Specialist lawyer Lutz Auffenberg and his law firm Fin Law have specialized in the field of fintech and innovative technologies. In particular, blockchain technology and its regulation are at the center of his work. In his guest post he addresses the right of withdrawal for the security token offering.
This article is first on the Fin Law Blog appeared.
Participation in economic life has been digitizing steadily and not just since the outbreak of the pandemic. An increasing number of contracts for everyday life are now being concluded over the Internet. Insofar as consumers conclude contracts with an entrepreneur over the Internet, you have a statutory right of revocation against the entrepreneur under German law, whose effective exercise of the concluded contract must be reversed. The fourteen-day withdrawal period only begins when the entrepreneur has properly instructed the consumer about his right of withdrawal. Consumers can also have a right of withdrawal for contracts for financial services that are concluded via the Internet. Against this background, what about security tokens that are sold completely over the Internet? Who has to provide information about the right of withdrawal when offering tokenized investment products to the public?
First of all, a statutory right of withdrawal under German private law can only be granted to investors who do not act as entrepreneurs. In the area of financial investments, this means that a statutory right of withdrawal is out of the question for institutional investors who invest on a professional and commercial scale. In the case of wealthy and capital market-savvy private individuals as well as smaller family offices, it can be difficult in individual cases to determine whether they are more consumers or entrepreneurs in terms of investment activity. Regardless of the professionalism of the investor concerned, the properties of the security token can also determine whether a statutory right of withdrawal exists. According to German law, consumers do not have a statutory right of withdrawal for contracts for goods, services including financial services if the price depends on fluctuations in the financial market over which the entrepreneur has no influence and which can occur within the withdrawal period. This can be the case, for example, with security tokens that have a direct market price, for example because they are listed for trading directly on a crypto exchange. Tokenized investment products, on the other hand, which, for example, have an unconditional repayment claim and an interest rate, and which cannot be traded at a market price development, are not eligible for the exception.
Who has to teach about the right of withdrawal?
The entrepreneur who has concluded the contract with the consumer to subscribe to the tokenized investment product is obliged to provide information on a statutory right of withdrawal, provided that there is a statutory right of withdrawal. This can initially be the issuer of the token, provided that he has sold the investment product to the investor via the Internet. However, it is also conceivable that the sale of security tokens takes place via a professional intermediate purchaser, such as an underwriting bank. In such cases, the contract for the acquisition of the security tokens is concluded with the intermediate purchaser, who in this respect acts as the provider. The provider is then responsible for the instruction. If there is no statutory right of withdrawal, for example because the investor is not a consumer, no instruction should be given, because unnecessary instructions on how to withdraw may, depending on the circumstances of the individual case, be regarded as the voluntary granting of a contractual right of withdrawal.