22.12.2016 | KPMG Law Insights

Alternative Investments Legal – Alternative Investments Legal | Issue 12/2016

Dear Readers,

Christmas is just around the corner and an eventful 2016 is drawing to a close. As usual, we would like to inform you about the latest developments in the field of alternative investments in December.

On December 21, 2016, BaFin published the draft of the long-announced new capital investment circular for consultation.

Furthermore, reference should be made to BaFin Circular 8/2016. This serves to implement corresponding EBA guidelines on dealing with so-called shadow banks.

In addition, the EU Council adopted a regulation postponing the effective date of the PRIIPs rules by 12 months to the beginning of 2018. It has not been conclusively clarified how this will affect national implementing legislation.

We wish you and your families a blessed Christmas season and a successful start into the new year 2017.

With best regards

Dr. Ulrich Keunecke

EU Council

Council adopts EU Commission proposal on postponement of the applicability date of the PRIIPs Regulation – applicability date of German implementing legislation

On December 8, 2016, the EU Council decided to postpone the effective date of the Regulation on key information documents for packaged retail investment products and insurance investment products (PRIIPs Regulation) by 12 months. As a result, the regulation will not apply until January 1, 2018, rather than December 31, 2016, as originally intended.

However, the amendment to Section 307 KAGB will nevertheless come into force in Germany on December 31, 2016. Accordingly, a semi-professional investor interested in acquiring a unit or share must be provided with either key investor information pursuant to section 166 KAGB or section 270 KAGB or a basic information sheet pursuant to the PRIIPs Regulation in good time prior to the conclusion of the contract.

BaFin has informally announced that it will comment in the near future on the extent to which there may be regulatory relief in administrative practice. However, not least with regard to possible civil liability risks, we believe it is advisable to take the amendment into account from December 31, 2016.

The press release of the EU Council can be found here. The following are links to the 1st FiMaNoG and 2nd FiMaNoG.


Postponement of the effective date of the amended Institutional Remuneration Ordinance.

The amendment to the InstitutsVergV is not expected to come into force until March 1, 2017, and thus not on January 1, 2017, as originally planned. This was announced by BaFin on December 12, 2016.

BaFin has announced that it will publish the new draft of the InstitutsVergV amendment in December 2016. The corresponding amending ordinance is then expected to be issued in February 2017 and published in the Federal Law Gazette.

The background to the delay is that, in view of the revision of the European Capital Requirements Directive(CRD IV) and following evaluation of the comments received in response to the consultation, two originally planned amendments are now not to be implemented after all. Instead, we will first wait for the further development of the requirements under Community law.

For example, the risk taker identification obligation is now no longer to be extended to all institutions, as was still envisaged in Section 3 (2) of the consultation draft. In addition, subordinate institutions already covered by the sector-specific remuneration rules of the AIFM Directive or the UCITS V Directive are not to be included in the scope of the group remuneration strategy, as was initially planned under Section 27 of the consultation draft.

The corresponding BaFin notification can be viewed here, and the European Own Funds Directive can be viewed here.


Letter of BaFin on the application of the “Guidelines on sound remuneration policies taking into account the UCITS Directive and the AIFMD” of ESMA

Section 37 (KAGB) provides for an authorization to issue an ordinance on the more detailed structuring of the remuneration systems of KVGs. This authorization, which previously only referred to the remuneration systems of AIF KVGs, also covers UCITS KVGs upon entry into force of the UCITS V Implementation Act.

BaFin has announced that, as before, it will refer to the AIFM Remuneration Guidelines and, as of January 1, 2017, also to the UCITS Remuneration Guidelines as well as the amendment to the AIFM Remuneration Guidelines in order to specify the obligations provided for in Section 37 KAGB as part of its administrative practice until a statutory order is issued on the basis of Section 37 KAGB.

The letter from BaFin can be found under the following link.



BaFin Circular 8/2016 – Upper Limits for Risk Positions vis-à-vis Shadow Banks

On January 1, 2017, BaFin Circular 8/2016 “Guidelines on upper limits for risk positions vis-à-vis shadow banking entities” will come into force.

