The German banking giant Commerzbank is the latest financial institution to show interest in cryptocurrencies. The move could open the door for the bank to start offering crypto-related services and products. After all, banks have done a 180-degree turn on cryptocurrencies in recent years. Commerzbank has now acknowledged the value of the industry and has applied for a local crypto license. What can the bank expect to offer?
The bank’s move to apply for a local crypto license is significant. It signals that Germany remains open-minded toward the crypto industry – particularly when compared to most countries, where the policies are extremely narrow-minded. Commerzbank is not the only major financial institution to enter the space, and the company’s announcement is a big signal to the rest of the world. It may not be the first, but it certainly won’t be the last.
Commerzbank has made the decision to apply for a local crypto license with the BaFin. As one of the first major banks in Germany to move toward cryptocurrency, Commerzbank will be able to offer custody and exchange services for crypto assets. As of now, the bank serves more than eight million individual customers and 70,000 institutional clients. A spokesperson for the bank confirmed that the application will be finalized in the first quarter of 2022.
A BaFin approval is essential for companies providing cryptocurrency services in Germany. So far, four companies have received this clearance. More than 25 have applied. The first was Coinbase Germany, followed by Upvest, a fintech firm in Berlin. The latest applicant is Commerzbank, which has been pursuing blockchain initiatives for several years. The bank completed its first transaction on DLT in 2019.
This announcement comes after the German Money Laundering Act was implemented in 2018. This new law allows financial institutions to offer cryptocurrencies alongside traditional investment products. While the new regulations aren’t complete yet, the government has outlined a roadmap for implementing crypto-related regulations in Germany by 2021. As the country moves forward with cryptocurrency regulations, the interest of Germans is increasing. According to a recent report, 44 percent of Germans are interested in investing in cryptocurrency, and nearly one-third have already traded in digital assets.
In Germany, the new law that takes effect Jan. 1, 2020, encourages banks to offer crypto services in their home country. However, before offering crypto services in Germany, the banks must obtain a BaFin license from the Federal Financial Supervisory Authority (BaFin). There are four custodians approved in the country. So, does Commerzbank have the legal capacity to offer crypto services?
The German banking system is highly diversified, small, and competitive. However, profit margins in the retail sector are relatively low. The banking sector is over-banked, and the profit margins are low. Germany has a well-developed banking system, which includes private commercial banks, cooperative banks, public institutions, and savings banks. But despite these issues, the German banking system remains highly diversified and decentralized.
Fraudulent activities involving cryptocurrencies in Germany have been a source of complaints in recent years. Transparency International estimates that EUR30 billion of illicit funds are laundered through German real estate. Nevertheless, the remaining car dealers were found to have deficiencies and needed further sensitization. The report noted an upward trend in SARs related to crypto assets. But the German government has not yet passed any law requiring banks to register and list crypto assets.
In the meantime, the bank has been exploring ways to introduce CBDC to the German financial system. A recent trial by Commerzbank and KfW in which they jointly traded a EUR100 million money market security was successfully completed without a clearing system or paying agent. Moreover, the bank’s blockchain platform, Corda, was used for the transaction. In addition, a corporate law firm acted as a service partner.