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Category: blog EN

May 13, 2024

The EU Growth Prospectus – Who May Benefit from These Regulations and What Facilitations Are There?

In principle, there are various ways for companies to raise capital. The bank loan as a way of raising debt capital and the issue of shares as an equity instrument are probably the classic approaches. If capital is to be raised not via a bank loan, but by issuing securities such as profit participation rights securitized in profit participation certificates, tokenized bonds or in shares, the issuer must generally comply with prospectus requirements when making a public offer to retail investors. In the European Union, these arise primarily from the EU Prospectus Regulation (EU) 2017/1129 and the accompanying regulations. Since the Regulation came into force on July 21, 2019, the EU Prospectus Regulation has also provided for the EU Growth Prospectus as an option for documentation for certain issues. The EU Growth Prospectus promises both simplified content and a smaller scope compared to a “normal” prospectus, and therefore generally lower costs when preparing the prospectus. But who can take advantage of these facilitations and what must be disclosed in terms of content?

Growth Prospectus Is Not Only Aimed at SMEs

The basic prerequisite for the possibility of fulfilling the prospectus requirement by means of an EU Growth Prospectus is always that no securities of the issuer concerned have yet been admitted to trading on a regulated market. If this requirement is met, issuers can choose this prospectus to fulfill their prospectus obligations if they fall into one of the following categories. Firstly, cases in which the issuer is a small and medium-sized enterprise (SME) are covered. However, the EU Growth Prospectus can also be used for a public offer regardless of whether the issuer qualifies as an SME if the issuer’s securities only have a limited market capitalization. In addition, the rules on the EU Growth Prospectus are also applicable if the issue has a total consideration in the EU over a 12-month period of no more than EUR 20 million and no securities of the company are traded on an MTF and the issuer had no more than 499 employees in the last year. Furthermore, the Growth Prospectus is eligible if the issuer’s shares are already traded on an SME growth market or the issuer has made an application to do so and the total value of the following two items is less than EUR 200 million: (i) the price of the final offer or the maximum price; (ii) the total number of shares outstanding immediately after the public share offer calculated on the basis of either the quantity of shares offered to the public or the maximum quantity of shares offered to the public. In addition, offerors of securities issued by issuers falling under one of the first two categories can also benefit from the EU Growth Prospectus rules. It is therefore not only SMEs that can make use of the EU Growth Prospectus.

What Content-Related Facilitations Are There?

In terms of content, this type of prospectus is very similar to the old SME prospectus. However, further streamlining has been introduced here by the European regulator. For example, information on the company’s history, employees, competitors and management practices is no longer required. Furthermore, there are simplifications with regard to the presentation of the issuer’s business and financial situation. The special registration document for the EU Growth Prospectus provides for the inclusion of financial information including key performance indicators (KPIs) and financial statements for one year for bonds and two years for shares. Overall, this results in a considerable simplification with regard to the scope of the preparation of an EU Growth Prospectus compared to a “normal” prospectus. This simplification should also be reflected in the costs of preparing the prospectus, so that companies for which this form of prospectus is an option have a real incentive to use the EU Growth Prospectus.

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    Apr 29, 2024

    Crypto Advisory Under MiCAR – Will Referrers Need a BaFin License in the Future?

    The European Markets in Crypto Assets Regulation (MiCAR) will gradually replace the national regulation of crypto services this year. On December 30, 2024, the rules of the EU regulation will apply to all CASPs in Europe. Thanks to various transitional arrangements, not all of them will require a MiCAR license immediately. However, it already makes sense to plan the transition to the new regulatory regime now. Compared to traditional regulation in the financial services sector, one crypto service that differs significantly under MiCAR is advice on crypto assets. This is because under the current regulation in Germany, investment advice only covers advisory services on transactions relating to financial instruments, including crypto assets. However, advice on crypto assets under MiCAR will go significantly further and, in addition to advice on transactions relating to crypto assets, will also regulate advice on the use of crypto services. This means that from 30 December 2024, anyone who provides customers with personalized recommendations on the use of certain crypto services may themselves be subject to a licensing requirement under MiCAR as a crypto advisor and may have to obtain a BaFin license for this activity beforehand.

    When Does the Obligation to Obtain Permission for Provider Recommendations Apply?

