German regulators issued a new set of policies, allowing funds to have as much as a fifth of their assets allocated in cryptocurrencies.
Germany’s financial watchdog – BaFin, approved the new regulatory measures as an attempt to balance its concerns about the “highly risky and speculative” nature of cryptocurrencies with the regulator’s aim to encourage the research and development of new technologies that could have a significant effect on financial services.
According to the trade association representing German asset managers, BVI, institutional investor-only funds surpassed the €2 trillion mark at the end of Q1 2021. However, despite the ability of the funds to shift billions of euros into cryptocurrencies, German investors are still holding back from allocating massive amounts of assets towards them, due to volatility concerns.
Germany joins the US and the UK in their regulatory concerns about the potential for illicit activities at unregulated or loosely overseen crypto groups. Klaus Stiefermann, managing director at ABA, the association representing corporate pension schemes, noted that “these risks could curtail interest from retirement funds.”
“Companies are responsible for the pension promises that they make to their members so they are very conservative investors. I would expect that company pension schemes will proceed very cautiously when assessing cryptocurrencies,” Stiefermann added.
The latest regulatory updates come as German authorities launched a range of digitally-focused initiatives for the financial sector. For example, lawmakers granted permission for companies to issue debt securities using blockchain technology.
Angelo Lercara, a Munich-based partner at Dechert, noted that “BaFin has been very active in issuing guidance and has gained a reputation internationally as a regulator that understands both crypto assets and distributed ledger technologies.”
Furthermore, Germany is gearing up to become the next hub for cryptocurrency, as BaFin issued a crypto custody license to Coinbase at the end of last month.
Meanwhile, Germany’s watchdog introduced a new legal framework for Germany’s asset managers that will remove them from the same regulations as banks. According to the BVI, over 700 investment companies have been removed from the banking rules, which is a welcoming change in Germany’s financial world.