Regulatory News | Electronic securities in Germany — Bundestag discussion (Gesetz zur Einführung digitaler Wertpapiere — eWpG)

On Thursday, March 4, 2021, the Bundestag discussed the first reading of three draft bills of the German government for various reforms in the area of the capital market.

Being this bill of great importance for the financial industry and its adoption of Distributed Ledger Technologies (DLT), we share with you an English version of the most important aspects of the discussion taken from the German Bundestag.

The German government plans to introduce electronic securities in Germany, to reorganize the supervision of securities institutions, and to implement the EU’s covered bonds directive by amending the Pfandbrief Act. The new regulations serve the purpose of strengthening the minimum harmonization of the European Capital Markets Union.

Following the half-hour debate, all bills were referred to the lead Finance Committee for further discussion, together with a motion by the FDP parliamentary group.

Regarding electronic securities, the Bundestag established that the electronic issuance of bonds is to be made possible, and to a lesser extent the issuance of share certificates. The regulation is to be technology-neutral, hence securities issued via blockchain are not to be favored over other electronic forms of issuance. Moreover, the previously required securities certificate is to be replaced by an entry in a securities register.

During the debate, the Free Democratic Party (FDP) parliamentary group stated that the draft is too restrictive in several points or costly to apply, especially for start-ups. The proposals fail to meet the technology-neutral regulation and “even represents a step backward for the use of blockchain technology in parts.” The FDP deputies, therefore, demand that the federal government take into account several requirements in terms of the participation rights of the Bundestag under Article 23, Paragraph 3 of the Basic Law when deliberating on said EU regulation.

Therefore, the German Bundestag calls upon the Federal Government to take into account the following:

1. Not all tokens are automatically financial instruments. MiCA Regulation should focus as much as possible on products that also have a clear connection to financial services or asset trading instead of blanket coverage of all digital instruments specifically based on DLT.

2. The bureaucratic requirements, in particular the cost of mandatory white papers, should be adjusted so that they do not become insurmountable barriers to market entry for smaller startups.

3. The thresholds for stablecoins should be closely reviewed and adjusted to a level that is as open to innovation as possible. Blanket bans on stablecoins and other blockchain applications, on the other hand, do not achieve their goals.

4. In general, the German government should advocate at the European and international level for the regulation of crypto assets that is open to innovation and, above all, focus on the advantages of blockchain technology.

This public discussion of the draft bill by the German legislator certainly demonstrates the urgency of adopting new technological means to improve the whole financial sector. Using DLT as a base for a more secure and efficient infrastructure for primary market issuance is definitely a game-changer, and the regulators are aware of this. We are confident that the next regulatory developments will continue to favor these advancements, while we continue to fulfill our mission of building the financial infrastructure for the capital markets of tomorrow.

First Class Tokenization Infrastructure

micobo is committed to delivering the best technological solutions for the new era of digital capital markets. Providing the technological infrastructure for the future of capital markets is our mission. We know all the benefits that DLT brings and all the growth opportunities that tokenization opens for many business cases, and have worked hand-&-hand with our clients to reach greater growth.

micobo’s tokenization solution is a modular all-in suite covering the entire digital investment journey, from the investor onboarding throughout the issuance and life-cycle management of the tokens. With granular user rights, delivering the highest protection for investors, allowing our clients (issuers) to perform administrative tasks responding to the corporate rights embedded in the tokens.

micobo’s tokenization solution integrates strong Know Your Customer (KYC) and Anti-Money Laundering (AML) features to sufficiently comply with the legal requirements of the German and European jurisdictions.

Certainly, an important step forward to adopt all the efficiency gains and liquidity potential of distributed Ledger Technology (DLT) and asset tokenization.

Contact one of our Blockchain Experts to find more about the opportunities and benefits of asset tokenization!