    In particular, crypto service providers that advertise the crypto services of third-party providers as part of their own service provision may constitute crypto advice in individual cases. This would be conceivable, for example, in cases where a crypto trading platform presents the services of various crypto custodians to its customers or a provider of crypto exchange services presents the use of the services of various portfolio managers for crypto assets. However, in order to trigger the licensing requirement in relation to crypto advice, it is always necessary for personalized recommendations to be made to the customer. It will therefore not be sufficient to simply name several different providers of a crypto service. MiCAR authorization may only be required if an advisory element is added. Therefore, if statements are made that suggest to the customer that a certain crypto service provider is particularly suitable for this customer compared to others, the crypto advice may be in the form of a provider recommendation. However, whether the recommendation to the customer is actually tailored to them, for example by taking their specific portfolio, their investment preferences and their personal risk profile as a basis, should not play a role. Rather, the decisive factor should be how the recommendation is presented from the customer’s perspective. Referrers should therefore exercise caution with statements that are intended to make customers believe that the use of a particular crypto service is a perfect fit for them or meets their specific needs.

    What Should Referrers of Crypto Service Providers Consider in the Future?

    Referrers should always take the MiCAR licensing requirement for crypto advice in the provider recommendation variant seriously and design all of their customer communications with this in mind. In all advertising statements relating to the offer of third-party crypto service providers, referrers should ensure that under no circumstances can the impression be given to the customer that the recommendation of the third-party provider was made taking into account the customer’s personal circumstances. The more general the advertising statement, the lower the risk of inadvertently providing crypto advice that requires a license. For influencers who make recommendations via public channels, on the other hand, the risk of providing crypto advice regulated under MiCAR is low, as they cannot make personalized recommendations because their audience is usually unknown to them.

    Attorney Lutz Auffenberg, LL.M. (London)

    I.  https://fin-law.de

    E. info@fin-law.de

    The competent lawyer for the application of a BaFin license according to MiCAR and structuring of a business model to avoid licensing obligations in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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      Apr 22, 2024

      Incorrect Crypto Whitepaper According to MiCAR – What are the Consequences?

      When the Markets in Crypto Assets Regulation (MiCAR) comes into force on December 30, 2024, the provisions on crypto asset whitepapers contained therein will also become applicable. On this date, providers who publicly offer crypto assets other than asset referenced tokens or e-money Tokens must, among other things, prepare and publish a corresponding crypto asset whitepaper and submit it to BaFin as the competent authority in the event of a public offering in Germany. The information contained in the crypto whitepaper must not be incomplete, dishonest, incomprehensible or misleading. The regulations ultimately aim to ensure that the crypto whitepaper contains all the information necessary for the potential investor to make an informed purchase decision. But who would be liable should the crypto asset whitepaper be incorrect in the aforementioned sense?

      In General, the Provider, the Applicant for Authorization to Trade or the Trading Platform Operator are Liable

      Firstly, MiCAR stipulates that those who assume responsibility for the crypto-asset whitepaper are also the addressees of any liability for errors in the whitepaper in question. These are either the provider of the crypto asset or the person who has applied for the authorization of the crypto asset for trading or the operator of the trading platform on which the crypto asset is to be traded. Interestingly, the term “issuer” was not included in the scope of the liability addressees on the grounds that this would not be expedient, as there is often no identifiable issuer for this type of crypto asset. In principle, it is stipulated that all of the aforementioned possible responsible parties must be legal entities. As a general rule, they are only subject to limited liability insofar as they are only liable with their company assets. This limitation of liability would also affect liability for an erroneous crypto asset whitepaper, meaning that young companies with a thin capital base that assume responsibility for the whitepaper in question could only have very limited liability. In this respect, claims for damages due to losses caused by erroneous crypto asset whitepapers could well come to nothing.

      Liability of Members of the Administration Bodies, Management Bodies or Supervisory Bodies

      For this reason, MiCAR cumulatively also holds the administrative body, management body or supervisory body of the person responsible for the whitepaper liable to the holder of the crypto asset for damages suffered due to breaches of the aforementioned obligations. Specifically, this means that the natural persons in the aforementioned bodies of the legal entities may also be liable for damages caused by an erroneous crypto asset whitepaper. A limitation or even an exclusion of this liability by the general terms and conditions of the person responsible for the whitepaper is excluded by MiCAR itself. A proper and careful preparation of the required crypto asset whitepaper to avoid liability risks for the person responsible for the whitepaper by a law firm specializing in the preparation of MiCAR whitepapers is therefore advisable for all parties involved. This is particularly important as there is no time limit for this type of liability in MiCAR, which is otherwise usual for prospectus and documentation obligations.

