BaFin draft of the Crypto Market Disclosure Regulation

In its consultation of September 2024 (click here for the German version), the German Federal Financial Supervisory Authority (BaFin) made use of its authority pursuant to Section 36 Crypto Markets Supervision Act (Kryptomärkteaufsichtsgesetz – KMAG) and published a draft regulation to specify the notification requirements for the disclosure of inside information. In accordance with Article 88 of Regulation (EU) 2023/1114 (Markets in Crypto-Assets Regulation - MiCAR), issuers, offerors and persons applying for admission to trading are obliged to inform the competent authority retrospectively if they delay the disclosure of inside information. These regulations came into force on 30 December 2024 and are implemented in Germany by the Act on the Digitisation of the Financial Market (Finanzmarktdigitalisierungsgesetz – FinmadiG).

Crypto Markets Supervision Act

The FinmadiG provides for the introduction of the new KMAG, which was passed by the German federal parliament, the Bundestag, shortly before the end of the year (click here for the German version). The main objective of the KMAG is to ensure the transparency and integrity of the crypto markets. The obligation to provide insider information to BaFin without delay applies to issuers, providers and persons applying for admission to trading. This obligation is an important instrument for effective supervision and the prevention of market abuse.

In this context, the European Commission has already issued the Implementing Regulation (EU) 2024/2861. This sets out technical standards for the disclosure and its delay of inside information. As the competent authority in Germany, BaFin determines which electronic means are to be used for the transmission of this information.

Crypto Market Disclosure Regulation 

The Crypto Market Disclosure Regulation (Kryptomärktemitteilungs-Verordnung - KMMV) stipulates how and when insider information is to be published, and which technical means are to be used to transmit this information. It also contains regulations on the delay of disclosure if the disclosure of insider information is delayed for certain reasons.
The notifications must be submitted in electronic form via the channel published on the BaFin website. Its reporting and publication system is also relevant in this regard. 

Insider information

According to Article 87 of MiCAR and the provisions of BaFin's KMMV, inside information is information of a precise nature which is not available to the public and which, if it were publicly known, could have a significant effect on the price of crypto-assets or related crypto-assets. This information relates directly or indirectly to issuers, offerors or persons seeking admission to trading. These can be divided into three categories:

1. Direct inside information
   Information that directly concerns one or more issuers, offerors or persons seeking admission to trading and whose publication could have a significant impact on the price of the crypto assets concerned. An example of such direct inside information would be the announcement by a provider of crypto assets to introduce a new blockchain technology.
2. Indirect inside information
   Information relating to one or more issuers, offerors or persons seeking admission to trading, the disclosure of which could have a significant impact on the price of the crypto assets concerned. An example of indirect insider information would be if a provider of cryptocurrencies is informed by a regulatory authority that certain regulations are being changed and trading in some cryptocurrencies is thereby facilitated or even prohibited.
3. Client-related inside information
   Client-related inside information refers to precise information that has been communicated by clients and relates to orders for crypto assets that have not yet been executed. This information must be precise and capable of significantly influencing the price of the crypto assets in question. An example of this would be a client order to buy large quantities of a cryptocurrency at a certain price. Such precise information about orders that have not yet been executed can have a significant impact on the price if it becomes public. This is because it could encourage other market participants to take similar action. 

As with the previously known offence for traded financial instruments under Regulation (EU) No 596/2014 (Market Abuse Regulation - MAR) for insider information, the information must be deemed to be precise. This is the case if it relates to a set of circumstances or an event that has already occurred or can reasonably be expected to occur in the future. This information must be specific enough to allow a conclusion to be drawn about the possible impact on the prices of the crypto assets. Intermediate steps in a protracted process can also be regarded as precise information, provided they fulfil the criteria for inside information.

Delay notice (Aufschubmitteilung): requirements and procedure

Pursuant to Article 88(2) MiCAR, issuers, offerors and persons seeking admission to trading may delay the disclosure of inside information provided that the following conditions are met:

1. Protection of legitimate interests: Immediate disclosure would prejudice the legitimate interests of the parties concerned.
2. No misleading of the public: The postponement must not lead to the public being misled.
3. Ensuring confidentiality: The parties concerned must be able to ensure that the information is kept confidential.

In the event of delay of the disclosure of inside information, the parties concerned are obliged to inform BaFin of the delay immediately after disclosure of the information. In this context, a written explanation is required of the extent to which the conditions of paragraph 2 were met. Alternatively, the Member States may stipulate that this explanation need only be provided at the request of the competent authority.

The KMMV specifies the requirements for the minimum content of a delay notice pursuant to Article 88 (3) MiCAR. The delay notice must contain the following information:

1. Review dates: All points in time at which a reassessment of the continued existence of the reasons for delaying the disclosure of inside information takes place.
2. Details of the persons involved: First and last names, business addresses, business telephone numbers and e-mail addresses of all persons involved in the decision to delay must be provided.

The detailed requirements and procedures ensure transparent and comprehensible disclosure of insider information and thus strengthen confidence in the integrity of the crypto markets.

Infringements and sanctions

The KMAG also regulates the sanctions for violations. According to Section 47(3) no. 9 lit. c KMAG, it is a regulatory offence (Ordnungswidrigkeit) to fail to provide information or to provide information correctly, completely or on time in violation of Art. 88(3) MiCAR. Numbers 110 to 112 of the same paragraph define a regulatory offence for a violation of Art. 88(1) MiCAR. These regulatory offences can be punished with a fine. In addition, BaFin may prohibit a responsible member of the management body of an institution from conducting transactions in crypto assets for their own account for a period of up to two years.

Outlook

BaFin's KMMV represents a significant step towards increasing the transparency and integrity of the crypto markets. The clear requirements for the disclosure of insider information and BaFin's strict monitoring and enforcement mechanisms will strengthen investor confidence and effectively counteract market manipulation. Companies are required to adapt their compliance processes and ensure that they fulfil the new requirements. Overall, the KMMV helps to create fair and efficient market conditions that benefit all market participants.

With the kind support of Alexander Grünewald, student assistant, Frankfurt.