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REGULATION OF DIGITAL CURRENCIES IN GERMANY
Khikmatov Nemat Jurayevich
Independent researcher
https://doi.org/10.5281/zenodo.14893952
Annotation
. The article is devoted to the problems of digital currencies in
Germany. Types of digital currencies and their status in Germany are
considered. The author analyzes the approaches of the legislator, regulator and
doctrine to the content of the concepts of “blockchain”, “digital assets”, “tokens”,
“cryptocurrency” and others. The Federal Electronic Securities Act of 2021 (ESS
Act) and other changes in the legislation of the Federal Republic of Germany are
analyzed. The advantages and disadvantages of the German approach to digital
assets are identified. The EDS Act defines the rules for registration and exchange
of digital assets in Germany. Rights to them are traded through electronic
registries. One of the central innovations is the license for blockchain trading
systems. Adapting German law to new technologies increases transparency,
market integrity and investor protection.
Keywords:
Germany, German law, German Electronic Securities Act,
blockchain, digital assets, tokens, cryptocurrency, distributed ledger technology.
Translated from DeepL.com (free version) In practice, it is often necessary
to secure corporate financing through securities that are issued electronically
using blockchain technology. However, for a long time, securities laws did not
allow electronic securities (hereinafter referred to as “ECS”). At the same time,
other countries allowed the issuance of electronic securities and also provided
for the use of blockchain, and Germany's attractiveness as a financial center was
declining. Against this backdrop, the federal government set out to modernize its
securities laws (hereinafter referred to as “CS”), thereby increasing investor
protection. The Germans believed that “the integrity, transparency and
functionality of financial markets should be protected and improved by creating
a legally defensible regulatory framework and supervisory structures”.
Translated from DeepL.com (free version) On June 10, 2021, the Electronic
Securities Act came into force in Germany . It authorizes the issuance of bearer
securities using innovative technologies, in particular Distributed-Ledger-
Technologies.
The Act establishes a legal framework for rights trading through registries
of electronic securities and adds a new type of license for maintaining an
electronic securities registry. The Act implements the main components of the
German Government Strategy as well as the Joint Document of the German
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Ministry of Finance and the Ministry of Justice on the Regulation of Electronic
Securities and Crypto-Tokens .
The EDS Act modernizes the German Civil Code (hereinafter referred to as
the German Civil Code) and related supervisory legislation. With the creation of
the EDS, one of the central building blocks of the German government's
blockchain strategy is being realized. The Act amended a large number of
regulations: the Federal Ministry of Justice's regulation on admission to the
stock exchange , the Securities Prospectus Act , the Deposit Act .
The Bond Act , the Banking Act , the Pledge Act and the Capital Investment
Code . The Act (§ 2) classifies ECBs as “movable property” within the meaning of
section 90 of the German Civil Code . In this case, ECBs are equivalent to
traditional securities issued with an endorsed “paper” certificate. Thus, German
securities are now divided: a) into securities included in a centralized register
and b) cryptocurrency securities.
The electronic registry operator is obliged to ensure the confidentiality,
integrity and reliability of the data contained (§ 7 of the EDS Act). A bona fide
purchaser of such securities may rely on the contents of the register. Obstacles
to disposal must be entered in the register or known to the purchaser as valid (§
26).
The Law on CSE refers to the EU Regulation on Central Securities
Depositories , which defines them as legal entities managing the infrastructure
that ensures the operation of securities settlement systems. Centralized
registers (§ 13 of the Act) must contain information on the content of the right
issued, the volume of the issue, the nominal amount, the issuer, an indication of
whether the record is individual or collective, bearer, and information on joint
ownership. Individual records should also contain information on obstacles to
disposal and rights of third parties.
The MOJ and the German MoF are authorized to jointly issue regulations
concerning the establishment, maintenance and technical requirements for
cryptocurrency registries as well as requirements for confidentiality, integrity,
availability and authenticity of data (§ 15).
The term “cryptocurrency securities register” is technologically neutral.
However, according to the explanatory memorandum to the law, “the focus is on
systems of record based on distributed registry technology”. The register must
be maintained in a “tamper-proof system of record in which data is recorded
chronologically and stored in a manner protected against unauthorized deletion
and subsequent modification” (§ 16, para. of the Act).
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The EDS register contains the same information as the centralized register
(§ 17). The registration of the issuance of EDSs must be published in the German
Federal Gazette . In addition, the Federal Financial Supervisory Authority
(BaFin), which publishes the relevant information, must be notified (§ 20 of the
EDS Act). The maintenance of the register of ECBs has been added to the list of
financial services requiring registration with the BaFin under the Banking Act (§
1, para. 1a, § 32, para. 1). The definition of cryptocurrency deposit business (§ 1,
item 1a, no. 6) has been amended accordingly. Transactions of ECBs shall be
recorded by means of entries on securities accounts.
Thus, transactions with EDSs are comparable to traditional securities . In
other words, the possession and transfer of EDS to other persons is still based
on the provisions of the German Civil Code. However, it should be taken into
account that centralized registers may be maintained by the issuer of EDS or by
a depositary authorized by it (§ 12 of the EDS Act). This provision complies with
the requirements of § 3 of EU Regulation No 909/2014. Securities not included
in the register are not allowed to be traded on “trading venues” within the
meaning of the EU Financial Markets Directive . Consequently, regulated
markets, multilateral trading facilities - MTF (Multilateral trading facility is the
EU law term for “self-regulated financial trading facility”) and organized trading
facilities - OTF (Organized trading facility is the EU law term for a multilateral
system that is not a “regulated market”) cannot be used for blockchain. The
Federal Financial Supervisory Authority controls the provision of issuance and
decentralized registers as new financial services.
Under the provisions of the ESM Act, bearer bonds, mortgage bonds and
certain special fund shares may now also be issued electronically. However, the
law does not apply to registered and direct securities as well as warrant bonds.
On the other hand, in principle all promises of performance made to bearer can
be subject to ECBs. This applies, for example, to “classic bonds”, convertible
bonds and “bonds with warrants”, participation certificates, warrants,
investment certificates and structured bonds.
Under the ESM Law, issuers have the right to choose whether they want to
issue securities in the traditional way (by issuing a certificate) or in electronic
format. Under certain conditions “old” issues may also be digitized. Reversion of
EDS to paper form is also possible, but only with the consent of the beneficiaries
or, if this is also possible, without such consent under the terms of the issue.
The law on EDS enhances the security of technological innovation by
creating legally secure solutions and improves the environment for innovation
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in the financial sector. The maintenance of the register of ECBs is under the
supervision of the financial market. The novelties are also compatible with
European law, as the legislative changes do not affect the scope defined by
European law.
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