On April 3, 2023, the German Federal Minstry of Finance (Bundesfinanzministerium, “BMF”) and Justice (Bundesjustizministerium, “BMJ”) jointly released a key paper for a Future Financing Act (Zukunftsfinanzierungsgesetz), a law designed to promote private asset accumulation and encourage more private investment for the future.
The Act will reduce the minimum capital requirement for Initial Public Offerings (IPOs) to €1 million in a push to further investment in small businesses and start-ups. Further, it would enable companies to issue both electronic and conventional shares.
If enacted, tokenized shares can be registered either in a central register or on the blockchain, often referred to as digital assets. However, it is unclear whether crypto exchanges will be allowed to trade such shares.
Speaking on the law, the Federal Minister of Finance Christian Lindner said: “We want to make Germany the leading hub for startups and growth companies. Therefore, we are improving access to the capital market and facilitating the absorption of equity.”
Notably, the website mentioned that one of the critical improvements in the Act is the “testing of improved transferability of crypto assets.”
By improving access to capital markets including equities, this law will make Germany a leading hub for start-ups and growth companies, Lindner suggests.
In addition, the Act will also test the improved transferability of crypto assets. This comes after German law already allowed the issuance of tokenized bonds and funds. Patrick Hansen, the director of EU strategy and policy at Circle, commented that the new law is a positive step forward for the nation.
For crypto proponents, the proposed legislation is interesting insofar as it promotes the issuance of tokenized securities, enabling the digitalisation of capital markets, allowing for electronic registered shares to be entered into a central or crypto securities register and for electronic bearer shares to be entered into a central register. This would replace written form requirements in supervisory law with digital means of communication.
Tokenized Shares Soon To Be A Reality?
If law passes, the German Stock Corporation Act (AktG) and the Electronic Securities Act (eWpG) need amending in order to enable the issuance of electronic shares and crypto assets in the future. To date, the eWpG has only allowed for the issuance of bonds electronically, but the expansion of the eWpG is expected to make the issuance of electronic shares possible. These e-shares must listed in either an electronic or crypto securities register, depending on whether they are bearer or registered shares. Bearer shares may be issued as electronic securities in future, but not as tokenized shares.
Accordingly, the difference between electronic and conventional shares is that the former are entered in an electronic securities register and are not securitised as is normally the case. However, there is also no obligation to issue shares electronically in the future; those who prefer the issuance of a classical securities certificate may continue to do so.
Electronic Shares Should Not Form A Separate Class
Under the proposed bill, entry in a central register or a crypto securities register will determine whether securities are central register or crypto shares, respectively. Entry into the crypto securities register, for instance, may be conducted via blockchain technology.
The bill further clarifies that the new electronic shares will not constitute a distinct type of share; any discrepancies may only arise in terms of the markets or platforms on which they are traded. Nonetheless, the company-shareholder relationship remains unaffected.
The draft justifies the internationally-adopted practice of issuing registered shares makes crypto shares possible. Additionally, the share register, which records individual shareholder information, is necessary for listed shares, and the same applies to the crypto securities register, which must be overseen by the German Federal Financial Supervisory Authority (BaFin).
The Future Ahead
The new Acts are set to take effect within the first half of the Parliamentary term, which concludes in October 2023. If they were to come into force by 2024, it would be a major accomplishment for 2024.
However, it still remains to be seen how much of the proposed bill will be put into effect, and whether the Future Financing Act will be successful in realizing its goal to make Germany’s finance and business climate more appealing to both domestic and foreign companies through digitization, streamlining bureaucracy and globalization.
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