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German cabinet approves electronic securities bill, including blockchain

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Today, Germany’s Federal Ministry of Finance (BMF) announced the German cabinet approved its draft legislation on electronic securities, which includes blockchain-based securities. This comes soon after the introduction of the draft in August this year. We assume the legislation still has to go through parliament.

The law will mean it will no longer be required to have a paper stock certificate, allowing for digital securities or tokens to be recorded on an electronic ledger and enabling digital custody. The aim is to protect investors while ensuring the integrity, functionality, and transparency of Germany’s financial markets. This also helps Germany reach some of its blockchain strategy goals set last year, which includes supporting the technology.

“We are driving the digitization of Germany’s financial center with electronic securities. The paper certificate may be dear to some for nostalgic reasons, but the future belongs to its electronic version,” said German Finance Minister Olaf Sholz said. He also mentioned the administrative benefits of electronic securities and the importance of digital innovation in strengthening Germany’s capital market.

BaFin’s Minister of Justice Christine Lambrecht added, “The digitization of the financial market is already well advanced and will be accelerated even further through the use of technologies such as blockchain. Today’s cabinet decision significantly expands the innovative potential of these technologies for the German financial center. At the same time, we create legal certainty in an area that is characterized by constant change through technological innovations.”

A year ago, when the Deutsche Börse pulled out of its Swiss blockchain project and refocused on Germany, it cited the reasons as expected changes to German legislation.

“The German Federal Government will create new framework conditions for financial markets infrastructure based on Blockchain Technology as well as the associated changes in the KWG legislation (Banking Act) as part of its Blockchain strategy” said the Deutsche Börse spokesperson. “Part of this will be a classification of digital assets as “crypto values” within the KWG (earlier this year) as well as the expected introduction of dematerialised / digital securities.” 

The Deutsche Börse has an existing project with HQLAX for a digital collateral registry for securities lending.

Neighboring Switzerland has been proactive in terms of legislation. In October, the Swiss Federal Department of Finance began a consultation on blanket blockchain rules and regulations, as part of its recent efforts to regulate the technology without stifling innovation. This came after the Swiss parliament passed the Blockchain Act to update existing corporate and financial regulations to make way for blockchain and distributed ledger technology.

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