The past week in Germany has attracted and increased raised interest in blockchain based transactions.
Last week, three announcements brought further attention to the use of blockchain technology for capital market transactions in Germany. Initially, banks focused on the digitalisation of German Schuldschein loan issuances and OTC derivatives. Last week a very first ABCP issuance (see press release) and a plain money market issuance (see press release) via blockchain were published. However, both transactions are not governed by German law (but by Irish and Luxembourg law). In addition, the German regulator BaFin approved a securities prospectus for a public offer to retail investors of a subordinated uncertificated note issuance by a fintech company located in Berlin that is referenced by a token. This decision of BaFin appears to mark a new development in terms of the interpretation of the long established definition of a "security" under the European Prospectus Directive (and the respective definition under MIFID). Even though this definition is a regulatory based term and must therefore not fully be in line with German civil law, there remains a linkage to German civil law in particular when it comes to the question on whether or not the specific debt receivable/instrument is tradable and fungible. However, as German law does not recognise the concept of an uncertificated note to "securitize" a claim, there remains the legal hurdle – without a change to German civil law – to distinguish an uncertificated blockchain based resceivable from a civil law (subordinated) loan claim which by its nature should not be considered to be a security under the European Prospectus Directive. This is of even more importance, if retail investors are involved who could benefit from protections given by German law for creditors under loans granted to corporate lenders. Usually, this interpretation is depends on whether or not the claim is transferred by way of assignment which restricts its qualification as a public faith security under German civil law. If a claim "certified" and transferred by way of blockchain technology is not regarded as a security under the European Prospectus Regulation and MIFID, it can be treated in Germany as a so called Vermögensanlage (investment product) which is also be subject to a prospectus requirement in case of a distribution to retail clients.
Originally published February 25, 2019
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