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German Bank Association: New Regulation for DLT-Based Securities May Be Necessary

The German private banking association foresees that the need for new regulation may arise from the emergence of DLT-based securities.

The Association of German Private Banks (Bankenverband) foresees that a need for new regulation may arise from the emergence of distributed ledger technology (DLT)-based securities. The association expressed its concerns in a post on its official website on March 11, Cointelegraph auf Deutsche reported.

Per the post, if securities are issued using new technologies, then there is a need for new safekeeping and settlements processes. According to Bankenverband, corporate actions and securities trading may also be subject to change because of DLT-based securities.

The statement further explains that because of the changes that new technologies will create in business processes, “adaptations of civil and regulatory requirements at national and European level may be necessary.”

Recently, the German Federal Ministry of Finance also published a key issues paper on the treatment and regulation of blockchain-based securities.

As Cointelegraph recently reported, German regulators and lawmakers have thus far failed to create a workable legal framework that would provide legal certainty for applications of blockchain technology.

The news came shortly after German parliamentary representatives have argued that the country’s blockchain strategy should include an appropriate legal framework for cryptocurrency trading and token issuance, which would in turn encourage the sector’s domestic development.

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German Gov’t Hearing Takes Regulators to Task for Lack of Legal Framework on Blockchain

During a recent hearing, German regulators and lawmakers have been accused of failing to create a workable legal framework that would foster blockchain adoption in the country.

German regulators and lawmakers have thus far failed to create a workable legal framework that would provide legal certainty for applications of blockchain technology, representatives from the country’s Free Democratic Party (FDP) have argued.

An FDP proposal, entitled “Creating a Sustainable Framework for Distributed Ledger Technology in the Financial Market,” was put forward during a public hearing held by the Bundestag’s Finance Committee on March 11.

The hearing gathered regulators, entrepreneurs, legal experts and others to respond to the FDP’s proposal, which argued for the importance of creating a legal and regulatory climate that would be conducive to the development of blockchain applications across the economy and public sector.

The proposal notably affirmed the positive potential of cryptocurrencies and initial coin offerings as a “flexible financing alternative for for small and medium-sized enterprises.”

Characterizing blockchain as a “technology of the future,” the FDP’s proposal argued that a lack of legal clarity is hampering blockchain adoption and innovation, noting that:

“The potential of blockchain technology can only be realized if there is legal certainty for its application and a workable legal framework for its use. The Federal Financial Supervisory Authority (BaFin) and the Federal Ministry of Finance have so far failed to develop competencies and make the necessary legal adjustments.”

At the hearing, Oliver Fußwinkel, from BaFin’s Financial Technologies Innovations Unit, responded that his engagement with blockchain dates back to its connection with Bitcoin (BTC) in 2011, and argued that the regulator has since developed structures to keep pace with innovation.

Other speakers provided more nuance to the FDP’s argument, with Ralph Baerliga — from consultancy firm BearingPoint Inc. — expressing doubt as to whether laws specific to blockchain would be beneficial, proposing that a “particular technology should not be hindered or preferred by law.”

Eric Romba — from law firm Lindenpartners — affirmed that while blockchain-specific legislation may not be necessary, there is a nonetheless a great need to provide more legal certainty for the blockchain space, isolating taxation as a particular concern.

Martin Fries, lecturer at the Law Faculty of the Ludwig Maximilians University Munich, for his part focused on the need to address the “considerable tensions” between blockchain technology and the General Data Protection Regulation (GDPR) — a European Union-wide legal framework for personal data privacy, which took effect in May 2018.

As reported yesterday, a press release ahead of the hearing — drafted by the Union parties’ finance spokesperson Antje Tillmann and her colleague Matthias Hauer — proposed that more robust legal frameworks would help prevent a further brain drain of blockchain talent from Germany.

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German Blockchain Strategy Should Include Framework for Crypto Trading, Say Politicians

German parliamentary speakers have argued that the country’s blockchain strategy should include an appropriate legal framework for cryptocurrency trading and token issuance.

German parliamentary speakers have argued that the country’s blockchain strategy should include an appropriate legal framework for cryptocurrency trading and token issuance that would encourage the sector’s domestic development.

The suggestion was put forward by the Union parties’ finance spokesperson Antje Tillmann and her colleague Matthias Hauer at a public hearing initiated by the Bundestag’s Finance Committee on March 11.

