Financial instrument definition as gateway to supervision using crypto currencies, initial coin offerings and customer loyalty programs as examples
Article published in: Recht der Finanzinstrumente | 3.2018 | 10.9.2018
The term "financial instruments" is the decisive criterion for the applicability of financial supervisory regulations. European law and national law define the term differently. These deviations have very practical relevance: Numerous new financial products are currently being developed and a systematic classification is necessary. Without a reliable classification, neither initiators nor intermediaries or investors can recognise the applicable supervisory framework.
The article presents the inconsistent terminology of "financial instruments" in the European and German context and examines deviations in content. In the following, the need for a uniform definition of terms is demonstrated using the examples of crypto currencies, initial coin offerings and loyalty programs.
The legal term term "financial instrument" has not yet been harmonised. Even within the KWG, it is used in different ways. The term, however, is the decisive criterion for the applicability of financial supervisory regulations and opens the way to supervision. The lack of convergence has already led to inconsistencies in the past - for example with asset investments or fractions of loans receivables. These could be resolved by amendments to the law - in the case of asset investments - or simple interpretations - in the case of loans receivables.
At present, products and markets are becoming more international, more innovative and more complex. Particularly challenging cases are crypto currencies, initial coin offerings and, for some time now, loyalty programs. The article attempts to classify the products into the corset "financial instrument" and at the same time critically questions them.
It is worth mentioning that BaFin qualifies crypto currencies as financial instruments in the variant of "units of account". With the constituent element "units of account", the legislator went beyond the requirements of European law. BaFin uses this legislative elasticity and thus opens up the possibility of qualifying crypto currencies as financial instruments in a German special way. The qualification of virtual currencies as units of account is wrong and leads to further international divergence. With regard to loyalty programs, there is a high degree of legal certainty, which is due to the possibility of clear interpretation. Here the legal instruments are sufficient to achieve correct results.