Germany is following the example of other countries (most recently Luxembourg) and is planning to digitalize securities. In doing so, Germany is ahead of comparable regulatory efforts by the European Commission, which is working on a legal framework for the digitalization of the European financial market.
The German legislator recently published a draft bill for the introduction of electronic (digital) securities, which has long been eagerly awaited not only by the blockchain community. In the process, Germany is planning an extensive modernization of the German securities law and the associated supervisory law.
The draft law proposes to eliminate the need to certificate securities on a paper document, which should clear a path for the introduction of electronic securities in the future. The draft law also expressly recognizes security tokens registered on a blockchain as securities. This has, of course, already been the case in the past according to supervisory practice. Nevertheless, the German legislator is thus taking into account the requirements of new technologies, particularly blockchain technology.
The draft law currently only affects debt instruments, specifically bonds. If the proposed regulations prove to be successful, it can be assumed that other types of electronic securities will be made possible in the future, especially electronic shares. This would be a big step toward modernizing the German (and probably also the European) financial market.
One may hope that this draft law will serve as a blueprint for Austria, where efforts to modernize securities law have unfortunately not yet led to any visible results in the form of legislation.
Under the draft legislation, electronic securities are to be considered expressly as "things" (Sachen) under German civil law, which will allow securities holders to enjoy broad property rights. This has great importance under civil law. The concept of property law is thus dematerialized – at least partially in the field of securities – and rights associated with intangible things are treated equally with rights associated with tangible things. The transfer of ownership of an electronic security is effected on the instruction of the previous security holder to the acquirer if both parties agree that the right to the security is to be transferred.
Security tokens, which are referred to as "crypto securities" in the German draft law, are also to be explicitly permitted in the future. They will be on par with electronic securities. As a relaxation of the current status quo, issuers will in the future be able to independently manage crypto securities in a crypto securities register and will not be required to keep them in a central securities depository as is currently the case. A blockchain is to be regarded as such a register. This should make it easier and cheaper to issue security tokens in the future.
Austria has a lively blockchain community and is home to internationally successful companies in this field. However, due to the reforms and increasing opening of other countries to blockchain technology, Austria is in danger of being undermined as a business location for blockchain companies. A technology-neutral legal framework could help to enable more innovations, strengthen the legal security of companies and at the same time better protect consumers. It would therefore be hoped that the Austrian legislator will take the reform efforts in Germany as an opportunity to bring the relevant legal framework in Austria into the 21st century.
Stadler Völkel is one of the pioneers in the use of blockchain technology in the capital market. For example, the law firm advised on the first prospectus-based offering of tokenized securities in the EU. The issuance of tokenized securities is now part of the common repertoire on the capital market in Austria.
Should you or your company have any questions regarding supervisory law, we will be happy to assist you with our experience and expertise.
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Oliver Völkel | Lorenz Marek