The hearing was exclusively devoted to the opportunities that blockchain technology can offer to Germany as a financial and business hub. It centered on the current and desired state of blockchain development in the country and the federal government’s initiatives in the sector to date.

In their remarks, Tillman and Hauer emphasized that while still in its early stages, blockchain is poised to make a significant and constructive impact as a base technology for national digitization strategies across multiple fields, and that the foundations for its future implementation should therefore be laid today.

While commending the German federal government’s promotion of blockchain pilot projects across applications such as electromobility, electricity trading and at the Federal Office for Migration and Refugees, Tillman and Hauer argued that efforts to ensure that Germany can compete globally should be stepped up:

“…there has been an increasing outflow of promising [blockchain] startups to European and non-European countries for some time now. Financing rounds based on blockchain technology (so-called initial coin offerings [ICOs]) are meanwhile taking place almost exclusively abroad.”

The lawmakerse proposed that, in order to remain at the forefront of innovation and prevent a further brain drain of blockchain talent, the German government’s blockchain strategy should encompass an appropriate legal framework that would set clear terms for cryptocurrency and token trading:

“The potential of blockchain technology can only be fully realized if there is legal certainty and potential risks are mitigated. The goal must be to retain the entire added value of this promising technology in Germany and to develop our country into a pioneer of the blockchain economy. “

As Cointelegraph reported earlier this month, Germany’s finance ministry has just published a paper on the treatment and regulation of blockchain-based securities, which exempted most token issuance from federal security laws but nonetheless highlighted the risks that ICOs may pose for investors.

Also this month, Germany’s justice and finance ministries proposed to launch a state-run register to regulate the blockchain sector and protect investors from possible abuses.

A nationwide blockchain strategy from the German government is expected to be introduced by mid-2019.

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Deutsche Borse, Swisscom and Sygnum Partner to Create Compliant Digital Asset Ecosystem

Deutsche Borse Group, Swisscom, and Sygnum have entered into a partnership to build out a compliant financial market infrastructure for digital assets.

Global market infrastructure provider Deutsche Borse Group, Swiss state-owned telecoms and ICT firm Swisscom, and Swiss and Singapore-based fintech company Sygnum have entered into a strategic partnership to build out a compliant financial market infrastructure for digital assets. The development was announced in a joint press release published on March 11.

The new initiative will reportedly focus on creating a distributed ledger technology (DLT)-based ecosystem to support the nascent tokenized economy, which, the partners contend, “has the potential to reshape global financial markets.”

The forthcoming ecosystem will reportedly span compliant digital asset issuance and custody solutions, as well as providing market participants with access to liquidity and banking services.

According to the press release, Sygnum has obtained a Swiss banking and securities dealer license from Swiss regulator FINMA, and can thus provide “comprehensive banking services such as custody, deposits, credit & lending, capital issuance via tokenization, brokerage and asset management” for the initiative.

Swisscom will provide the project with the scalable DLT infrastructure it has developed, which reportedly meets the security requirements of financial services institutions.

The new partnership also reportedly entails Deutsche Borse becoming a shareholder of Custodigit AG — a company that was jointly founded by Swisscom and Sygnum, which develops technical digital asset custodial solutions for regulated financial services institutions.

Moreover, Deutsche Borse and Sygnum will make investments in daura AG — a DLT platform that supports the issuance, transfer and registration of Swiss SME-shares, enabling non-listed companies to access the capital markets.

Deutsche Borse and Sygnum are further developing a conceptual framework for the creation of a compliant open listing and trading venue for digital assets in the Swiss market, which the partners deem to be an important element in developing a scalable digital assets ecosystem.

Subject to the merger control clearance, the three partners reportedly aim to roll out the first services of their digital asset ecosystem over the course of this year.

As reported, Deutsche Borse has this month completed a proof-of-concept for a legally binding repo transaction using DLT together with German financial services company Commerzbank. The exchange group is also reported to be making significant progress with its blockchain-powered securities lending platform, co-developed with Luxembourg-based blockchain liquidity management platform HQLAx.

In January, Swisscom announced its integrated, certified e-signature to legally authenticate blockchain-powered smart contracts, together with the Zurich University of Applied Sciences.

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German Financial Regulator Issues Paper on Blockchain Securities Regulation

The German Ministry of Finance is pushing for the regulation of blockchain-based securities.

The German Federal Ministry of Finance has published a key issues paper on the treatment and regulation of blockchain-based securities, according to a ministry announcement on March 8.

