Germany Begins Public Consultation on Tokenized Mutual Fund Shares

Divya  |  Sep 8, 2021

Germany’s Ministry of Finance commenced a public consultation that is seeking feedback on tokenized mutual fund shares until October 1st, 2021.

Germany Starts Public Consultation on Tokenized Mutual Fund Shares

According to a document on the finance ministry’s website, Germany is working on a policy to allow investment funds to issue tokenized shares on the blockchain. The move is aimed at giving Germany a competitive edge when other European countries opt for tokenization of funds. 

By converting traditional funds to tokenized units, companies can lower the entry barrier to investments and reduce administrative costs related to new investors. 

Digital securities are already popular in Germany since the country’s top financial authority BaFin approved security token offerings in 2019. Small and medium businesses in the country, in particular, have had resounding success raising funds for themselves via this route. For instance, in 2019, restaurant chain FR L’Osteria SE raised €2.3 million from 1,300 investors through a tokenized bond. 

The latest development indicates that the blockchain industry and crypto-assets are gaining more legitimacy with time in Germany. In July, the country permitted institutional funds to invest up to 20% of their portfolio in digital assets under the Fund Location Act. The law covered 4,000 special funds with roughly 2 trillion in assets under management.

Following the implementation of the act, Frankfurt-based asset manager Union Investment said that it would allocate a small percentage of its funds to Bitcoin.

Lack of Clarity Discourages New Crypto Projects in Germany

Although crypto adoption is continuing at a breakneck speed in the country, German industry players are still unclear about the legality of new projects. Some startups have cited BaFin’s slow response time as a huge obstacle for the ecosystem. 

André Eggert, chief legal officer at Berlin-based blockchain firm Neufund opines that “most good startups are already out of Germany” because authorities took a long time to make clear regulations. In the meantime, old laws continued to guide the new industry and provided insufficient coverage for a new class of assets like NFTs.

Another major problem for crypto firms is that the current laws don’t describe “digital assets” in detail. This ambiguity drives investment funds towards more established assets like Bitcoin and Ethereum and hence has little impact on the startups.

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