German Parliament Passes Act on the Digitalisation of Financial Markets

On 18 December 2024, the German Parliament (Bundestag) passed the Act on the Digitalization of Financial Markets (Finanzmarktdigitalisierungsgesetz, the "Act"). The Act is intended to complement key measures of the European Commission's Digital Finance Strategy in German law. These measures include the Markets in Crypto Assets Regulation (MiCAR), the Digital Operational Resilience Act (DORA) and the revised Transfer of Funds Regulation (TFR).

• MiCAR entered into force in June 2023, became effective in part from June 2024, and will generally apply in its entirety from 30 December 2024. It regulates activities carried out on the primary market (e.g., the issuance of crypto-assets) and services provided on the secondary market, referred to as "crypto-asset services". These secondary market services include, for example, the custody and administration of crypto-assets on behalf of third parties and the operation of a trading platform.
  
  Under the Act’s grandfathering provisions, crypto-asset service providers already licensed under German law may generally continue to operate under their existing licence until 31 December 2025. Crypto-asset service providers can undergo a fast-track application procedure to obtain a licence under MiCAR. For more information, read our article “EU Markets in Crypto-Assets (MiCA) Regulation Expected to Enter into Force in Early 2023.”
  
  
• DORA entered into force in January 2023 and will apply from 17 January 2025. It enhances security requirements for network and information systems of organizations operating in the financial sector. DORA applies to a broad range of financial entities, including credit and payment institutions, investment firms, and crypto-asset service providers. The core obligations under DORA include management governance and controls, ICT risk management, and incident reporting. For more information, read our article “Draft Technical Standards for DORA Now Available.”
  
  
• The revised TFR will apply from 30 December 2024. The regulation lays down rules on the information on payers and payees accompanying transfers of funds, in any currency, and on the information on originators and beneficiaries accompanying transfers of crypto-assets, along with rules on internal policies, procedures, and controls to ensure implementation of restrictive measures.

All of the above laws are EU "regulations", which means that they are—unlike EU "directives"— directly applicable in EU Member States such as Germany. For this reason, Member States can only deviate from or add to these regulations where they leave room for manoeuvre to EU Member States, such as in the case of grandfathering.

Next Steps

Before the Act can enter into force, it must first be passed by the Federal Council (Bundesrat), which will discuss it on 20 December 2024. The Act must then be signed by the Federal President (Bundespräsident) and published in the Federal Law Gazette (Bundesgesetzblatt), which is expected to happen before 30 December 2024.