In the paper initially released on March 7, the regulator discusses the introduction of regulations for electronic securities and the issuance of crypto tokens. The document stipulates that the regulation of electronic securities should be technology-neutral, which means that they could be based on blockchain, or distributed ledger technology (DLT).

The issuance of crypto tokens purportedly will not be subject to existing market regulations since crypto tokens do not represent securities, investment or other financial instruments according to the Securities Trading Act. However, initial coin offering (ICO) of crypto tokens is put up for discussion in the paper as investing in crypto tokens purportedly poses risks for investors.

The announcements reads that, before proposing a draft bill on the subject, the Federal Ministry of Justice and Consumer Protection and the Federal Ministry of Finance should come up with a comprehensive picture of the measures outlined in the key issues paper. The measures purportedly aim to strengthen the role of Germany as one of the leading fintech countries.

Recently, the chief executive body of the German government, the Cabinet of Germany, revealed that the country’s blockchain strategy will be introduced by mid-2019. The Cabinet stated that they will undergo an online consultation process prior to introducing the blockchain strategy. The Ministry of Finance and the Ministry for Economic Affairs and Energy are reportedly preparing the strategy, with the expectation that other relevant ministries will contribute at a later time.

Earlier today, Cointelegraph reported that Germany’s justice and finance ministries proposed to launch a state-run register to boost the use of blockchain to regulate the sector and protect investors from possible abuses. The guidelines also propose easing existing requirements, which assume that financial instruments must have tangible counterparts that can be purchased by investors.

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Germany Proposes Launching State-Run Electronic Register for Blockchain Sector

The German justice and finance ministries propose to launch a state-run registry to develop the blockchain sector and protect investors.

Germany’s justice and finance ministries have proposed to launch a state-run register to boost the use of blockchain, Reuters reports on Friday, March 8.

According to the Reuters, the seven-page initial guidelines offer to create a register to regulate the sector and protect investors from possible abuses. The document reportedly states that regulation in the sphere could contribute to the development of the technology behind cryptocurrencies, along with enhancing Germany’s position in financial markets.

The guidelines also propose easing existing requirements, which assume that financial instruments must have tangible counterparts that can be purchased by investors.

Reuters claims that current proposals are only related to electronic bonds, while digital stocks might be added later.

The chief executive body of the German government, the Cabinet of Germany, has recently announced that the country will introduce its blockchain strategy by mid-2019. The Ministry of Finance and the Ministry for Economic Affairs and Energy were cited as responsible for preparing the guidelines, with the expectation that other relevant ministries will contribute at a later time.

As Cointelegraph previously reported, the two ministries started discussing the proposals with industry members in mid-February. One of the key questions to be solved relates to the legal protection of those who purchase blockchain-based digital bonds. One of the possible ways to tackle the problem is to allow their purchase to institutional investors only, the ministries stated.

Earlier this year, Germany’s second largest stock exchange, Boerse Stuttgart Group, officially launched its crypto-trading app Bison, which enables free-of-charge trading in Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Ripple (XRP). Currently the app is only available for German users. However, by late 2019 the exchange plans to extend its services to all EU countries.

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Deutsche Boerse, Commerzbank Complete Blockchain PoC for Legally Binding Repo Transaction

German financial services firm Commerzbank and securities marketplace Deutsche Boerse have completed a PoC for a legally binding repo transaction using blockchain tech.

German financial services company Commerzbank and securities marketplace Deutsche Boerse have completed a proof-of-concept (PoC) for a legally binding repo transaction using distributed ledger technology (DLT). The news was reported by Cointelegraph auf Deutsch on March 6.

A repo transaction is commonly used for short-term borrowing, and allows dealers to sell securities to investors — often for as short a time as overnight —  and repurchase them the following day, or as otherwise determined. For the party selling the security, the process is termed a repo, whereas for the counterparty, it is known as a reverse repurchase agreement.

For the DLT-enabled PoC, the repo transaction was based on a 10 million euro ($11.3 million) bond issued by KfW Bankengruppe, for a term of seven days at a negative interest rate of -0.5%.

As Cointelegraph Deutschland reports, to settle the transaction, Commerzbank and Deutsche Boerse generated digital tokens for both commercial bank money and securities. These were then simultaneously exchanged using a Commerzbank-operated DLT platform.

While Commerzbank’s R&D unit “Main Incubator” developed the DLT platform, the full scope of the technology used for the DLT-powered repo transaction PoC — as well as its underlying legal concept — was reportedly developed jointly by the two partners.