      FIN LAW

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        Apr 15, 2024

        Getting Ready for MiCAR – BMF Proposes Two New Regulations for the Transition to MiCAR

        On 5th of April 2024, the Federal Ministry of Finance (BMF) published two draft regulations intended to effectuate the transition from national crypto regulation to the MiCAR regime, which will finally apply to crypto service providers (CASP) as of 30th of December 2024. Market participants, associations and experts will have the opportunity to submit critical comments on the content of the planned regulations to the Federal Ministry of Finance by 19th of April 2024. With the MiCAR Transit Regulation (MiCAR-TransitV), the Federal Ministry of Finance intends to regulate the use of a simplified procedure for obtaining a MiCAR license as provided for in MiCAR. The draft MiCAR Application Regulation (MiCAR-Antragsverordnung – MiCAR-AntragsV), on the other hand, is intended to define the details of the application process for all application procedures provided for by MiCAR, in particular when which applications for authorization under MiCAR can be submitted by crypto service providers. Both draft regulations find their legal basis in the German Crypto Markets Supervision Act (KMAG), which is also available as a draft version of the Federal Government dated February 7, 2024, but which can be expected to be adopted in the near future in view of the MiCAR, which will already take legal effect as of 30th of June 2024, at least with regard to e-money tokens (EMT) and asset referenced tokens (ART).

        MiCAR-TransitV Facilitates Obtaining MiCAR License for Investment Firms and Crypto Custodians

        According to MiCAR, the simplified procedure for obtaining a MiCAR license is intended to benefit companies that already are licensed under national law for the provision of crypto services. In Germany, these are in particular crypto custodians that already hold a BaFin license under the German Banking Act (KWG) and crypto service providers with a BaFin license under the German Investment Firms Act (WpIG) or the KWG, for example for investment brokerage or investment advice in relation to crypto assets, operators of multilateral crypto trading systems, proprietary traders or financial commission agents who trade crypto assets for their own account. The MiCAR-TransitV will specify the content requirements for applications in the simplified procedure in the future. In all cases, the applicant will have to state the specific crypto services for which authorization is being applied for under MiCAR. In addition, the applicant must confirm that its business model has remained unchanged since its authorization procedure under national law and that the information on business organization and company management submitted to BaFin at the time is still up to date. Additionally, the applicant must make adjustments to its business organization with regard to the specific compliance requirements of MiCAR and submit them to BaFin. Finally, an updated business plan must be submitted, showing which crypto services are to be provided in which member states in accordance with MiCAR and how the applicant intends to market them.

        MiCAR-AntragsV Aims to Regulate Submission Deadlines for All Types of Applications for MiCAR Authorization

        The MiCAR-AntragsV merely serves to create the possibility of being able to submit applications for authorization as a CASP to BaFin prior to MiCAR taking full legal effect. This is because as long as the provisions of MiCAR do not yet apply with regard to the application – this will not be the case until 30th of December 2024 – an effective legal basis is required for the application. At the end of 2024, the MiCAR-AntragsV will have served its purpose and will therefore cease to apply. Applications for the simplified procedure to be regulated by the MiCAR-TransitV should be able to be submitted as soon as the MiCAR-AntragsV comes into force, which can be expected by summer 2024 at the latest. The MiCAR-TransitV itself should already regulate the expiry date for the possibility of using the simplified procedure and set it at 31st of August 2025. Initial applications for authorization as a CASP under MiCAR, as well as notification applications from credit institutions or investment firms, should be able to be submitted or transmitted from the date on which the MiCAR-AntragsV comes into force. For market participants in Germany, this means that they should start preparing MiCAR-related applications now in order to be able to submit them immediately after the MiCAR-AntragsV comes into force.

        Attorney Lutz Auffenberg, LL.M. (London)

        I.  https://fin-law.de

        E. info@fin-law.de

        The competent lawyer for the application of a BaFin license according to MiCAR in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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          Apr 08, 2024

          Lending Business and Subordinated Loans – What to Consider When Issuing Subordinated Loans on a Regular Basis

          In principle, the German Banking Act (KWG) makes the lending business a banking business and thus a regulated activity subject to authorization. This applies in any case if the business is conducted in Germany on a commercial basis or to an extent that requires a commercially organized business operation. The lending business concerns the granting of money loans and acceptance credits. The provision of such services therefore requires prior authorization from BaFin, which also exercises ongoing supervision over companies that engage in this activity. It is a criminal offense to conduct banking business, including lending business, without prior authorization if it exceeds the aforementioned scope. In particular, business models that initially intend to raise money by means of subordinated products in order to then in turn lend this money to other companies by means of loans should check whether they fall under the aforementioned authorization requirement. In this context, the question arises as to whether these transactions are generally prohibited if there is no BaFin license?

