It has been known since 2019 at the latest that also under German securities law company-issued tokens can be classified as securities if they are generally tradable and rights similar to securities are associated with them. Moreover, since the Electronic Securities Act (eWpG) came into effect in Germany in the summer of 2021, with crypto securities there is also a specific form of tokenized securities expressly provided for in the law. For BaFin, public offerings of security tokens have therefore not been a rarity for some time now. To the extent that the publication of a securities information sheet (WIB) is required for such issuance, BaFin must decide on the approval of the WIB prior to publication. Since 2019, BaFin has already reviewed a large number of WIBs for security token offerings. The authority often seems to have problems in cases where the planned token sale is planned to take place several weeks or even months after the approval. In such cases, BaFin often refers to its administrative practice, according to which an approval may not be given too early prior to the start of the offer in order to ensure that the information in the document is up-to-date.
Delay of Approval by BaFin Without Legal Basis
BaFin’s administrative practice is not tenable from a legal perspective. The task of BaFin under the German Securities Prospectus Act (WpPG) is to verify whether the minimum information and instructions that are required by law are completely included in the securities information sheet and in the prescribed order. In addition, BaFin must verify that the issuer’s last annual financial statement is not older than 18 months at the time of approval. In this respect, the determination date of the annual financial statements is decisive. If there is a guarantor for the token issue, BaFin must also check whether the annual financial statements of the guarantor are up-to-date. BaFin does not carry out any further review of the actuality of the information in accordance with the German Securities Prospectus Act. There is no statutory provision according to which the offer of a security token on the market must start immediately after the permission has been granted.
Actuality of the Information in the WIB Ensured by Supplement Obligation
Of course, it is of high importance for potential investors that the information contained in a WIB is up-to-date and that it provides a reliable basis for an investment decision. The actuality of the information is, however, also ensured without further review obligations of BaFin by the fact that issuers of securities and thus also of security sokens are obligated to immediately supplement or correct every new circumstance as well as every important inaccuracy in the information published in a WIB. The update must be made in the form of a supplement, which must also be approved by BaFin prior to its publication. In this respect, the obligation to check that the information is up-to-date does not lie with BaFin, but with the issuer, who may also be liable to investors if this obligation is not complied with. Consequently, the German Securities Prospectus Act also stipulates that every WIB must contain a note stating that the accuracy of the content of the securities information sheet is not subject to review by BaFin. Contrary to Bafin’s administrative practice, the approval of a WIB can therefore also be granted well before the start of the offering. However, issuers must note that WIBs are only valid for a maximum of one year.
Attorney Lutz Auffenberg, LL.M. (London)