The German Finance Ministry has published a new ordinance – KryptoFAV – allowing investment funds to issue electronic securities in the form of so-called crypto fund shares. Soon electronic securities will be issued as crypto fund shares by listing them in a crypto securities register.
The body in charge of a crypto securities register will always be the custodian of the investment fund, the ministry said in a note. This ensures that the depositary can carry out its duties against the investor.
According to the draft of the ordinance, jointly proposed by the Finance and Justice Ministries, the rules in the Electronic Securities Act mentioned in Section 95 (5) of the Capital Investment Code (KAGB) can apply to electronic shares of funds.
Article 10 of the act on electronic securities introduces in Section 95 (5) of the Capital Investment Code the authority for the Federal Ministry of Finance and the Federal Ministry of Justice and Consumer Protection to issue ordinances to clarify the relevance of certain provisions of the Electronic Securities Act, and thus creating the legal basis to issue crypto fund shares.
The new rules, according to the draft ordinance, take into account the peculiar legal status of the custodian of the funds so that, contrary to Section 16 (2) of the Electronic Securities Act (eWpG), the custodian must be the registrar of crypto fund shares.
The Finance Ministry has decided to publish the new ordinance to keep Germany competitive as an international fund location.
Without the ordinance, investment funds could decide to operate in other European jurisdictions to issue crypto fund shares, which would put the German fund industry at a disadvantage in terms of technological development, it said.
The draft ordinance serves to adequately regulate the issue of crypto fund shares, to support technological innovation in finance and to protect investors, the ministries added in the draft ordinance.
The law introducing electronic securities has entered into force on 4 July by amending the Capital Investment Code (KAGB). The regulation gives the option of issuing electronic securities in investment funds.
But the introduction of electronic securities listed in a crypto securities register issued as crypto fund shares was initially postponed to define the legal status of the depositary of the fund.