          Exception Based on Agreement of a Subordination Clause

          According to BaFin’s guidance note on the lending business, the general obligation to obtain prior permission to operate a lending business does not apply in cases where subordination clauses or loss-sharing agreements on the part of an entrepreneurial borrower mean that taking out a loan does not qualify as a deposit-taking business within the meaning of the KWG. In these cases, it should be possible to grant loans to companies without a license, even on a commercial basis or to an extent that requires a commercially organized business operation. Lending to private individuals on this scale, on the other hand, qualifies as a credit transaction requiring a permit despite the agreed subordination or agreed loss participation. In this respect, the regulation mirrors the assessment made by BaFin as part of its interpretation of the deposit business. According to this, funds received from third parties with a qualified subordination clause are not unconditionally repayable and are therefore not considered deposits within the meaning of the deposit business.

          Exception for Appearing on the Market like a Credit Institution

          However, the exception described above should not apply if the loan is granted by a market participant that acts like a credit institution on the market or in public. Such an appearance should be given in particular if the granting of the loan and the refinancing of the lender result in the overall image of a credit institution. In a case decided by the Administrative Court of Frankfurt, the plaintiff planned to raise investor funds via profit participation rights and also by issuing bearer bonds under the business model it had in mind. Here, the court found that there was no legal scope for a restrictive interpretation of the definition of a lending business analogous to the definition of a deposit-taking business if the company that intends to grant such loans refinances itself by accepting repayable funds from the public – even if this is by issuing bearer bonds. In this respect, in this constellation, loans to companies with qualified subordination also fall under the definition of lending business. It must therefore be decided on a case-by-case basis, taking into account the overall business model, whether the intended transaction of the company granting the loan may fall under this exemption.

          FIN LAW

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            Mar 25, 2024

            BaFin License, Crypto Whitepaper, Redemption Obligation – Which Requirements Does MiCAR Set for the Issuance of E-Money Tokens?

            The issuance of stable coins that derive their value directly from an official currency such as the euro or US dollar will only be possible in the European Union from June 30, 2024 in compliance with the regulations of the new Markets in Crypto Assets Regulation (MiCAR). As in the case of traditional, non-tokenized E-Money within the meaning of the Second E-Money Directive, strict requirements will also be imposed on the issuers of E-Money Tokens, which is why not every company will be eligible to issue E-Money Tokens under MiCAR. Rather, this privilege will only be granted to licensed and supervised credit institutions and e-money institutions. In Germany, a BaFin license will therefore always be required for the issuance of E-Money Tokens under MiCAR. However, MiCAR also imposes further obligations on issuers of such Tokens. For example, issuers of E-Money Tokens must prepare a comprehensive crypto whitepaper containing the minimum information specified in MiCAR so that the Tokens may be offered publicly in Europe or authorized for trading on crypto exchange platforms, for example.

            MiCAR Places Content Requirements on Crypto White Papers for E-Money Tokens

            Prior to the public offering of E-Money Tokens in the European Union, the issuer holding a BaFin liecense must prepare a crypto whitepaper and publish it on its website, and submit it to its competent authority – BaFin in Germany – no later than 20 working days prior to publication. In the crypto whitepaper, the issuer of the E-Money Token must, among other things, provide information about itself and how the E-Money Token works, the manner of the planned public offering or authorization for trading, the rights and obligations associated with the E-Money Token, the associated risks and also the main adverse effects of the underlying consensus mechanism on the climate. In addition, the crypto whitepaper must contain numerous warnings, such as the lack of deposit protection and the fact that the crypto whitepaper has not been approved by a supervisory authority. Overall, the crypto whitepaper must be formulated in a fair and comprehensible manner and must not contain any misleading statements. The crypto whitepaper must be written in a language of the issuer’s home country or in a language commonly used in the international financial community. Especially if the E-Money Tokens are not only to be offered in Germany, it is therefore advisable to prepare a crypto whitepaper in English.

            Redemption Obligation and Interest Prohibition as Restrictions under Private Law

            The MiCAR also imposes obligations on issuers of E-Money Tokens in terms of private law. Of crucial importance in this respect is the redemption obligation enshrined in the regulation, which guarantees the bearers of E-Money Tokens the right to redeem the Tokens in legal tender at any time at their nominal value. Issuers holding a BaFin license may not charge any fees for the exchange. The MiCAR legislator is also strict with regard to the possibility of paying interest on balances in E-Money Tokens. Interest may not be granted in relation to E-Money Tokens. The prohibition of interest applies not only to the issuers of E-Money Tokens, but also to crypto service providers, who are not allowed to grant interest in connection with the crypto services they provide. The MiCAR clarifies that interest within the meaning of the prohibition of interest shall also include all remuneration and other benefits in connection with the ownership of E-Money Tokens.

