Issuers of investments or securities with relatively small issue volumes, i.e. in particular small and medium-sized entities, often have the understandable desire to market their products on their own. In Germany, the German Asset Investment Act (VermAnlG) and the German Securities Prospectus Act (WpPG) in conjunction with the EU Prospectus Regulation (ProspektVO) define the regulatory requirements that must be met by an investment or security before it can be offered to the public in Germany. In addition to the requirements relating to the prospectus and documentation obligations to be fulfilled by issuers and providers, these requirements also include restrictions and specifications relating to the distribution channels and the possibility of the self-issuance of the individual products. So is the direct distribution of financial products by their issuers in Germany not possible at all?

Type of Product and Issue Volume Are Decisive

Requirements with regard to the distribution of individual financial products result in particular from both the type of product and the intended issue volume. For example, in the case of securities with an issue volume of between EUR 1,000,000 and EUR 8,000,000 calculated over a period of 12 months and which are issued on basis of a securities information sheet instead of a securities prospectus, it is generally necessary to distribute the securities through an investment services company authorized to provide investment brokerage or investment advice, provided that the offer is also directed at non-qualified investors. In the case of asset investments, in principle only those asset investments may be authorized for public offering in Germany which are distributed by way of investment advice or investment brokerage by an investment services company or a financial investment intermediary. This is the case without exception for asset investments issued with the help of a swarm financier, although it should also be mentioned that distribution can only take place via an Internet service platform operated by the swarm financier, which must not have any interconnections with the issuer.

What Options Are There for Self-Distribution in Germany?

A proprietary sale of securities or investments is always possible if the planned public offering of securities or investments is subject to one of the legally regulated exceptions that exempt the issuer and offeror from the obligation to prepare a prospectus, a securities information sheet (WIB) or an investment information sheet (VIB). Such an exemption exists, for example, if the group of investors to be addressed by the offer is kept small or the offer is directed only at qualified investors. Another possibility for issuers of securities to market their investment products by way of self-distribution is to prepare a comprehensive securities prospectus in accordance with the ProspektVO instead of a WIB. This is because securities offered on the basis of a full securities prospectus are not subject to the restrictions regarding self-distribution. This arrangement has the additional advantage that the securities could also be offered in other member states of the European Economic Area on the basis of the securities prospectus and also on a proprietary basis via a comparatively simple notification procedure. Finally, the tokenization of products can also enable self-distribution for products which in principle would have to be classified as asset investments. This is because, according to BaFin’s current administrative practice, such products must be classified as securities sui generis for regulatory purposes, at least if tokenization leads to increased tradability. They are then subject to the provisions of securities regulatory law with all its disadvantages and advantages despite their legal design as an asset investment. In particular, securities sui generis can also be offered across borders in accordance with the ProspektVO.

Atty. Dr. Konrad Uhink