16.05.2018 | KPMG Law Insights

Investment | Law | Compact – Issue 05/2018

Dear Readers,

In recent weeks, the German Federal Financial Supervisory Authority (BaFin) has incorporated further European legal acts and ESMA pronouncements into its supervisory practice.

In April, the German financial supervisory authority adapted MaComp to the new requirements of MiFID2. These are also applicable in part to capital management companies that provide certain ancillary services within the meaning of Section 20 (2) and (3) KAGB. We report on significant relevant changes.

At the beginning of May, BaFin published minimum requirements for complaint management, which also apply to the collective asset management of investment companies. The specifications for complaint handling serve to implement the “Guidelines on Complaint Handling for Securities Trading (ESMA) and Banking (EBA)”.

We would also like to draw your attention today to our offer to analyze expert opinions on netting and collateralization agreements. KPMG Law offers you the possibility to evaluate these often extensive legal opinions efficiently and for your specific requirements and thus to comply with the relevant legal review obligations of EMIR.

With warm regards,

Henning Brockhaus

National supervision

BaFin publishes revised MaComp

On April 19, BaFin published the minimum requirements for the compliance function and other conduct, organization and transparency obligations (MaComp, Circular 05/2018 WA), which have been adapted to the requirements of MiFID2.

The following points appear worth mentioning for capital management companies:

  • If capital management companies provide the ancillary service of “financial portfolio management”, BaFin provides for facilitations in determining the target market. Accordingly, the target market is to be determined on the basis of the respective investment strategy of the investment fund and coordinated with the client concerned. It is not necessary to determine the target market for individual financial instruments to be used in financial portfolio management. If transactions are consistent with the agreed investment strategy, target market matching is not required.
  • BaFin also follows a pragmatic approach when providing investment advice to a capital management company with regard to the investments of an investment fund. Here, the investment advisor can refer to the investment guidelines of the investment fund to determine the needs, characteristics and objectives of the client (the capital management company).
  • If a capital management company provides ancillary services that constitute investment services within the meaning of MiFID2, the requirements of BT 10 on record-keeping obligations regarding benefits also apply to the capital management company.

The revised MaComp and the associated appendices can be found here. A notification from BaFin on this can be found here.

European legislation

KPMG Law offers evaluation of expert opinions on netting and collateralization agreements

Since March 1, 2017, capital management companies must collateralize OTC derivatives concluded bilaterally for the account of UCITS and AIFs.

In this context, according to Art. 2(3) of Delegated Regulation (EU) 2016/2251, counterparties must appoint an independent body to legally review the netting and collateralization agreements concluded for the collateralization. Pursuant to Art. 2(4), the legal validity of the agreements must also be reviewed on an ongoing basis.

Industry associations have obtained appropriate opinions from law firms on netting and collateralization agreements for many jurisdictions, which they make available to their members. According to information available to us, BVI members also have access to these expert opinions.

Since the legal opinions deal with a large number of possible constellations in the individual countries, they are usually very extensive and often have 60 to 140 pages, mostly in English.

The capital management companies are required to analyze the statements of the legal opinions. These include, but are not limited to, the following questions:

  • Is the netting agreement effective and enforceable? What happens in the event of insolvency?
  • Is the netting agreement effective in insolvency proceedings? Does the transfer of collateral satisfy a transfer of full rights under German law?
  • Is collateral netting effective and enforceable? What happens in the event of insolvency?

For example, we will provide you with a summary of the most important statements of the expert opinion that you can use to document the fulfillment of your audit obligation.

Please contact us. We will be happy to provide you with an individual offer.

National supervision

BaFin publishes minimum requirements for complaint management

On May 4, 2018, BaFin published Circular 06/2018 (BA and WA) on the minimum requirements for complaint management.

The minimum requirements specify BaFin’s administrative practice for handling customer and investor complaints for, among others, capital management companies in the context of their collective asset management activities.

You can find the circular here.

National supervision

BaFin applies ESMA guidelines on money market funds

On May 7, 2018, BaFin stated that it will apply the guidelines issued by the European Securities and Markets Authority (ESMA) on conducting stress test scenarios in its supervisory practice. These have been available in German since the end of March.

The guidelines provide reference parameters for the scenarios underlying the stress tests to be performed under Article 28 of the MMF Regulation. The purpose of the guidelines is to ensure a common, uniform and consistent application of these provisions in the EU.

ESMA will update the guidelines at least annually, taking into account the latest market developments.

You can access more information here.

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Henning Brockhaus


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