The subject of this circular is the implementation of the guidelines of the European Banking Authority (EBA) of June 3, 2016 (EBA/GL/2015/20).

The guidelines specify the methodology institutions should use to capture and manage concentration risk arising from exposures to shadow banks.

In particular, the circular contains criteria for setting an appropriate overall limit for risk exposures to shadow banking entities that engage in banking activities outside a regulatory framework, as well as limits for individual risk exposures to such shadow banking entities.

The addressees of the circular are

  • Credit institutions within the meaning of Art. 4 para. 1 No. 1 EU Regulation No. 575/2013
  • and credit institutions within the meaning of § 1 para. 1b KWG that are not CRR institutions and are not housing companies with savings facilities and
  • Investment firms within the meaning of Art. 4 para. 1 No. 2 EU Regulation No. 575/2013, to which Part 4 “Large Exposures” of EU Regulation No. 575/2013 applies, and financial services institutions as defined in section 1 para. 1b KWG that are not CRR institutions and to which Part 4 “Large exposures” of EU Regulation No. 575/2013 applies.

The EBA guidelines were discussed in detail on October 24 of this year in the article “Banking Supervision Regulates Shadow Banks” by Dr. Ulrich Keunecke, including in particular the question of whether the extension of shareholder loans makes an AIF a shadow bank.

The circular can be found here, the EBA guidelines (EBA/GL/2015/20) here and the related article “Banking Supervision Regulates Shadow Banks” at the following link.


Financial sector responds to planned ban on the sale of credit-linked bonds with voluntary commitment

On December 16, 2016, the leading associations Deutscher Derivate Verband (DVV) and Deutsche Kreditwirtschaft (DK) presented a policy recommendation for their members in response to BaFin’s draft general ruling of July 28, 2016, which provided for a ban on so-called “creditworthiness bonds.” The industry is thus responding to investor protection concerns raised by the supervisory authority with regard to the retail sale of these products due to, among other things, their complexity, incomprehensible pricing and, in BaFin’s view, misleading product designations. On this basis, BaFin is temporarily postponing its planned ban. It will review whether the industry’s package of measures is working after six months.

In the policy recommendation, the industry, represented by DK and DDV, commits itself to greater transparency and investor protection in the issuance and distribution of credit-linked bonds (previously referred to as credit-linked bonds). To this end, it is restricting both the product range and distribution.

Under the new voluntary commitment, credit-linked bonds will in future only be issued with a minimum denomination of EUR 10,000. Smaller investment amounts can no longer be invested in. As a result, credit-linked bonds no longer represent a typical retail investment product. In order to ensure that only private investors who are willing to take risks invest in this type of product, credit-linked bonds may also only be marketed to investors with a risk tolerance level of 3 or higher. Customers who have no or very low risk tolerance may no longer be recommended them in investment advice. This ensures that private investors are not offered products that do not match their risk profile. With regard to the reference companies serving as underlyings, DK and DDV also commit to higher quality standards. Credit-linked bonds that have several reference debtors as their underlying may now only be offered if this achieves an actual spread of risk for the customer. In addition, the industry wants to sell private investors only credit-linked bonds that guarantee a sufficient credit rating of the reference debtors (investment grade).

The recommendations are to be implemented by the institutions as of January 1, 2017.

Press release of DK and DDV can be found here, the reaction of BaFin can be read here.


BaFin publishes interpretative letter allowing the preparation of the securities prospectus in English language

On November 25, 2016, BaFin published an “Interpretative Letter on the Permission to Draw Up the Securities Prospectus in English Pursuant to Section 19 (1) Sentence 2 of the German Securities Prospectus Act (WpPG) in the Case of a Public Offering or Admission to an Organized Market of Securities Exclusively in Germany.”

As a general rule, a securities prospectus for an issue/admission of securities to an organized market must be prepared exclusively in Germany, in the German language. In § 19 para. 1 sentence 2 WpPG provides for an exemption. Accordingly, BaFin may, at the request of the prospectus issuer, permit the securities prospectus to be drawn up in a language customary in international financial circles (i.e. in English).

