German Electronic Securities Act enters into force

Digitalisation continues to progress within the financial sector, and has recently also reached the area of securities issuance. Before digital solutions can be implemented in this area, however, the corresponding legal framework needs to be adjusted.

This issue is already on the German government’s radar. In its coalition agreement of 12 March 2018, it set out its plans to boost Germany’s role as one of the world’s leading digital technology and fintech locations. In this context, the Federal Ministry of Justice and Consumer Protection and the Federal Ministry of Finance published a key-issues paper back in spring 2019 discussing the regulatory treatment of electronic securities and crypto tokens. This has now resulted in the introduction of the German Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG), which was published in the Federal Law Gazette on 9 June 2021 and entered into force on 10 June 2021.

Under this new legislation, paper securities certificates will no longer be mandatory, as it will also be possible to issue bonds electronically by entering them in an electronic securities register.

To ensure that Pfandbriefe can also be issued electronically, sections 4 (5) and 8 (3) German Pfandbrief Act (Pfandbriefgesetz, PfandBG) will be adjusted by supplementing, as opposed to modifying, current issuance practice. This will mean that a Pfandbrief issued as an electronic security will be able to be put into circulation once the trustee certificate pursuant to section 8 (3) sentence 1 PfandBG has been submitted – prior to entering the Pfandbrief in an electronic securities register – to the same registrar to which the issuance conditions for the Pfandbrief were also submitted.

The new Electronic Securities Act therefore lays the foundation for the digitalisation of securities legislation. However, it remains to be seen how these new developments will impact Pfandbrief business and whether they will lead to the issuance of an electronic Pfandbrief in the near future.

The practical implementation of these new regulations is currently the subject of intensive discussion by the responsible vdp committees.