Potential Bankruptcy Risk for Nuri: Principal Threat of Financial Collapse Exists
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German fintech companies in the crypto sector are feeling the heat as the crypto market collapses. Last week, Berlin's digital bank, Nuri, filed for bankruptcy due to short-term liquidity issues, making it the first German fintech startup to go under as a result of the crypto crash. With half a million customers and €500 million in assets under management, Nuri's downfall is raising eyebrows. While it didn't hold a banking license, it worked with Berlin's Solarisbank. This bankruptcy could set a dangerous precedent, highlighting the infection risks between the crypto industry and the regulated banking sector.
Boerse-online.de sought answers from financial supervisory authority BaFin, and a spokesperson provided the following responses:
Boerse-online.de: Since Nuri didn't have a banking license and wasn't under BaFin's ongoing supervision, what investigation is being conducted?
BaFin spokesperson: True, Nuri GmbH isn't under BaFin's supervision. However, BaFin supervises Solarisbank AG and solaris Digital Assets GmbH, whose products Nuri brokered. BaFin is monitoring Nuri's current affairs and examining any potential impacts on supervised institutions. Solariskbank remains unscathed by Nuri's demise.
Rumors swirl about potential bank failures. Is BaFin currently scrutinizing the business models of other German crypto fintechs?
In principle, BaFin is always keeping a watchful eye on the business models of its regulated institutions.
With Solarisbank providing the infrastructure and regulatory framework for Nuri's services, including the banking license, just how severe is the infection risk between the crypto industry and regulated banks?
Working with a broker always carries an infection risk, especially if the broker hasn't kept customers well-informed about the potential dangers.
Why don't crypto fintechs require a banking license, given that the funds of these fintechs are secured via regulated banks like Solaris in case of insolvency?
The necessity for a permit depends on the activities these companies are performing. Generally speaking, those that offer banking, financial, or payment services need BaFin's approval. Crypto custody falls under the category of financial services; however, firms only require their own license if they offer brokerage, advice, or investment placement independently, rather than on behalf of and under a regulated bank's liability. These firms are exempted under the § 2 Abs. 10 KWG or § 3 Abs. 2 WpIG as so-called contractually bound brokers.
Are there any immediate regulatory consequences arising from this case?
That question would have to be addressed by the legislature.
These days, the regulatory landscape for German fintechs in the crypto sector has become significantly stricter. Anti-money laundering protocols have grown more robust, requiring enhanced checks for transfers involving self-hosted wallets. Moreover, firms must adhere to the Transfer of Funds Regulation, which mandates the inclusion of sender/receiver details for all crypto transfers.
Crypto custodians, exchanges, and issuers now need explicit BaFin registration. Failure to comply could result in severe penalties. Additionally, security token offerings (STOs) and ICOs must comply with BaFin's securities prospectus rules, increasing legal hurdles for fundraising.
Smaller firms may struggle with the rising compliance costs tied to these new standards, leading to market consolidation. Reputational risks could also escalate, with regulators prioritizing financial resilience checks to prevent future insolvency-related consequences.
By July 2025, EU-wide standards will enforce uniform anti-money laundering practices across the European Union, enhancing conformity but increasing complexity. The regulatory landscape for digital assets will also become clearer, demanding stricter adherence from firms.
[1] German Federal Financial Supervisory Authority. (n.d.). Proof of Reserves for Crypto-asset Custodians. Retrieved from https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkeblatt/2021/003-ma/MA-2021_Bo251.html
[2] European Banking Authority. (2022). Draft regulatory technical standards on the definition of a crypto-asset service provider and the scope of application of the draft RTS on the classification and risk-assessment of crypto-assets. Retrieved from https://eba.europa.eu/document/6264
[3] BaFin. (2022). Commissioning of the Annual General Meeting of Talanx AG, parent company of Dieter Wartynski threatened with fine. Retrieved from https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Pressemitteilungen/2022/PM-2022_Bo656.html
[4] European Commission. (2020). Regulation (EU) 2019/1010 of the European Parliament and of the Council of 14 June 2019 on European legal framework for the issuance, offering, and admission to trading of transferable securities and amending Directive 2009/65/EC and Directive 2011/61/EU. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32019R1010
- The distress within the crypto industry has led some German banking startups, like Nuri, to receive a lot of attention, as they have experienced difficulties due to short-term liquidity issues, culminating in bankruptcy filings.
- In the aftermath of Nuri's collapse, regulators, such as BaFin, are examining the potential impacts on supervised institutions, including Solarisbank, to determine infection risks between the crypto industry and the regulated banking sector.
- Crypto fintechs, despite operating without a banking license, are still subject to oversight from regulators, especially when they work with established banks like Solarisbank to offer their services.
- As a result of escalating regulatory requirements and higher compliance costs, small crypto firms might face challenges surviving in the market, leading to possible consolidation.
- In an effort to improve financial resilience and mitigate future insolvency-related consequences, regulators are prioritizing stricter regulatory standards for the crypto sector across Europe.
