Germany passes MiCA implementation legislation at 11th hour

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On December 18, German parliament passed the Digitalization of Financial Markets Act (Finanzmarktdigitalisierungsgesetz, or FinmadiG) to facilitate the implementation of the European Union’s Markets in Crypto-Assets (MiCA) regulation, which fully comes into force on December 30.

The passage of FinmadiG will be a relief for digital asset players in Germany, who had been facing an anxious wait for the troubled government to pass legislation to begin the transition to MiCA.

Fears of a delay arose due to the dramatic collapse of Chancellor Olaf Scholz’s three-party coalition government in November, which left the embattled chancellor leading a minority administration. Scholz called a no confidence vote, which he expected to lose, in the hopes that triggering an early election may swing the situation back in favor of his party, the Social Democratic Party. As predicted, Scholz lost the vote of confidence on December 18, paving the way for early elections on February 23 but throwing the passage of tabled legislation into doubt.

Fortunately, FinmadiG was passed in time—just—and brings with it the groundwork for the implantation of MiCA, as well as impacting other EU laws such as DORA and the Transfer of Funds Regulation.

MiCA additions

When it comes to MiCA, FinmadiG introduced the Supervision of Crypto Markets Act (KMAG), a piece of legislation that replaces Germany’s prior digital asset rules with the MiCA regulation.

MiCA was designed to bring digital assets, issuers, and service providers under a broad regulatory framework. On June 30, the first part of MiCA relating to stablecoins—digital assets whose value is pegged to another asset, such as a fiat currency, to maintain a “stable” price—came into force, with the full framework, including provisions related to “cryptocurrencies” and Crypto Asset Service Providers (CASPs), set to go live on December 30.

Requirements include CASPs, such as digital asset exchanges and wallet providers, needing to obtain a license from national regulators to offer services to EU citizens; new classifications for different digital assets, and rules specific to those assets; proof-of-funds requirements for stablecoin issuers; and the requirement for any company seeking to issue digital assets to publish a white paper containing information about the project, such as possible risks.

MiCA is arguably the most comprehensive digital asset framework anywhere in the world to date, and as such, it does not require additional local laws. It does, however, require legislation to confirm that the Federal Financial Supervisory Authority (BaFin), Germany’s top finance sector regulator, has oversight of the country’s digital asset market. Without that, BaFin would not have been able to award licenses, which would have meant EU firms with digital assets licenses from other countries being able to operate in Germany, but German firms not being able to operate in the EU, putting them at a competitive disadvantage.

MiCA also has transition clauses allowing firms with existing licenses to continue to operate for up to 18 months, with each jurisdiction deciding on the transition period. The German FinmadiG legislation specifies a year.

Differing EU transition periods

In terms of the handover from national to MiCA rules, the framework includes a “transitional regime” for CASPs that offered their services before December 30, 2024, granting them additional time to transition from compliance with the current regulatory framework to compliance with MiCA.

However, MiCA also allows individual EU member states complete discretion not to apply this transitional regime or to reduce its duration in view of “fostering financial stability and investor protection.” This non-unified approach has resulted in countries reducing the transitional period in their jurisdiction to different lengths.

The European Securities and Markets Authority (ESMA), the EU’s top financial markets regulator and the body tasked with implementing MiCA, noted last week that the varying transition periods mean CASPs need to get new authorizations under MiCA sooner rather than later.

“CASPs will face different transitional periods depending on the Member State or Member States in which they are active. For example, if a German CASP doesn’t have a new license by July 2025, they cannot operate in EU countries that have imposed a six month transition period,” explained ESMA.

The regulator advised CASPs to “apply for a MiCA authorisation as soon as possible, reminding them that without a MiCA authorisation they would not benefit from passporting rights within the EU during the transitional period.”

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