The electronic share: A forward-looking step toward digital capital investments
Until now, securities could only be purchased as physical certificates. Since the beginning of June 2021, the Act on the Introduction of Electronic Securities (eWpG) has offered a paperless, digital alternative for investors and issuers.
The law on the introduction of electronic securities (eWpG)
The Act on the Introduction of Electronic Securities (eWpG), which recently came into force, is designed in particular to open up German law to electronic securities. Investors and issuers can now freely choose between the classic paper certificate or the digitized form. The Act also provides for a central electronic securities register for the registration of digitized securities. The crypto custody business, which is currently coming strongly to the fore, was by no means left out of consideration in the eWpG. This explicitly provides for the legal introduction of crypto securities, for example on a blockchain or general DLT basis. For this purpose, a separate crypto securities register is created, the keeping of which is now regulated as a further financial service under the supervision of BaFin within the meaning of the German Banking Act (KWG). To create legal certainty, the eWpG is to be concretized by an “Ordinance on Requirements for Electronic Securities Registries (eWpRV)”. A draft bill for the eWpRV from the Federal Ministry of Finance and the Federal Ministry of Justice and Consumer Protection is already available.
New opportunities through the interaction of innovative technologies
Cryptocurrencies and, in particular, cryptocurrency custody transactions continue to be among the red-hot digitalization topics. The Act Implementing the Amending Directive to the Fourth EU Money Laundering Directive added cryptocustody business to the KWG as a new financial service at the beginning of 2020. This created new market opportunities in the area of cryptocurrency services for banks and financial service providers. The issuance of electronic securities can also be carried out by using blockchain or DLT technology (crypto securities) through the new eWpG. This is associated with new (financial) services for which relevant fintechs are already ready. However, DLT applications offer IT service providers in the banking environment in particular new opportunities to develop forward-looking business areas. Furthermore, in the summer of 2021, the go-ahead was finally given for the digital euro, the introduction of which is to serve as a supplement to established payment methods. The trend toward further digitization of the financial industry is now being continued with the introduction of electronic securities.
In addition, the EU Commission recently launched a digital finance package, the contents of which include a separate regulatory proposal for crypto assets or even a pilot project for DLT-based securities.
Tapping market opportunities and overcoming challenges together
Investors are not the only ones who should already be taking a close look at this new topic. In particular, banks and financial service providers now have a renewed opportunity to occupy this promising market segment. However, these new opportunities also lead to new challenges. The SRC experts follow the exciting developments in the field of electronic securities, cryptocurrencies and the digital euro for you and support you in the realization of your services. We will be happy to inform you about the opportunities to get involved in this innovative sector and to master the new challenges together.