As per the suggestion of the German Ministry of Finance, the country should be able to understand the need of blockchain in the current scenario and hence they should consider blockchain-based securities as a legitimate form of financial instrument and should release appropriate and adequate regulations for them.
According to the latest published news, the agency stated that securities can also be issued in an electronic form and need not be documented on paper. The announcement read that “German law should generally be opened up for electronic securities, i.e., the currently mandatory documentary embodiment of securities (paper form) should no longer apply without restriction. The regulation of electronic securities should be technology-neutral, i.e., the issue of electronic securities should also be possible on Blockchain / Distributed Ledger Technology ( DLT ). The opening is initially limited to electronic debt securities. The introduction of the electronic share should not be dealt with at this time. The regulatory burden that would be necessary would preclude a timely introduction of the electronic security. ”
There should be an appropriate authority who would be responsible for the formation of regulating such digital instruments and should also be flexible enough to adjust against the rules prescribed for changing the reality of blockchain tech. The ministry further added that “In view of the fact that the technical standards and requirements can change rapidly, authorization should be provided to regulate the specific technical details by legal regulation.”
According to the government the first step is to consider the electronic deeds and should then move to consider digital shares as the extent of regulation required for digital shares would delay the timely introduction of any electronic securities. Further, the paper stated that “in order to avoid the possibility of manipulation,” all the Securities should get registered at a single place managed by the central government authorities.
The Ministry further agreed that, if digital securities would get traded on the country’s trading venues, then the same should also get registered with the country’s central security depository (CSD). There is a “separate regulations should be provided for the acquisition and transfer of electronic securities as well as good faith protection.” The paper further added that the retail investors should be allowed to purchase tokenized securities only via financial institution who would act as an intermediary.
However, the document stated that it is not essential for digital securities to “The use of blockchain technology should not be privileged, especially with regard to the state-of-the-art development of the sometimes high energy requirements of public blockchain technologies and their climatic effects.”
The blueprints read that “As a rule, utility tokens do not constitute securities, investments or other financial instruments under the German Securities Trading Act and in most cases will not be electronic bonds in the future, although it could be determined by law that a public offer of utility tokens may only take place if the provider has previously published an information sheet. ”
Further, Talking on the regulations around coin offerings, the paper read “As part of the public offering of cryo-tokens ( Initial Coin Offering – ICO ), crypto-tokens have been offered to a significant extent in recent years, which generally do not constitute securities, investments or other financial instruments within the meaning of the Securities Trading Act. As a result, the issuance of these tokens – unlike the future issue of electronic bonds – will not be subject to existing capital market regulations. At the same time, investing in crypto tokens poses risks for investors. Against this background, the regulation of the public offer of these tokens is put up for discussion in the key issues paper.“
The ministry’s suggestions amid the draft bill about security token offerings (STOs) which currently in process at the German parliament.
Senator Thomas Heilmann, a member of the Christian Democratic Union (CDU), Germany’s ruling political party, stated that “The technology sounds very interesting, but people don’t really understand it,”
The blockchain startup, Lition, has been guiding Heilmann on the new legislative proposal. Richard Lohwasser, The CEO of Lition stated that “The bill now exists in the form of “discussion materials” and has been discussed by German lawmakers and government bodies behind closed doors,”
Further, Lohwasser explained that “As it stands, without comprehensive regulation of security tokens in Europe, dealing with them can mean a whole range of problems: holding a token doesn’t mean holding equity from a legal standpoint, dividend payments are not legally compliant, and if a token gets sold the buyer doesn’t acquire legal rights to receive dividends”
According to the document of the Finance Ministry, it revealed that Germany would also be able to take the leading position in tokenized finance post the application of the latest draft bill.
Lewis Cohen, a lawyer at the New York-based law firm DLx Law stated that “Even if the German capital markets are not that significant right now, especially from the point of view of companies here in the U.S., the fact that policymakers in Germany are taking active steps to encourage the use of security tokens will be noticed, and lessons will be learned, around the world. The German experiment, if you will, is important for creating a model, in which the wider blockchain community can learn what works well and what doesn’t work as well.”
