The German Finance Ministry is expecting its draft ordinance allowing investment funds to issue crypto fund shares to take effect from the first quarter of next year, a spokesperson for the ministry told IPE.

The consultation on the draft ordinance will last until 1 October, the spokesperson said, adding that at the end of the process the European Commission will be notified, which it can then submit a response within three months.

Therefore the ordinance can only come into force from the first quarter of 2022, the spokesperson added.

The new rules on crypto funds shares will not include a threshold for investments, the spokesperson said, but regulations relative to individual investors continue to apply. The Fund Location Act, Fondsstandortgesetz (FoStoG), restricts allocation of Spezialfonds in crypto assets to up to 20% of their assets.

With the new ordinance KryptoFAV, the Finance Ministry intends to allow investment funds to issue electronic securities in the form of crypto fund shares listed in a crypto securities register.

Under its blockchain strategy, Germany has moved forward to transform its domestic financial sector and set the course for a “token economy”, it said.

Germany has planned to take a series of measures by the end of 2021 to exploit the opportunities offered by blockchain technology, intended as distributed ledger technologies, or decentralised information technology systems such as registers or account books, used to exchange assets, for example currencies, without intermediaries.

The measures aim to promote innovation with regards to blockchain in the financial sector by funding projects, set up a framework to facilitate investments, and the development of technological applications.

A law introducing electronic securities entered into force on 4 July by amending the Capital Investment Code (KAGB), in line with the goal of the strategy to “open up” the regulatory framework to new types of transactions.

An unclear picture

The German government and the financial supervisory authority, BaFin, continue to monitor the developments relating to investments in crypto assets to respond to changes appropriately if required, it recently said in a reply to the parliamentary inquiry of the Free Democratic Party (FDP).

According to the government, however, BaFin does not have avialable data on how many Spezialfonds have already invested in crypto assets.

This means that it is unclear so far the amount invested by Spezialfonds in crypto assets and if any Spezialfonds have already reached the 20% investments limit prescribed by the law.

Spezialfonds invest over 90% of its assets in securities, around 25% in equities, nearly 40% in bonds, around 18% in other securities funds, and around 7% in real estate, according to the government’s response.

The number of Spezialfonds in Germany has increased from 3,925 at the end of 2016 to 4,258 at the end of May this year. In total, 787 pension funds are invested in Spezialfonds, the second largest group of investors in such funds after credit institutions (1,055), the response added.

Assets in Spezialfonds have increased by 40% in the last years, from €1.45trn in 2016 to €2.03trn at the end of May this year, it said.

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