On 20 February 2018 the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - “BaFin”) published a statement (Hinweisschreiben) on the regulatory categorisation of tokens and crypto currencies (collectively referred to as “tokens”) issued in connection with so called initial coin offerings.
BaFin stresses that it has to be analysed on a case-by-case basis whether tokens qualify either as (i) financial instruments within the meaning of the German Securities Trading Act (Wertpapierhandelsgesetz) and the EU Markets in Financial Instruments Directive II or (ii) as securities within the meaning of the German Securities Prospectus Act (Wertpapierprospektgesetz) or (iii) as assets (Vermögensanlagen) within the meaning of the German Investment Products Act (Vermögensanlagengesetz ) or (iv) as a share in an investment asset (Anteil an einem Investmentvermögen) within the meaning of the German Capital Investment Code (Kapitalanlagegesetzbuch - “KAGB”). Such analysis is conducted on the basis of the respective definitions in the laws referred to above and in the light of the BaFin guidance. For instance, BaFin makes it clear that an instrument does not have to be evidenced by a certificate (Urkunde) in order to qualify as a security (Wertpapier) it is rather sufficient that the holder of the instrument is documented by distributed ledger technology or similar technologies. Further, it should be noted that a token can serve as an underlying for derivatives which themselves qualify as financial instruments.
In case a token qualifies as a financial instrument (including securities), the applicable rules have to be complied with, which include compliance with prospectus requirements, market abuse rules and similar regulations. Further, BaFin points out that the consequence of the qualification of tokens as financial instruments is that services which are provided in connection to tokens are likely to qualify as licensable activities. Depending on the nature of the token, the licensing requirements of the German Banking Act (Kreditwesengesetz), the KAGB, the German Insurance Supervision Act (Versicherungsaufsichtsgesetz) or the German Payment Services Oversight Act (Zahlungsdiensteaufsichtsgesetz) may be triggered.
To avoid negative consequences attached to the provision of licensable services without having the necessary license BaFin suggests that market participants, who provide services in connection with tokens, trade in tokens or publicly offer tokens thoroughly assess, whether the respective instrument qualifies as a regulated instrument. BaFin offers support to market participants with relevant regulatory questions in cases of doubt.
The necessity of such careful consideration has also been emphasized by the European securities and markets authority in its respective warning dating 13 November 2017.
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