The interpretative letter comments on which concrete circumstances must exist for this. Accordingly, preparation in English is possible in individual cases in the following constellations:

(1) The prospectus contains a German summary, it is a prospectus exclusively for the admission of shares to an organized market in Germany and the issuer has a demonstrably strong international connection;

(2) This is a prospectus exclusively for the admission of debt securities with a minimum denomination of EUR 100,000 to an organized market in Germany.

The notice can be found here, and the interpretive letter can be found here.


BaFin Consultations 14/2016 – Preparation and maintenance of the list of assets and safekeeping of the security assets for Solvency II companies

On December 7, 2016, BaFin published a draft of a “Circular for primary insurers on the preparation and maintenance of the list of assets, submission of the printout and safekeeping of the security assets” for consultation.

The draft is aimed at all licensed primary insurers subject to the Solvency II regime and takes into account the corresponding new ISA regulations for Solvency II companies.

The circular is scheduled to enter into force on January 1, 2018. Until then, Solvency II companies can use the forms in Circular 12/2005 (VA) (GZ:VA 14-O 1000-2005/257) to prepare their protection asset registers.

Comments on the draft can be submitted until January 4, 2017.

Under this link you will find the consultation and here the circular 12/2005 for Solvency II companies.


Draft bill on the implementation of the Fourth EU Money Laundering Directive, on the implementation of the EU Money Transfer Regulation and on the reorganization of the Central Financial Transaction Investigation Unit

On December 15, 2016, the BMF published a draft bill on the implementation of the Fourth EU Money Laundering Directive. The directive is to be transposed into national law by the member states by June 26, 2017.

The Fourth EU Money Laundering Directive aligns European regulations with the 2012 revision of the Financial Action Task Force (FATF) recommendations and aims in particular to modify and expand national legislation on the prevention of money laundering and terrorist financing.

In particular, are provided:

  • appropriate risk management of obligated parties – review of customer structure, products and services with regard to money laundering and terrorist financing;
  • Establishment of an electronic transparency register to which obligated parties (legal entities, partnerships, trusts, trust-like legal structures) report information on their beneficial owners;
  • Harmonization of the rules on fines for violations of obligations under money laundering law;

Furthermore, the new rules of the CIT Regulation, which replaces Regulation (EC) No 1781/2006, including an adjustment of sanctions, are to be implemented.

Press release and draft bill can be viewed here.


Insurance regulators issue call for consultation in Solvency II review process

DEIOPA issued a “Discussion paper on the Review of Specific Items in the Solvency II Delegated Regulation” for consultation on December 8, 2016. The aim is to review the Solvency II requirements for SCR calculation using the standard model.

The consultation period runs until March 3, 2017.

EIOPA’s press release can be found here, template for own comments and discussion paper at this link.


Market Supervision Opens European Rating Platform

ESMA unveiled a new “European Rating Platform” (ERP) database on December 1, 2016, which provides access to up-to-date information on credit ratings and rating outlooks.

The ERP is designed to allow investors to access comparative ratings for specific companies and instruments with relative ease. In doing so, centralization is intended to reduce information costs and give smaller and new rating agencies better visibility in the market.

The link to ESMA’s press release can be found here, and the database can be accessed at this link.


BaFin consults on new AnlV

On December 21, 2016, BaFin published the draft of the long-announced new capital investment circular for consultation. The consultation period ends on January 31, 2016.

Accordingly, for example, for real estate funds the use of derivatives is only permitted for hedging purposes and the liquidity investment must approximately meet the requirements of section 253 para. 1 sentence 1 KAGB correspond. Long-term borrowing is limited to 60% of the market value of the investment fund’s real estate portfolio and short-term borrowing is limited to up to 30% of the inventory value.

The draft also contains specifics on the open-ended special AIFs with fixed investment conditions, which are allocated as bundling vehicles via number 16, as well as the other fund and other investment quotas.

You can find the draft here.

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