Germany’s financial regulator, the Federal Financial Supervisory Authority (BaFin), is making efforts to coordinate the activities of European financial watchdogs towards legislative regulation of initial coin offerings (ICOs).
BaFin president Felix Hufeld, in an interview with Handelsblatt, criticizes the “too slow and cumbersome policy” of the German regulatory authorities and claims that the time has come for European, and better more, global regulation.
For a long time, the financial regulators in Germany have consistently called for the globalization of control over the crypto market, but so far to no avail. Many countries, including European ones, are skeptical of the emerging class of assets and do not consider the new financial instruments seriously.
Felix Hufeld’s View on Crypto Regulation
Felix Hufeld, a lawyer and BaFin president, believes that ICOs are too risky due to minimal investor protection. “The numbers and volumes of investments in ICOs are growing tremendously. Investors usually have minimal rights,” the lawyer explained. “As often happens with new, emerging market segments, many of its aspects are completely unclear, which attracts yearning, but ignorant followers.”
Regulators are closely watching the new market and are discussing ways of adapting it to legal norms. Some countries rely on the opinions of those who apply innovations in industry, business, and society and rely on their help in regulating the emerging market.
The president of BaFin believes that regulators should not “strangle innovation,” but at the same time, they must prove their ability to protect investors and other players from danger. Hufeld also emphasizes the importance of preserving the right to the privacy of investors and determining minimum standards that ensure the transparency of contractual relations.
Money laundering remains one of the most serious reasons because of which governments and regulatory agencies still fear the market of cryptocurrencies.
Germany’s Previous Calls for the Global Regulation of ICOs
In November 2017, BaFin issued a warning about a number of risks associated with initial coin offerings (ICOs), a highly speculative form of corporate and project financing. And while new sources of funding such as ICOs—especially for young innovative companies—should be welcomed, there are still situations where the existing regulation, which is designed to minimize risks in the interests of consumer protection and the integrity of the financial market, cannot cope with its role.
Taking all of that into account, BaFin informed investors about such risks as the potential loss of all invested capital when buying ICO tokens.
In January 2018, a director at Germany’s central bank (Bundesbank), Joachim Wuermeling, stated that national rules were not enough to regulate cryptocurrencies since the new class of assets had become a global phenomenon: “Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation-states is obviously limited.”
This statement was made at the beginning of the year, when Asian states, including the People’s Republic of China, banned ICOs and closed crypto exchanges.
In February 2018, France joined Germany on the matter. The states called for a joint effort to bridge the legal gap in legislation. As the key economies of the European Union, Germany and France signed a message addressed to the G20 finance ministers, which stated that “tokens can pose significant risks for investors.”
And in March, the vice-president of Bundesbank, Claudia Buch, in an interview with Reuters, noted that the crypto exchanges had to be regulated, although they did not pose a threat to financial stability.
She said that speculation on volatile virtual tokens did not pose a systemic threat because it was not financed through credit, but regulators should look at introducing rules to protect consumers, given that such speculation could prove costly for investors.
The vice-president of the central bank of Germany noted the role of crypto assets in money laundering and criminal activities. “The role of crypto tokens in money laundering and criminal activity must also be closely examined.”
Germany is committed to uniting global regulators to address the issue of the legality of ICOs. It is comforting that the Old World is not inclined to universal prohibitions, but only to reasonable legal regulation.