            Attorney Lutz Auffenberg, LL.M. (London)

            I.  https://fin-law.de

            E. info@fin-law.de

            The competent lawyer for the application of a MiCAR license and advice on issuances of E-Money Tokens and for obtaining a BaFin license in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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              Mar 18, 2024

              The MiCAR Crypto Asset Whitepaper – Can the Obligation to Create also Affect the Operator of a Trading Platform?

              The Markets in Crypto Assets Regulation (MiCAR) will come into full force on December 30, 2024. From this date, the regulations relating to crypto asset whitepapers will also apply. Among other things, these will require providers who publicly offer crypto assets other than asset referenced tokens or e-money tokens to prepare, submit and publish a corresponding crypto asset whitepaper to the competent authority. The same obligations apply to persons who apply for the authorization of such crypto assets for trading. Exceptions to this obligation arise from the MiCAR itself, such as in the case of a public offer to fewer than 150 natural or legal persons or exclusively to qualified investors. An exception to the obligation to prepare a MiCAR whitepaper upon authorization of the crypto asset for trading exists if the crypto asset in question is already authorized for trading within the Union and a corresponding MiCAR whitepaper has been prepared and the person responsible for preparing the whitepaper consents to its use in writing. In this context, the issuers of crypto assets are therefore primarily obliged to prepare a whitepaper. They will regularly have a corresponding interest in both the public offering of the crypto assets and their authorization for trading. But can these obligations also apply to the operator(s) of a trading platform?

              Operator of a Trading Platform as a Provider of Crypto Assets in the Context of a Public Offering

              In the context of MiCAR, the term provider refers to a natural or legal person or another company that publicly offers crypto assets. Whether the operator of a trading platform can fall under this definition is likely to be a question of the specific case. According to MiCAR, the mere authorization to trade or the publication of bid and ask prices does not qualify as a public offer of crypto assets. In this respect, an operator of a trading platform would only be obliged to prepare a MiCAR whitepaper as a provider if its activities went beyond this. However, not every additional activity should automatically trigger the obligation for the operator to prepare a whitepaper. Rather, the activity of the operator must constitute a public offer itself. This means that the information published about the crypto asset must contain the terms of the offer in order to enable potential investors to decide whether to purchase the crypto asset. It would be desirable if ESMA were to publish corresponding guidelines on when a public offer exists for crypto assets that are already listed.

              Operator of a Trading Platform as Initiator for the Authorization of Crypto Assets for Trading

              If the operator of a trading platform is the initiator for the authorization of the crypto asset for trading, it is also responsible for ensuring that the corresponding crypto asset whitepaper is published if it has not yet been published in the cases prescribed by MiCAR. Specifically, the legislator is focusing here on the “initiative” of the operator of the trading platform. Generally, the initiative for authorization to trade will probably come from the issuer or, for example, the issuer’s distribution partner. However, if the initiative comes from the operator of the trading platform itself, it should also be subject to the corresponding obligations. Unfortunately, the regulation does not specify when exactly the initiative for the authorization of a crypto asset for trading comes from the operator or another person. In this respect, operators of trading platforms are advised to carry out a precise case-by-case examination. This should apply all the more to operators whose business model includes the tokenization of financial products and their distribution in addition to operating a trading platform. Depending on the field of activity, the threshold for becoming an initiator could be exceeded relatively quickly.

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                Mar 11, 2024

                The Stable Coin in Europe – Who Can Issue Asset-Referenced Tokens (ART) Under MiCAR?

                In just over three months, the provisions of the Markets in Crypto Assets Regulation (MiCAR) on Asset Referenced Tokens (ART) and Electronic Money Tokens (EMT) will come into force. MiCAR will then ensure strict rules for the creation and offering of so-called stable coins in the EU. Issuers of stable coins will then have to fulfill numerous obligations designed to ensure the stable value of stable coins and provide investors with the highest level of security. This already shows that issuing ARTs in the EU will be a highly complex undertaking in the future. In the case of Asset Referenced Tokens, the stable value of the token is derived from another value or right or a combination thereof, as defined in the MiCAR. The reference value can therefore be composed very differently. As long as the composition leads to a stable value of the ART, the MiCAR regulations must be observed by the issuer, but also by other types of providers such as trading platforms offering ART. But who will actually be allowed to issue Asset Referenced Tokens in the EU from June 30, 2024?

