The German Ministry of Finance has recommended that the country aims to recognize blockchain-based securities as a legitimate form of financial instrument and regulate them as such. The ministry’s recommendations has come at a time when a draft bill on security token offerings (STOs) is in the works at the German parliament.
Future of Tokenized Securities
In the last few months, we have seen a lot of optimistic updates coming in laying down the foundations of a tokenized future. As more and more countries in Europe are looking forward to adopt a legal framework for digital securities, Germany at the moment is facing continuous institutional pressure to do the same. A few weeks back Bitbond announced its security token offering and became the first German firm to enter the scene. Yet, the country still lacks a concrete framework that defines the legally aspects of tokenized securities.
The Finance Ministry of Germany noted that the country law should generally be opened up for electronic securities. The currently mandatory documentary embodiment of securities (paper form) should no longer apply without restriction. The regulation of electronic securities should be technology-neutral. The issue of electronic securities should also be possible on Blockchain / Distributed Ledger Technology ( DLT ). Initially, the opening should be limited to electronic bonds. 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. The report issued by the ministry states the case for having a single central registry which would be government-supervised. This would avoid the “possibilities of manipulation,” the document reads.
Not so Feasible for ICOs
The ministry made it clear that utility tokens do not count as digital securities, and many of them might be exempt from the requirements which are made by existing securities law. The ministry in its report states “As part of the public offering of crypto tokens ( Initial Coin Offering – ICO ), tokens have been offered on a large extent in recent years, which generally do not constitute as securities, investments or other financial instruments within the meaning of the Securities Trading Act. Also, the issuance of these tokens unlike the future issue of electronic bonds will not be subject to existing capital market regulations