On 23 November 2023, BaFin published a guidance sheet with information on the facts of crypto securities register management. The crypto securities register is closely related to the German Electronic Securities Act (eWpG). Under the eWpG, bearer bonds can be issued in the form of an electronic security. The same applies to crypto fund units in accordance with the Regulation on crypto fund units. An electronic security is issued by the issuer making an entry in an electronic securities register instead of issuing a securities certificate, e.g. in the form of a global certificate. The eWpG includes a central register and a crypto securities register among these electronic securities registers. The crypto securities register only applies to the latter. A crypto security is an electronic security that is entered in a crypto securities register. In addition to statements on the licensing requirement, the information sheet also contains general statements on the system of the eWpG.

Existing DLT-Based Security Tokens are not Automatically Crypto Securities

Traditional securities always require a certificate for a right, the utilization of which is governed by private law through the possession of the certificate. With the introduction of global certificates, it is no longer necessary to create a large number of securities certificates, but several rights can also be securitized in one certificate. In order for one of the rights securitized in the securities certificate to come into existence, an effective act of scripting and an effective contract of issuance are required. The effective scripting act requires the issuer to draft a certificate. In the case of a crypto security, the scripting of a certificate is waived. In BaFin’s opinion, the scrip is instead entered in the crypto securities register by entering the crypto security in the register. It is precisely this act of registration in a crypto securities register in accordance with the eWpG that is regularly missing for security tokens issued prior to the introduction of the eWpG. In this respect, BaFin therefore is of the opinion that these cannot qualify as crypto securities without further ado.

Operation of Crypto Securities Register Regularly Subject to Authorization and Additional Licenses May Be Required

The registry operator shall maintain a crypto securities register in such a way that the confidentiality, integrity and authenticity of the data are guaranteed. The entity operating the register must take the necessary technical and organizational measures to prevent data loss or unauthorized data modification for the entire duration for which the electronic security is registered. In order to comply with these obligations, BaFin assumes that it is always required that business operations are set up in a commercial manner. Accordingly, anyone operating an eWpG-compliant crypto securities register must always obtain a license from BaFin. Since crypto securities are ultimately securities, their safekeeping and/or management is also subject to the custody business requiring a license. However, according to the administrative practice now published by BaFin, a crypto securities registrar who is also licensed for custody business does not necessarily require a separate license for crypto custody business in order to secure any cryptographic keys. Nevertheless, crypto securities can also be held in custody by BaFin-approved crypto custodians in accordance with the eWpG.

Rechtsanwalt Dr. Konrad Uhink

I.  https://fin-law.de

E. info@fin-law.de

The lawyer responsible for providing advice on the issuance of electronic securities in our law firm is Attorney Dr. Konrad Uhink.