                Issuer of Asset Referenced Tokens (ART) Requires a MiCAR License

                The issuer status is of central importance for the existence of stablecoins under the new regulation. Without an issuer – according to the MiCAR legislator’s approach – there is no stable coin. Therefore, from June 30, 2024, the public offering of Asset Referenced Tokens in Europe will in principle only be possible to be carried out by the issuer of the relevant ART itself. The same applies to an application for authorization of an ART for trading. In addition, issuers of Asset Referenced Tokens must generally obtain a license under MiCAR prior to commencing the public offering of their ART. The application for approval is comprehensive and must include a detailed business plan and detailed descriptions of the future issuer’s business organization. In addition, the management bodies must be professionally suitable and reliable and the owners of significant shareholdings must have successfully completed an acquisition approval procedure. A detailed crypto whitepaper on the planned ART must also be prepared. However, if the future issuer is a credit institution, no application for authorization as an issuer is required. It is then sufficient for the credit institution to provide the competent authority – BaFin in Germany – with specific information on the project and compliance with the MiCAR compliance requirements ninety days prior to the first issue.

                No Need for a MiCAR License for ART Issuers in Certain Exceptional Cases

                MiCAR does not require issuers of Asset Referenced Tokens who have only issued ARTs with an average value of not more than EUR 5,000,000 over a period of twelve months to apply for a license. In such cases, the legislator did not consider the strict rules for issuers of Asset Referenced Tokens to be appropriate. There is also an exception for issuers of ARTs that can only be held by qualified investors and the public offering of these ARTs is also aimed exclusively at such qualified investors. In these cases, MiCAR assumes that the investors have sufficient knowledge to be able to assess the professionalism of the issuer and the financial soundness of the Asset Referenced Tokens issued by the issuer. In both exceptional cases, however, the issuer must nevertheless prepare a crypto whitepaper in accordance with MiCAR regulations and submit it to the competent authority in its home Member State.

                Attorney Lutz Auffenberg, LL.M. (London)

                I.  https://fin-law.de

                E. info@fin-law.de

                The competent lawyer for the application of a MiCAR license and advice on issuances of stable coins in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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                  Mar 04, 2024

                  The Electronic Stock Is Now Officially Introduced – What Should Be Considered?

                  The act on the financing of investments to secure the future (Future Financing Act) came into force for the most part on December 15, 2023. Among other things, the act is intended to facilitate access to the stock market and the procurement of equity capital. The Future Financing Act amended the Electronic Securities Act (eWpG) so that bearer and registered stocks are now explicitly covered by the scope of the eWpG. This dematerializes the stock. The previously common securitization of stocks, for example in a global certificate, is no longer mandatory. Instead, electronic stocks are also treated as objects, which establishes security and transfer functions such as acquisition in good faith for electronic stocks. An electronic security is issued by the issuer making an entry in an electronic securities register instead of issuing a securities certificate. The following explanations are intended to highlight some of the practical aspects associated with the new electronic stock.

                  Registered Stocks Can Be Issued as Crypto Securities

                  The eWpG establishes two types of electronic securities, the central registry security and the crypto security. The central registry security is an electronic security that is entered in a central register. Such central registers can be maintained by central securities depositories or a custodian. A crypto security is an electronic security that is entered in a crypto securities register. A crypto securities register must be kept on a tamper-proof recording system in which data is logged in chronological order and stored in a manner that is protected against unauthorized deletion and subsequent modification, such as a blockchain. This makes it possible to issue tokenized stocks. Both the central registry security and the crypto security can be issued to different holders in individual and collective registration. The Future Financing Act provides that registered stocks can be issued as crypto securities and central registry securities. Bearer stocks, on the other hand, may only be issued as central registry securities. With regard to a possible IPO, however, it should be noted that only central registry securities in collective registration are covered for settlement in the securities giro and therefore only such securities are suitable for stock exchange trading, unless an exception applies under the current DLT pilot regime.

                  Articles of Association of the Stock Corporation Must Provide for the Issuance of Electronic Stocks

                  In order to issue electronic stocks, the articles of association of the stock corporation must provide for the exclusion of securitization. Registered stock in the form of a crypto security can only be issued if the articles of association expressly permit this. In the case of existing stocks, an issuer may replace a security issued by means of a global certificate or by means of individual certificates held in collective custody with a central registry security with the same content at any time and without the consent of the beneficiaries. Provided that the articles of association exclude the securitization of stocks, they must be amended. In all other cases of conversion, the approval of the shareholders is required. Conversely, electronic stocks can also be converted into securitized stocks. Because the exclusion of securitization must be provided for in the articles of association in order to issue electronic stocks, conversion into a paper certificate would require the exclusion of securitization to be removed.