As a Commerzbank press release notes, the use of DLT to enable the legally compliant, efficient and transparent settlement of tokenized securities and cash tokens offers distinct advantages over existing legacy systems. These include real-time monitoring, a shortened settlement period, reduced counterparty risk, and a corresponding reduction in operational costs.

Michael F. Spitz, CEO of Commerzbank’s R&D unit, has given a statement on the significance of the PoC, noting that:

“In past [DLT] pilots we have focused on new issue projects; with the transaction between Deutsche Boerse and Commerzbank we were now for the first time able to convert existing securities into digital tokens.”

As the press release outlines, banks often use repo transactions as secured money market instruments in order to cover their “short-term liquidity needs by depositing securities.”

As Cointelegraph has reported, Deutsche Boerse recently revealed that it is making significant progress with its blockchain-powered securities lending platform, co-developed with Luxembourg-based blockchain liquidity management platform, HQLAx. To date, six banks have reportedly confirmed their plan to join the platform, which uses enterprise blockchain consortium R3’s Corda platform as its base.

Last month, Commerbank conducted a pilot for money market security transaction using a Corda-based platform, in partnership with major technology firms Continental and Siemens.

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German Government to Introduce Blockchain Strategy in Mid-2019

Germany’s blockchain strategy will be introduced in mid-2019, according to statements by the Cabinet of Germany.

The chief executive body of the German government, the Cabinet of Germany, has revealed that the country’s blockchain strategy will be introduced by mid-2019. The Cabinet commented on the development of fintech in the country on Feb. 26, following a request for information from parliamentarians in the Bundestag.

The document notes that fintech sandboxes are currently present in five member states of the European Union: Denmark, Lithuania, the Netherlands, Poland and the United Kingdom.

The Cabinet states that they will undergo an online consultation process prior to introducing the blockchain strategy. Per the Cabinet, the Ministry of Finance and the Ministry for Economic Affairs and Energy are preparing the strategy, with the expectation that other relevant ministries will contribute at a later time.

Earlier this month, Reuters reported that the German government is already consulting companies and industry groups that could become stakeholders in the country’s blockchain development. According to the report, unnamed organizations have been invited to make recommendations.

The report also cites unspecified government sources saying that it is unclear whether those recommendations will translate into regulation in the near future, but concrete results are currently being sought.

At the end of January, Germany’s second largest stock exchange, Boerse Stuttgart Group, officially launched its crypto-trading app Bison which enables free-of-charge trading in Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Ripple (XRP).

In January, major global securities marketplace Deutsche Boerse said it was “making significant progress” on its blockchain-based securities lending platform.

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German State Bank KfW Tests Blockchain App for Public Finance Management in Burkina Faso

German state-owned bank KfW will trial its blockchain-driven app in Burkina Faso, where it also funds water supply and sanitation programs.

Germany’s major state-owned bank KfW and Burkina Faso’s Ministry of Finance will test a blockchain application for use in public financial management, according to a statement posted Monday, Dec. 17.

KfQ, ranked in 2017 as the country’s third largest bank by total assets, had also previously signed an agreement with the Burkinabe government in June 2018, providing the country with a credit of €7 million ($7.9 million) to finance water supply and sanitation areas.

According to the recent blockchain-related announcement, TruBudget, an open source app developed by KfW, will be tested in Burkina Faso, Africa within the next six months with the assistance of global consulting companies Accenture and BearingPoint.

The application will allow users to store and approve all the contracts in the sector using blockchain in real-time mode. The bank expects it could help reduce lengthy manual processes and ensure that funds are used properly.

According to KfW, the bank would normally open an office in a partnering country to deal with risks. Joachim Nagel, member of the executive board at KfW, believes that blockchain can help oversee these processes at a distance:

“With TruBudget, we create transparency for the benefit of all parties involved, and we enable donors to use funds safely, even using the structures of the partner country directly.”

As Cointelegraph frequently reports, global banks are using blockchain to reduce paperwork, cut costs and reduce human errors.

For instance, 26 French companies and five major banks conducted a Know Your Customer (KYC) test based on the blockchain consortium R3’s blockchain, completing a live commercial paper transaction.

And in December, South Korea’s second-largest commercial bank, Shinhan Bank, announced it will implement blockchain in its internal processes to avoid the chances of human-based mistakes and enhance overall efficiency in financial operations.