By
Darya Rudz
November 16th, 2023
The blockchain-based digitization of securities will provide liquidity and compliance as well as serve as a replacement to the paper certificate.
In the newly released draft law for its e-stock bill, Germany’s federal government has stressed on the modernization of securities law. One of the core aspects of the government’s blockchain strategy in Germany is the digitization of securities.
In the draft bill released on August 11, Germany’s Federal Ministry of Finance (BMF) and the Federal Ministry of Justice and Consumer Protection (BMJV) spoke about blockchain-based digital securities. Explaining the need for using blockchain technology, the official announcement reads:
“According to the current legal situation, financial instruments that are classified as securities under civil law must be securitized in a document. The paper certificate is the point of contact for the transferring facts under property law and, among other things, takes into account the traffic protection of potential buyers. To ensure the marketability of securities and legal compliancy however, it requires a suitable replacement of the paper document, for example, by entry in a register based on the block chain technology”.
The use of blockchain technology will provide guarantee liquidity and compliance and serve as a replacement to the paper certificate, as per BMF and BMJV. BAI managing director Frank Dornseifer called the draft as one of the most important levels in the digitization of Germany’s capital markets. He said:
“The dematerialization of securities in Germany was long overdue. With the E-Wertpapier and the electronic securities register, a digital path is now being taken that not only takes new technologies, especially blockchain technology, into account, but also means a pragmatic and legally secure approach for markets, transactions and users”.
Dornseifer also added that the draft combines “future-oriented technology with the long-standing legal and regulatory framework for securities.”
Regulatory Clarity on Use of Blockchain Technology in Germany
The authorities said that the newly proposed draft bill also brings regulatory clarity. Here, the Federal Financial Supervisory Authority will act as a major regulator for blockchain-based e-stocks.
Popular called as BaFin, the agency will monitor the issuance of digitized securities and the maintenance of decentralized ledger as per the German Banking Act. Adapting the legal framework for the new blockchain technology will strengthen Germany’s position as the preferred choice of doing business with transparency. Speaking on this matter, Frank Dornseifer commented:
“The blockchain technology is finally finding its way into the capital market on a legally secure basis. We also very much welcome the fact that – as the BAI already propagated at the time – there is a coexistence of public and private blockchain. There is still a need for clarification here in detail, but that is exactly what the consultation process has just started”.
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