                  FIN LAW

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                    Feb 26, 2024

                    Expansion to Europe – How Can Crypto Asset Service Providers from Third Countries Come to Europe Under MiCAR?

                    With the Markets in Crypto Assets Regulation (MiCAR), the European venue has become much more attractive to the global crypto industry. In future, crypto asset service providers (CASP) will find uniform regulation for their business in the member states of the European Union, which clarifies that crypto services are legal in Europe and in which form. In addition, MiCAR offers European crypto asset service providers the opportunity to provide their crypto services throughout the European Union on the basis of just one MiCAR license from their competent authority which in Germany is BaFin. These options and the legal certainty associated with MiCAR are also of interest to CASP from the USA, Asia or other third countries such as Switzerland and the UK. Crypto asset service providers from these countries are therefore increasingly interested in how they too can benefit from MiCAR regulation and how an expansion into Europe can be structured in terms of supervisory law. Applying for their own MiCAR license from BaFin is the most obvious solution in this respect and offers the advantage of maximum freedom in terms of their own business organization. However, the expected very long processing time until a BaFin license is issued by the authority is problematic. Alternatives for expansion into Europe for non-European CASP could be cooperation with companies supervised under MiCAR or the acquisition of an already licensed CASP.

                    Cooperation with Licensed Crypto Asset Service Provider as an Alternative to an Own MiCAR License

                    One way for companies from a non-European country to expand into Europe may be to enter into a cooperation agreement with an EU company licensed for the intended crypto services. In practice, in many cases, arrangements are possible whereby the foreign company is included in the business organization of a CASP licensed by BaFin by way of an outsourcing agreement. The supervised crypto asset service provider is then responsible under supervisory law, while the company from the third country merely acts as a service provider for the licensed company from a regulatory point of view. Fronting and customer support can then be provided by the foreign company, for example. However, it must always be ensured that customers can recognize that the company with a BaFin license assumes civil and regulatory responsibility for the crypto services offered via the cooperation.

                    Acquisition of a Crypto Asset Service Provider with BaFin License Requires BaFin Acquisition Approval

                    Another alternative for crypto asset service providers from third countries may be to acquire a company in Europe that already has a BaFin license to provide the intended crypto services. Not only CASPs with a MiCAR license are eligible. Depending on the type of crypto services planned, certain investment firms with a BaFin license may also be considered as possible target companies. Similarly, under MiCAR, credit institutions are generally permitted to offer crypto services in addition to their actual business activities. In all these cases, however, a successful BaFin approval procedure must be completed prior to the acquisition. As part of the BaFin approval procedure, the authority has the opportunity to check the reliability of the acquirers interested in the acquisition and their intentions with regard to the acquisition. The information and evidence to be made available to BaFin during the BaFin approval procedure are numerous. Nevertheless, an approval procedure generally takes considerably less time than applying for a BaFin license. In this respect, acquiring a company supervised in Germany is a very interesting alternative for crypto asset service providers from third countries looking to expand into Europe.

                    Attorney Lutz Auffenberg, LL.M. (London)

                    I.  https://fin-law.de

                    E. info@fin-law.de

                    The competent lawyer for questions regarding a BaFin license under MiCAR, outsourcing and BaFin approval procedures in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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                      Feb 19, 2024

                      Public Warnings by BaFin – How Affected Companies Can React

                      If companies wish to provide financial services such as investment advice or investment brokerage on a commercial scale, they require a BaFin license to do so. BaFin issues warnings via its website if companies offer financial services without a license. The basis for such warnings is Section 37 Subsection 4 of the German Banking Act (KWG). According to this provision, the authority may inform the public of this suspicion or finding, stating the name of the company, if and for as long as facts justify the assumption or it is established that a company is conducting unauthorized banking business or providing unauthorized financial services. The naming of the company’s real name in particular can result in considerable reputational damage for the company. This applies in particular to cases in which the press also reports on such an incident on the basis of public information, thereby increasing its reach. The following article is intended to show which principles BaFin must observe and how those affected can defend themselves if necessary.

