Blockchain Bun­desver­band Ger­many: The key issues paper

Only recent­ly, the Ger­man Fed­er­al Min­istry of Finance, togeth­er with the Fed­er­al Min­istry of Jus­tice and Con­sumer Pro­tec­tion, pub­lished a key issues paper on the reg­u­la­to­ry treat­ment of Dig­i­tal Secu­ri­ties and Secu­ri­ty Tokens while ensur­ing investor protection.

The Blockchain Bun­desver­band Ger­many has not refused the chance to com­ment on this. The most impor­tant points are sum­ma­rized below:

Dig­i­tal Bonds

• Ger­man law should gen­er­al­ly be opened up to dig­i­tal securities;
• The reg­u­la­tion of dig­i­tal secu­ri­ties should be technology-neutral;
• The open­ing will ini­tial­ly be lim­it­ed to dig­i­tal bonds;
• The reg­u­la­tion of dig­i­tal shares may take place at a lat­er date;
• Pos­si­ble clas­si­fi­ca­tion of dig­i­tal secu­ri­ties as object by virtue of legal fic­tion – this would jus­ti­fy prop­er­ty pro­tec­tion etc. or as sui gener­is – then the cre­ation of own prop­er­ty pro­tec­tion pro­vi­sions etc. is necessary;
• In any case, inde­pen­dent rules on the acqui­si­tion and trans­fer of dig­i­tal secu­ri­ties and pro­tec­tion of good faith should be pro­vid­ed for.

State­ment: Con­sid­er­ing, that dis­trib­uted ledger tech­nol­o­gy (Blockchain Tech­nol­o­gy) is still so young, the Blockchain Bun­desver­band Ger­many advo­cates the intend­ed tech­nol­o­gy-neu­tral regulation.

Dema­te­ri­al­iza­tion of the nation­al con­cept of secu­ri­ties is a long over­due step.

Lim­i­ta­tion to dig­i­tal bonds is under­stand­able. In light of exist­ing pro­pos­als in lit­er­a­ture and role mod­els abroad, the issuance of dig­i­tal shares and fund units in form of dig­i­tal secu­ri­ties should also be sought in any case.

Secu­ri­ties Register

• The cur­rent sys­tem of secu­ri­ties cer­tifi­cates will not be abol­ished; an addi­tion­al option will be cre­at­ed to cre­ate dig­i­tal secu­ri­ties by reg­is­ter­ing them;
• The doc­u­men­ta­tion func­tion and core ele­ments of civ­il law (legit­i­ma­tion, trans­fer func­tion and lib­er­a­tion effect) of secu­ri­ties are to be ensured by reg­is­tra­tion in an dig­i­tal register;
• Reg­is­tra­tion should be car­ried out by a (cen­tral) state or a body under state supervision;
• Dig­i­tal secu­ri­ties reg­is­ters shall con­tain the terms and con­di­tions of the bonds; they shall be avail­able free of charge on the internet;
• Pro­vid­ed that the authen­tic­i­ty and integri­ty of the secu­ri­ties is ensured, it should also be pos­si­ble for the issuer itself or a third par­ty appoint­ed by the issuer to oper­ate the reg­is­ter, pro­vid­ed that no entry with a cen­tral secu­ri­ties depos­i­to­ry is required.

State­ment: Encour­age the intro­duc­tion of dig­i­tal registers.

Over­all, the Blockchain Bun­desver­band Deutsch­land clear­ly pleads for enabling dig­i­tal reg­is­ters also on pub­lic blockchains after eval­u­at­ing the strengths and weak­ness­es of the var­i­ous systems.

Require­ments should be laid down in order to be clas­si­fied as a qual­i­fied reg­is­ter and then to be reg­is­tered in a list main­tained by a pub­lic body.

Safe cus­tody of dig­i­tal securities

• Non-phys­i­cal items, includ­ing dig­i­tal secu­ri­ties may be held in safe cus­tody: Appli­ca­tion of the rules on the safe cus­tody of securities.
• The record­ing of dig­i­tal secu­ri­ties in a secu­ri­ties reg­is­ter does not con­sti­tute a safe­keep­ing of these secu­ri­ties, but only that the reg­istry admin­is­tra­tor takes over the doc­u­men­ta­tion function.

Investor pro­tec­tion

Investor pro­tec­tion pro­vi­sions against the risk of manip­u­la­tion when the reg­is­ter is oper­at­ed by the issuer itself. There are some sug­ges­tions for this:

• Secu­ri­ties may only be acquired by institutional/qualified investors;
• The issuer must be under super­vi­sion in order for pri­vate investors to be able to invest;
• Pri­vate investors must buy through inter­me­di­aries – not direct­ly from the issuer;
• Pri­vate investors may buy direct­ly from the issuer – issuers have to meet cer­tain doc­u­men­ta­tion and infor­ma­tion requirements.

State­ment: From the point of view of the Blockchain Bun­desver­band Ger­many, recourse to con­ven­tion­al reg­u­la­to­ry instru­ments does not appear to be appro­pri­ate. Form of secu­ri­ti­za­tion in prin­ci­ple has no influ­ence on the finan­cial risk, a blan­ket exclu­sion of pri­vate investors from par­tic­i­pa­tion in dig­i­tal issues there­fore appears dis­pro­por­tion­ate and not suit­able to strength­en investor pro­tec­tion. From the Blockchain Bun­desver­band Ger­many per­spec­tive, hon­est investor pro­tec­tion can be bet­ter achieved through neu­tral advice or by strength­en­ing self-pro­tec­tion by pro­mot­ing one’s own abil­i­ty to under­stand and assess the risks of investments.

The Blockchain Bun­desver­band Ger­many is basi­cal­ly in favour to allow pri­vate investors to pur­chase dig­i­tal secu­ri­ties direct­ly from the issuer.

State­ment BMCP: Black Man­ta Cap­i­tal Part­ners are glad that the devel­op­ment, ini­ti­at­ed by the Ger­man Fed­er­al Min­istry of Finance, togeth­er with the Fed­er­al Min­istry of Jus­tice and Con­sumer Pro­tec­tion is going in the right direc­tion. Investor pro­tec­tion is, of course, also our top pri­or­i­ty and must be placed above any prof­it mon­ger­ing of the issuer. The investor must always be pro­vid­ed with all the nec­es­sary infor­ma­tion, but exclud­ing them from the mar­ket is not a solu­tion for us.

Ques­tion: What do you think about that? Should investors be tak­en their free will to invest where they want?

Applic­a­bil­i­ty of fur­ther cap­i­tal mar­ket regulations

WpHG, WpPG, Mar­ket Abuse Reg­u­la­tion (EU No. 596/2014)

State­ment: fur­ther need for syn­chro­niza­tion with KWG, KAGB, SFTR, CSDR

 

Pho­to Cred­it: Fed­er­al Min­istry of Finance