With an increasing number of people and industries across the globe seemingly gripped with crypto fever, banking institutions are facing growing demand from their clients who want access to crypto-related products and services in a regulated and safe way.
One such bank is Commerzbank – Germany’s second-largest listed bank, partly owned by the government. Commerzbank has started formalities in introducing crypto-related services by announcing its application for Germany’s Federal Financial Supervisory Authority (BaFin) licence for a crypto custody business.
As of 1 January 2020, the German government has encouraged banks in the country to offer crypto services by acquiring s BaFin licence – providing a regulatory element to digital currencies. Commerzbank applied for its licence earlier in 2022. Once approved, it would allow the bank to offer exchange services along with custody and protection of cryptocurrencies – making it the first German bank to move towards crypto adoption.
Commerzbank’s upcoming crypto custody services will be directed mainly to its institutional clients – approximately 28,000 corporate clients and almost 11 million private and entrepreneurial German clients.
Why is the BaFin license necessary?
As mentioned above, as of 1 January 2020 – any German business that wants to offer cryptocurrency services must first get approval from BaFin. At the time of writing, only four German companies have acquired this BaFin licence, although the regulatory body currently has 25 pending applications from companies that want to operate crypto custody businesses – Commerzbank included.
For German companies that want to operate regulated financial services without having the necessary licences in place can have dire consequences – risking criminal penalties of up to five years in prison for those responsible. While that may be the case, the law allows for generous transitional provisions for companies that have already been conducting related transactions before this directive was enforced.
With regards to Commerzbank, their application is on the waiting list at the moment, like 24 other companies in Germany who are eager to kick-start their crypto services journey and tap into a crypto market filled with possibilities.
Commerzbank’s involvement in blockchain projects
Commerzbank is no stranger when it comes to the world of crypto, having been involved in blockchain-based projects from as far back as 2018.
In addition, the German banking giant has carried out some of the very first transactions on a distributed ledger technology (DLT) security lending platform with other major banks in the country – around 2019.
In more recent times, Commerzbank worked with strategic partners through 2021 to create blockchain-based digital marketplaces for existing asset classes like real estate and art.
Considering their history of crypto-related interest, it appeared the most sensible move for Commerzbank to go ahead with a crypto-related service for its institutional clients – something that seems to have resonated well with its client base.
Banks expanding cryptocurrency services to high net worth clients
This strategic move by Commerzbank to edge towards crypto adoption is not a world-first, as many leading banking institutions across the globe have taken strides to provide crypto-related services to their clients amidst a wave of interest in digital assets.
Goldman Sachs has grand plans to offer crypto services to their high net worth clients in the coming months, with mid-2022 earmarked. The global banking giant will offer investment vehicles for Bitcoin and other popular cryptocurrencies with its ultimate goal being to introduce a full spectrum of digital assets to its ecosystem of private wealth clients.
JP Morgan started offering access to cryptocurrency funds to all its wealth management clients in July 2021 – making it the first major US bank to provide crypto access to retail clients. While the big-wigs at the bank are not the biggest fans of crypto, they believe that the bank should extend its crypto offering to satisfy the insatiable thirst for digital assets from its clients.
Morgan Stanley is another early adopter of crypto as it provided its wealthy clients – those with $2 million or more in invested assets – with exposure to Bitcoin, giving them access to three Bitcoin products for alternate investments. In addition, the bank has introduced its own crypto research team and has a total exposure of around $300 million in BTC at the time of writing.
Wells Fargo has also been caught up with crypto fever, perhaps not wanting to feel left out. It has started exposing its high net worth wealth and investment management clients to cryptocurrencies – describing it as a great diversifier of portfolio holdings.
With all signs pointing towards greater adoption of cryptocurrencies by companies, financial institutions and governments around the world in 2022, it makes perfect sense for Commerzbank to lead the way in Germany for crypto-related services on a regulated platform.
It’s only a matter of time before the BaFin licence is granted, and the sky is the limit going forward for Commerzbank and its crypto journey. The sentiment is high amongst customers of the German bank who are excited to have more opportunities to diversify their portfolios under the banking structure.
Banks across Europe will certainly be watching with eagle eyes, hoping to offer similar crypto-related services in the future. Exciting times indeed, and Wisly will keep you informed of the latest developments with Commerzbank’s progress.