                      Anyone Providing Financial Services Must Possess a BaFin License

                      The prerequisite for informing the public is that it is established or suspected that a company is providing unauthorized financial services, i.e. is operating on the market without the required authorization from BaFin. The provision of Section 37 Subsection 4 KWG serves the purpose of collective consumer protection and is intended to ensure that the public can be informed of potentially unauthorized activities at an early stage in order to minimize the damage to depositors and investors and to Germany as a financial marketplace. What is striking is that even the initial suspicion of BaFin is considered sufficient basis for publication. The authority may even make use of its right to issue a public warning if a company does not carry out the unauthorized activities, but merely gives the appearance of doing so publicly, for example through advertising measures. BaFin is therefore not obliged to formally intervene against the company first and only then publish the warning. It may publish its suspicions and warn the public at an early stage and prior to taking formal measures. However, the company concerned must always be heard by the authority before a decision on publication is made.

                      Affected Parties Can Take Action Against Publication

                      Due to the significant impact that a public warning by BaFin can have on the companies concerned, the authority must observe the principle of proportionality. If it turns out that the information published by BaFin is incorrect or that the underlying circumstances have been incorrectly reproduced, BaFin must inform the public of this in the same way as it previously published the information in question. As the publication on the website is an actual administrative action by BaFin, an action for a declaratory judgment aimed at establishing that the information provided to the public was unlawful or that the information was inadequately corrected or an action aimed at the publication of corrected information may be considered. By way of urgent legal protection, an application can be made for a temporary injunction, such as the deletion of certain information from the BaFin website until a decision is reached on the main issue.

                      FIN LAW

                      I.  https://fin-law.de

                      E. info@fin-law.de

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                        Feb 12, 2024

                        The BaFin License According to MiCAR – Which Application Variants Are Available for Crypto Asset Service Providers?

                        The MiCAR regulations on crypto services and crypto Asset service providers (CASP) will be applicable at the end of this year. The German legislator is already positioning itself and has published a government proposal for a Crypto Markets Supervision Act (KMAG), which will regulate how BaFin is to process license applications in accordance with MiCAR. For market participants, the transition to MiCAR means that they may have to approach the supervisory authority again in order to create the conditions for offering crypto services that are permitted under supervisory law once the MiCAR regulations come into force. However, not all crypto asset service providers will have to submit a basic initial application to BaFin. For companies that already hold a license under the current national crypto regulation or under applicable supervisory law, MiCAR provides for simplified procedures for obtaining the required BaFin license. But what types of procedures are available to the individual crypto asset service providers in this respect?

                        Complete Application for BaFin License According to MiCAR Required for Initial Registration

                        As expected, the most difficult type of procedure is applicable in the case of companies that are not yet regulated. Such CASPs will have to submit a complete license application to BaFin and may only become operational once BaFin has issued the requested license. The initial regulatory capital required under MiCAR, a proper business organization that covers all applicable requirements under MiCAR in relation to the crypto service to be provided and a viable business plan for the planned business model must be submitted. The directors of the CASP must be fit and proper and reliable. The shareholders and owners of the applicant company must also be reliable and provide appropriate evidence. According to the provisions of MiCAR, BaFin must confirm receipt of an application for authorization within 5 working days and then inform the applicant within 25 working days whether the application is complete. If this is not the case, BaFin must grant the applicant a rectification period at its own discretion. Should the application still be incomplete after expiry of the rectification period, BaFin may reject the application. In contrast, BaFin must decide on a complete application within 40 working days.

                        Banks and Investment Firms Benefit from Simplified Procedure for MiCAR License

                        For banks and investment firms that already hold a BaFin license for their business operations, the MiCAR provides considerable privileges. From the legal effect of MiCAR, credit institutions will also be allowed to provide crypto services if they notify BaFin of this at least 40 working days prior to offering crypto services for the first time. A separate MiCAR license is not required. In particular, the notification must contain a viable business plan with regard to the crypto services to be provided and also describe how the bank’s business organization will be structured in the future with regard to crypto services in a crypto-specific manner. After 20 working days, BaFin must state whether the notification is complete. As soon as the notification is complete, the credit institution may provide the planned crypto services. Investment firms can also benefit from this simplification, however, based on the notification procedure, they may only provide those crypto services for which they have a corresponding authorization as an investment firm. There is also a special feature for companies that are permitted to provide crypto services under national law on 30 December 2024 and apply for a MiCAR license from BaFin by 1 July 2025 at the latest. Such companies – such as crypto custodians with a license under the German Banking Act (KWG) – only have to prove to BaFin that they meet the additional obligations arising from MiCAR for their business model in order to obtain the MiCAR license. A complete application does not have to be submitted.

                        Attorney Lutz Auffenberg, LL.M. (London)

                        I.  https://fin-law.de

                        E. info@fin-law.de

                        The competent lawyer for questions regarding a BaFin license under MiCAR in our law firm is Attorney Lutz Auffenberg, LL.M. (London).

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                          info@fin-law.de

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