BaFin & FMA on YEM — What the Regulators Actually Said

Headlines vs. the Facts

Anyone searching for “BaFin YEM” or “FMA YEM” will find countless articles claiming that German and Austrian regulators have “classified YEM as a scam,” “banned YEM,” or “launched criminal investigations.”

None of these statements can be found in the original regulatory publications.

What the regulators actually wrote is both more nuanced and more interesting than the sensationalist reporting suggests. Let’s take a look at the original documents.

1. The BaFin publication (Germany, March 22, 2024)

What BaFin actually wrote

“The financial regulator BaFin warns against offers from the YEM FOUNDATION. According to BaFin’s findings, the company offers banking services and/or financial services without a license. The company is not supervised by BaFin.”

The cited legal basis is Section 37(4) of the German Banking Act (KWG) . This is crucial, because this provision defines exactly what this publication is—and what it is not.

What Section 37(4) KWG actually states

Section 37(4) KWG authorizes BaFin to inform the public if “facts justify the assumption” that unauthorized business is being conducted. This is a preventive consumer notice — not a prohibition order, not an indictment, and not a finding of guilt.

The legal hierarchy — What BaFin DID NOT do:

✓ No prohibition order pursuant to Section 37(1) of the German Banking Act (KWG) was issued
✓ No finding of guilt — “facts justify the assumption” is a threshold of suspicion, not a proven fact
✓ No use of the words “fraud,” “scam,” or “Ponzi” — these terms do not appear in the publication
✓ No criminal proceedings — this is administrative law, not criminal law

What BaFin specifically did

The following BaFin letter to the President of the YEM Foundation (dated April 30, 2024, Ref.: GZ: IF 5-QF 5000/00040#00159) reveals further details:

→ BaFin had already contacted the predecessor organization (“Rainbow Currency Foundation”) in May 2018 and pointed out potential licensing requirements
→ BaFin sent a formal inquiry on February 8, 2024 — which went unanswered
→ The consumer advisory was published on March 22, 2024 — after the Foundation failed to respond
→ BaFin requested detailed information with a 4-week deadline, including customer lists and funds received
→ BaFin justified German jurisdiction based on the existence of a “National Director” in Germany

The central legal question

The question BaFin is examining is essentially this: Does the operation of a digital currency with an exchange function constitute a financial service under German law ?

This is a genuine legal question for novel digital currencies that do not fit neatly into existing regulatory categories. BaFin’s position is that it may constitute proprietary trading under Section 1(1a) No. 4c of the German Banking Act (KWG) or an e-money business under Section 1(2) Sentence 3 of the German Payment Services Act (ZAG). The YEM Foundation’s position is that YEM is neither a financial instrument nor e-money, but rather a benchmark currency for payments.

This issue has not been resolved. The investigation is ongoing.

2. The FMA Warnings (Austria, 2021–2023)

The Austrian FMA has issued three separate warnings in connection with YEM:

October 8, 2021 — Blacksea Blockchain Consulting LLC & Souldancer LLC

Warning against two companies (Blacksea in Tbilisi, Georgia; Souldancer in Oakland Park, Florida) for unauthorized banking activities — specifically the “commercial issuance and administration of means of payment” under Section 1(1)(6) of the Austrian Banking Act (BWG).

Important: Both companies contested the warning. The FMA confirmed the legality in formal administrative proceedings — Blacksea (decision of February 16, 2022) and Souldancer (decision of March 1, 2022). Both decisions are final.

May 13, 2023 — YEM / YEM Foundation directly

A separate warning against the YEM Foundation itself, based on the same legal grounds (Section 4(7) BWG, Section 1(1)(6) BWG). This warning was also published in the Official Gazette of the Wiener Zeitung.

What the FMA warnings mean — and what they do not

The FMA warnings are, in one important respect, more consequential than the BaFin publication: When Blacksea and Souldancer challenged the warnings, the FMA conducted formal administrative proceedings and confirmed the legality of the warnings in legally binding decisions .

But even these decisions do not establish:

✗ That YEM is a “fraud” or “scam”
✗ That the possession or use of YEM is prohibited
✗ That criminal charges have been brought against the Foundation or its directors

What they do establish : That the operation of YEM-related exchange services in Austria without a banking license constitutes unauthorized banking activities. This is an administrative finding , not a criminal one.

3. The YEM Foundation’s Response

The YEM Foundation published several open letters and statements:

→ April 11, 2024: Open letter to BaFin arguing that YEM is an “authorized digital currency” and that the Foundation “does not operate a business”
→ April 25, 2024: Open letter to the Austrian FMA
→ April 25, 2024: Letter to Austrian MP Kaniak regarding the FMA warnings
→ April 26, 2024: Second open letter to BaFin
→ May 13, 2024: Third open letter to BaFin

The Foundation’s central argument refers to a letter from the Federal Ministry of Finance dated February 2018 regarding the VAT treatment of cryptocurrencies (based on the ECJ ruling in Hedqvist, C-264/14). The Foundation interprets this as recognition of YEM as “legal tender.”

