlier draft would have restricted a crypto-custody license to a company conducting no other activity requiring authorization under the Banking Act.

The Bundestag Finance Committee recommended removing that provision, and the version approved by the Bundestag and Bundesrat omitted it. That made it legally possible for an appropriately authorized bank or financial-services institution to combine crypto custody with other regulated business instead of placing custody in a dedicated company solely because of the original proposal.

The deletion was not blanket permission for every German bank to begin holding or selling cryptocurrency immediately. Crypto custody remained a separately regulated service, and firms would still have to satisfy BaFin’s authorization and supervisory requirements. Product distribution, investment advice and trading could also engage other rules depending on the activity.

Existing providers received a conditional transition

The approved text contained a transition for firms that would become regulated when the framework took effect. Qualifying incumbents could receive deemed provisional authorization if they notified BaFin in writing by March 31, 2020 of their intention to apply and submitted a complete application by November 30, 2020.

Those dates created an operational runway, not a permanent exemption or assurance that BaFin would approve an application. On November 29, 2019, the surviving records did not establish how many custodians would apply, which banks would enter the business or how quickly authorization decisions would follow.

Why the approval mattered

The institutional significance was clearer than any immediate market effect. Germany was converting custody of private keys and crypto-assets from an activity operating under an uncertain perimeter into a named financial service with a national licensing path. At the same time, removing the separation rule opened that path to established financial institutions as well as specialist custodians.

No reliable event study in the reviewed sources isolates a bitcoin or broader crypto-market reaction to the Bundesrat vote. Claims that the decision caused a particular price move would therefore exceed the evidence.

Later context

The measure was signed on December 12, 2019, published in the Federal Law Gazette on December 19, 2019 and took effect principally on January 1, 2020. Those later procedural facts confirm completion of the framework but do not change what had been established by the November 29 parliamentary approval.