Germany passes law legalizing electronic securities on blockchain

Germany has passed a new law that legalizes the use of blockchain technology in the securities sector. The law eases a rule that required the use of paper certificates for all securities transactions.

Germany’s cabinet approved the new law as part of its wider blockchain adoption strategy, Reuters reported. The European country has previously required all securities issuers and holders to record them on paper certificates. This will now be replaced by a simple entry in a central securities depository which can be maintained by a bank.

Alternatively, issuers and holders can document their securities on a blockchain-based register.

While announcing the switch to all-electronic securities, the Finance Minister Olaf Scholz stated, “We are driving the digitization of Germany’s financial center with electronic securities. The paper certificate may be dear to some for nostalgic reasons, but the future belongs to its electronic version.”

He added that electronic securities can allow the industries to cut administrative burdens and other associated costs.

His Justice Ministry colleague Christine Lambrecht said the law would offer legal clarity for the securities industry, thus enhancing the potential of emerging technologies such as blockchain.

She stated, “The digitization of the financial market is already well advanced and will be accelerated even further through the use of technologies such as blockchain. Today’s cabinet decision significantly expands the innovative potential of these technologies for the German financial center. At the same time, we create legal certainty in an area that is characterized by constant change through technological innovations.”

The Finance Ministry introduced the bill in August, claiming it would protect the integrity, functionality and transparency of the German stock market. It revealed that the Federal Financial Supervisory Authority (BaFin) will monitor the issuance of the electronic securities and the maintenance of the digital ledgers.

The introduction of the bill led German stock market giant Deutsche Börse to pull out of a blockchain-based securities issuance project it had with the Swiss stock exchange SIX. In its statement, the company stated that the new law would “create new framework conditions for financial markets infrastructure based on Blockchain Technology as well as the associated changes in the KWG legislation (Banking Act).”

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