The Bafin has published a “hint letter” that states the documentation requirements when starting a prospectus inquiry. It also explains some of the common mistakes applicants make which result in delays.

The German financial markets regulator Bafin has published a leaflet last week – a “hint letter” for crypto firms. The purpose of the letter was to inform about an issuer’s legal obligations when launching a crypto token offering.

Thus far, the legalities of token offerings in Germany are rather nebulous. The Bafin itself stated that companies frequently inquire whether or not tokens they plan to issue require a prospectus. While security issuances are clearly regulated by the European MiFID directive, businesses are not sure whether their particular tokens are even considered securities according to European or German law.

To clarify the main questions, the Bafin had already issued a first leaflet in February 2018. But since then, the experiences made with several approved and rejected prospectuses have led to changes in the Bafin’s practices. That’s why the second leaflet is supposed to bring clarity, although the Bafin also states that the legal practice regarding token offerings is not yet finalized and further leaflets may follow.

The Bafin also describes common mistakes made by applicants, which typically lead to delays in the regulator’s response:

Uncomplete documentation and lack of clarity

The leaflet includes a list of information that need to be provided when sending and ICO or STO inquiry. According to the Bafin, applicants often hand in incomplete documentation.

Companies often don’t provide all necessary documents or change the contents without informing the Bafin. Moreover, information submitted in subsequent steps of the application process often contradict information provided at earlier steps.

After the first review, the Bafin usually gets back to the applicant with a catalogue of questions. According to the regulator, applicants oftentimes don’t answer these questions precisely and instead provide general statements about the economic or political implications of blockchain technology.

Applications are handed in too late in the process

A prospectus application in Germany is a long and tedious process which can easily take more than six months. As the Bafin receives „a large amount of inquiries“ – a concrete number was not specified – applicants need to get in touch with the regulator as early as possible.

Draft prospectuses without prior clarification of the token’s legal requirements

The Bafin also recommends not to directly submit a draft prospectus, but to first clarify whether the token qualifies as a security under European or German law. The Bafin will then check the legal requirements and confirm the token’s legal standing.

Bafin only responsible if offering accessible in Germany

The BaFin also clearly stated that when an “unrestricted accessible public offer” is made, a prospectus will be required. Even if the offering is made via the internet only and addresses “international investors,” there will be a prospectus obligation in Germany.

The Bafin clarifies that as long as the offering is “accessible from within Germany,” a prospectus will be required. Only if domestic investors are excluded and cannot access the offering, it is not within the Bafin’s jurisdiction. In this case, however, prosecutes laws from other nations or supranational laws could apply.

In general, issuers should keep in mind that the increasing amount of inquiries result in waiting times. That can be frustrating, for both sides. The Bafin therefore clarifies that it will give priority to applicants which are “cooperative and provide all required documents.”

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