(For German version click here)
The brokerage of the supply and demand of blockchain tokens in Germany in most cases requires that the acting intermediary obtains a prior authorization by BaFin. This has been the case even prior to the introduction of crypto assets as a new form of financial instrument at the beginning of 2020. The obligation to obtain a prior authorization applies when the blockchain tokens in question are qualified as financial instruments in the sense of the German Banking Act. This is the case if they are tokenized stocks or debt securities and therefore security tokens. Currency tokens, meaning digital representations of value which are designed to be used as a means of payment can also be financial instruments in the form of units of account or crypto assets. If the tokens in question on the other hand are mere tokenized vouchers or material assets - such as e.g. art pieces - the qualification as a financial instrument is rather far-fetched. But what are the exact requirements for the brokerage activity from a supervisory law point of view and which distinctions can be made?
Two Different Variations of Investment Brokerage Which Require Authorization
The specific form of the brokerage activity is the decisive factor for the supervisory classification. The matching of supply and demand with regards to financial instruments can also be qualified as acquisition brokerage or as placement business next to the qualification as investment brokerage. BaFin published its corresponding administrative practice in the form of several guidances. According to the opinion of the financial supervisory authority, investment brokerage can occur in two different variations. On the one hand, BaFin qualifies an activity as investment brokerage if the intermediary deliberately transmits a declaration of intend which is aimed at the sale or acquisition of a financial instrument to a potential contracting party. On the other hand, BaFin also qualifies an activity as investment brokerage if the intermediary deliberately and purposely increases the willingness of a person to enter into a contract which is aimed at the sale or the acquisition of a financial instrument. In both variations the service provider acts as an intermediary which never enters into the contract in question and who works in his own name and for his own account.
Under Which Circumstances the Activity of the Broker Qualifies as Acquisition Brokerage?
Acquisition brokerage in contrast to investment brokerage requires the service provider to act as an agent and for account of one of the parties of the contract. This is the case, if e.g. the broker enters into an agreement with the token acquirer as a representative with power of attorney of the security token issuer. Acquisition brokerage therefore always requires the broker to be mandated by his client to sell or acquire financial instruments for him.
Which Activities are Considered a Placement business?
The placement business is another, authorization requiring activity which must be distinguished from the investment brokerage and the acquisition brokerage. It is a special case of acquisition brokerage that requires that the contracts the broker enters into on behalf of the issuer are subject to a specific placing agreement, even though a specific take-over obligation for the broker with regards to the financial instruments is not agreed upon. This case also requires the service provider to act as an agent and for account of one of the contractual parties, in this case the issuer. An agreement is considered a placing agreement, if the issuer assigns the service provider with the task of placing the issued financial instruments at the capital markets. A take-over obligation would require the service provider to agree to the obligation to take the financial instruments onto his own books if he fails to place them at the capital markets. The broker would therefore carry the sales risk of the issuing.
Attorney Lutz Auffenberg, LL.M. (London)
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