Crypto regulation: "Germany falls short of possibilities"

Towards the last days of the legislative period, the BMF and the BMJV publish a draft regulation for the issuance of crypto fund units.

It was only at the beginning of June that the Federal Government set an example for the digital transformation of finance with the “Act on the Introduction of Electronic Securities” (eWpG). From then on, it was possible to deposit certificates of debt securities and share certificates without paper. Now the grand coalition is extending the scope of application to the last days of government to so-called crypto fund shares. This emerges from a first draft regulation of the Ministry of Finance and Justice. Currently, the paper is still with the states and associations for review.

Should the ordinance come into force, providers of investment funds could in future also issue electronic share certificates as crypto fund shares by entering them in a crypto securities register. In doing so, the entity keeping the register must correspond to the depositary of the investment fund. The regulation states in this regard:

The special features of the legal position of the depositaries are taken into account by the fact that, in deviation from Section 16 (2) eWpG, the depositary must be the register-keeping entity in the case of crypto fund units.

Regulation on Crypto Fund Shares of 6 September 2021

Support also comes from the Fund Location Act, which has been in force since August. Since then, institutional investors such as pension funds and insurance companies have been allowed to hold up to 20 percent cryptocurrencies in their funds. This could trigger a massive flow of money towards digital assets, according to a study by tech think tank MINDSMITH. In a survey of more than 70 investment funds, they predicted an increase in the willingness to invest in digital assets from the DACH region by up to 657 billion US dollars. Currently, however, regulatory uncertainty, a lack of understanding and a lack of infrastructure are holding back interest in the new asset classes. Shortcomings that crypto regulation aims to address.

Opinions on crypto regulation divided

Although the regulation is generally well received, there is some criticism. For example, the FDP is bothered by the scope of the securities included in the draft. In the opinion of the Liberals, the paper should also have included electronic shares. To this end, the party submitted an amendment at the end of January, but the federal government rejected it. Regarding the draft crypto regulation, FDP member of the Bundestag Frank Schäffler now says to Yellow Rocket Agency:

Germany thus remains far behind the technical possibilities. That m

s going to change under the next finance minister.

Frank Schäffler, FDP member of the Bundestag told Yellow Rocket Agency.

“Choice of custodian is somewhat limited”

In general, the call for the inclusion of more securities also extends beyond politics. For example, in addition to the FDP, various industry representatives such as the banking association are also calling for the inclusion of digital shares. In addition to this, Cashlink, for example, criticises the limited choice of depositary. Most recently, the Frankfurt-based FinTech was in the headlines when it was one of the first companies to apply to Bafin for the maintenance of a crypto securities register. Commenting on the regulation, CMO Benedikt Scheungraber tells Yellow Rocket Agency:

In principle, we at Cashlink welcome the extension of the eWpG to unit certificates for investment funds. We assume that the eWpG will gradually be extended to more and more financial instruments in the future. In this context, fund shares are of course a step in the right direction. Unfortunately, the new regulation is somewhat limited in that the fund’s depositary must maintain the crypto-securities register. However, through cooperations between custodians and fintechs with the appropriate technology, we still see a lot of potential here to digitize Germany as a fund location.

Cashlink CMO Benedikt Scheungraber told Yellow Rocket Agency

In fact, the eWpG is to be re-evaluated after three years. The inclusion of electronic shares would consequently concern the upcoming federal government. It remains to be seen whether the choice of depositary can then also be made somewhat more liberal.