Clifford Chance

On 28 October 2022, the German Regulation on requirements for electronic securities registers (Verordnung über Anforderungen an elektronische Wertpapierregister, eWpRV) was published in the Federal Gazette, and entered into force on the next day. The eWpRV specifies certain requirements for electronic securities registers maintained under the German Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG) increasing legal certainty for registrars and participants.

The eWpG

Since June 2021, the eWpG allows for issuing bearer bonds as electronic securities and, following section 95 of the German Investment Code (Kapitalanlagegesetzbuch, KAGB), also for issuing certain investment fund units electronically. For an overview of the legal regimes for the issuance of electronic securities in Germany as well as France and Luxembourg, see our article Native issuances of DLT securities in Luxembourg, France and Germany and admission to the Luxembourg Stock Exchange Securities Official List

The eWpRV now sets out the specifics of how issuers and (predominantly) registrars can comply with some of their obligations under the eWpG. Accordingly, the eWpRV introduces welcome legal and procedural certainty. At the same time, there is a clear recognition that the underlying technology – in particular, DLT technology relevant to decentralised crypto securities registers – is still evolving. Therefore, the eWpRV, in keeping with the eWpG, has been deliberately drafted in a technology neutral manner.

Some of our key takeaways from the eWpRV are:

• The terms and conditions of electronic securities should be generally publicly available online. In that regard, it would be helpful to receive express interpretative guidance that disclosure of the terms and conditions in accordance with the eWpRV would not, on its own, constitute a public offer of bonds or investment fund units. There is a narrow exception from the disclosure requirement where the offer of electronic securities is limited to a restricted group of persons. The eWpRV also gives the registrar an express right to correct manifest errors in the terms and conditions with the issuer's consent, but without requiring consent from the holders.
• The eWpRV sheds light on a number of practical matters regarding information to be documented, provided and/or stored. In particular, the eWpRV provides details on various documentation duties, on the information about holders to be entered into electronic securities registers, as well as on the information on the register of decentralised electronic securities to be maintained by BaFin.
• To avoid systemic abuse, the legislator wants a high degree of certainty about the identity of the persons who are entitled to request access to the register (Berechtigter, Teilnehmer) or to give instructions. Therefore, the eWpRV requires that the registrar carry out certain identity checks. However, with respect to persons giving instructions, the eWpRV does not clearly set out whether and how the registrar should check the authority of such persons to give instructions.
• The person designated as "registrar" with respect to decentralised crypto securities registers for electronic securities is required to provide to BaFin and certain other authorities upon request the source code of the platform used for maintaining the register (Aufzeichnungssystem), as well as make available upon request to the regulator and to participants a description of the consensus rules applicable to the blockchain and rules for on- and off-chain storage of information in form easily understandable for a competent third party. Compliance will require documentation which summarises technical information in plain language.
• The risks of systems going down are also addressed. Accordingly, for decentralised crypto securities registers, registrars must ensure that any data stored in the register can be easily exported and transferred to a different electronic securities register. In practice, this will require that the platform(s) used for the issuance of electronic securities will allow for a degree of interoperability.

It has been encouraging to see how the final form of the eWpRV differs from earlier drafts. The legislator has clearly taken into account feedback provided by industry bodies during the consultation process preceding the eWpRV's adoption into law, thereby helping develop a robust digital capital markets infrastructure in Germany.