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.