Important Legal Distinction

The 2018 BMF letter concerns the VAT treatment of virtual currencies (VAT exemption for exchange services). It does not constitute a banking supervisory license under the German Banking Act (KWG). Tax law and banking supervision are separate areas of law. The Hedqvist ruling established that crypto-fiat exchange is VAT-exempt — it did not grant a banking license.

The Foundation is also actively pursuing a European legal presence, with an office in Liechtenstein in the works and additional locations in Austria and Panama under consideration. In their community letter from December 2024 , they wrote: “We continue to battle legal disputes based on completely fabricated allegations that cost us time, attention, and money and slow down our activities.”

4. The Five Most Common Misconceptions

{[ { myth: "BaFin has classified YEM as a fraud/scam", reality: "BaFin has published a consumer advisory stating that facts justify the assumption of unauthorized financial services. The words \u201Cfraud\u201C, \u201Cscam\u201C, or \u201CPonzi\u201C do not appear in any BaFin publication regarding YEM. The notice is a preventive informational measure pursuant to Section 37(4) of the German Banking Act (KWG)—not a finding of fraud.", }, { myth: "YEM has been banned in Germany and Austria", reality: "Neither BaFin nor the FMA has issued a ban. The publications are warnings regarding the lack of a banking license for certain activities. The possession, holding, or use of YEM has not been banned.", }, { myth: "There are criminal investigations against YEM", reality: "The BaFin and FMA publications are administrative measures, not criminal law. The consumer notice pursuant to § 37(4) KWG and the FMA warnings pursuant to § 4(7) BWG fall under banking supervision, not criminal prosecution.", }, { myth: "The investigation is complete and YEM has been found guilty," reality: "The BaFin investigation is ongoing. There is no final determination. The Foundation has been given the opportunity to comment and has submitted several written statements. In Austria, the FMA has confirmed the validity of its warnings—but this confirms the warnings themselves, not that the Foundation is guilty of a criminal offense.", }, { myth: "The regulatory warnings prove that YEM is worthless", reality: "The regulatory question is whether operating a digital currency exchange requires a banking license—not whether the underlying technology or currency has value. Many legitimate fintech companies have received similar notices during their licensing processes. The outcome of the regulatory dialogue will determine the way forward.", }, ].map((item, i) => (

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Myth: “”

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Reality:

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5. The Big Picture: New Currencies, Old Regulation

The regulatory challenge facing YEM is not unique. It reflects a fundamental tension in modern financial regulation: Existing banking laws were written for traditional financial instruments, and novel digital currencies do not always fit neatly into these categories.

When BaFin asks whether YEM constitutes “proprietary trading” under Section 1 (1a)(4c) of the German Banking Act (KWG) or “e-money” under Section 1(2) sentence 3 of the ZAG, it is applying a regulatory framework designed for banks and payment institutions—to something fundamentally different: a community-driven digital benchmark currency on its own private blockchain.

The YEM Foundation’s deliberate decision not to list on public exchanges — precisely the characteristic that makes YEM stable as a means of payment — also means that it operates via its own marketplace infrastructure. It is this infrastructure that triggers the regulatory questions regarding licensing requirements.

This is the paradox: The design decision that makes YEM viable as everyday money is the same one that creates regulatory complexity. A currency listed on Binance would face a different kind of regulation — but would also lose the stability that makes it usable.

The Foundation’s current strategy—establishing a European legal entity in Liechtenstein and engaging in direct dialogue with regulatory authorities—suggests an intention to resolve these issues through compliance, not avoidance.

Conclusion: Read the source, not the headline

The regulatory situation surrounding YEM is a legitimate legal discussion about licensing requirements for novel digital currencies—not the criminal scandal that some commentators have made it out to be.

BaFin is investigating whether certain activities require a license. The FMA has confirmed that operating YEM exchange services without a banking license is not permitted in Austria. Neither authority has labeled YEM a scam, banned it, or launched a criminal investigation.

The most responsible approach for anyone interested in YEM is to read the original regulatory documents — all of which are publicly available — and form their own opinion based on facts rather than headlines.

Primary sources

Note: This article is for informational purposes only and does not constitute legal or financial advice. Readers should consult qualified legal advisors regarding their specific situation. The regulatory landscape for digital currencies is evolving, and the status of proceedings may change.

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BaFin &amp; FMA on YEM — What the Regulators Actually Said