Information on registering crypto securities published

This post first appeared as Blog post at FIN LAW.

On November 23, 2023, BaFin published a leaflet with information on the facts of crypto securities register management. Crypto securities register management is closely related to the Electronic Securities Act (eWpG). According to the eWpG, bearer bonds can be issued in the form of an electronic security. The same applies to crypto fund shares in accordance with the regulation on crypto fund shares. An electronic security is issued by the issuer registering it in an electronic securities register instead of issuing a security certificate, e.g. in the form of a global certificate.

The eWpG includes a central register and a crypto securities register among these electronic securities registers. The act of crypto securities register management only refers to the latter. A crypto security is an electronic security that is entered in a crypto securities register. In addition to statements about the authorization requirement, the information sheet also contains general statements about the system of the eWpG.

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Existing security tokens based on DLT are not automatically crypto securities

Classic securities always require a document about a right, the exploitation of which is determined by private law through the ownership of the document. The introduction of global certificates means that it is no longer necessary to create a large number of securities certificates, but rather that several rights can also be documented in one document.

For the creation of a right enshrined in the securities certificate, an effective deed and an effective issuance agreement are required. The effective act of writing requires the issuing of a document by the issuer. In the case of a crypto security, there is no need for a script on a certificate. According to BaFin, the scripting takes place in the crypto securities register by entering the crypto security in the register. This act of entry in a crypto securities register according to the eWpG is regularly missing for security tokens that were issued before the introduction of the eWpG. In this respect, in BaFin’s opinion, these cannot easily qualify as crypto securities.

Crypto securities register maintenance regularly requires authorization and additional licenses may be necessary

The registrar must maintain a crypto securities register in such a way that the confidentiality, integrity and authenticity of the data is guaranteed. The registrar must take the necessary technical and organizational measures to prevent data loss or unauthorized data modification over the entire period for which the electronic security is registered. In order to fulfill these obligations, BaFin assumes that business operations must always be organized in a commercial manner. Accordingly, anyone who maintains an eWpG-compliant crypto securities register must always obtain a license from BaFin.

Since crypto securities are ultimately securities, their custody and/or management is also subject to the custody business, which requires authorization. However, according to BaFin’s now published administrative practice, a crypto securities registrar who also has a license for custody business does not necessarily require an additional license for crypto custody business in order to secure any cryptographic keys. Nevertheless, under the eWpG, crypto securities can also be held by crypto custodians approved by BaFin.