17.11.2017 | KPMG Law Insights

Investment | Law | Compact – Issue 11/2017

Dear Readers,

the recently published new WpDVerOV closes a gap of still open questions in the context of the implementation of MiFID2 into national law. We have compiled the most important adjustments compared to the draft regulation from May 2017.

Meanwhile, ESMA is continuously adding to its now numerous and in some cases extensive question and answer catalogs on European regulations. In this regard, BaFin stated at a MiFID2 conference at the end of October that it would also take ESMA’s comments in the Q&A catalogs into account in its national supervisory and administrative practice.

Finally, we report on another investor protection initiative of the EU Commission: It has commissioned ESMA to investigate and report on the effect of costs on the performance of investment products.

With warm regards

Henning Brockhaus

National legislation

New WpDVerOV published

The final version of the Securities Services Conduct and Organization Ordinance (WpDVerOV) was published in the Federal Law Gazette on October 23, 2017 (WpDVerOV of October 17, 2017, Federal Law Gazette I 2017, No. 69, p. 3566 et seq.).

In addition to editorial adjustments, the content of this version largely corresponds to the version of the BMF’s draft bill (RefE) of May 9, 2017, which we already reported on in our May issue.

The main adjustments include:

  • § Section 2 WpDVerOV (“Customers”) contains a new paragraph 4, which corresponds to Section 13 of the RefE.
  • In § 4 WpDVerOV (“Information Sheets”), para. 1 sentence 2 the No. 4 of the RefE: “the target market”.
  • § Section 6 WpDVerOV (“Benefits”) contains only a few linguistic adjustments compared to the RefE. With regard to the requirements for quality improvement for the customer in commission-based sales, it has remained with the additional example of “provision of a widespread branch advisor network” not provided for in the Delegated Directive of the EU Commission of April 7, 2016 (see Section 6 (2) sentence 1 no. 1 lit. d) WpDVerOV).
  • § Section 9 WpDVerOV (“Recording and Retention Obligations”) has been amended compared to the RefE to the effect that two new paragraphs 3 and 4 have been inserted and the content of the previous paragraph 3 has been omitted (according to which in future it should have been recorded, among other things, whether an order was based on investment advice or an appropriateness test or whether it was a pure execution transaction).

You can access the published document of the WpDVerOV as a reading text here.

National supervision

BaFin plans revision of MaComp

BaFin intends to amend the Circular for Minimum Requirements for Compliance Functions and the Other Conduct, Organization and Transparency Obligations Pursuant to Sections 31 et seq. Wertpapierhandelsgesetz (WpHG – German Securities Trading Act) for securities services companies (MaComp) due to the changes brought about by MiFID2.

Planned amendments to MaComp that go beyond mere adjustments to the new legal situation and are not based on ESMA guidelines that have already been consulted on have now been put out for consultation by the supervisory authority. In addition to the general requirements for branches and the monitoring of personal transactions, this concerns new modules on the topics of suitability declarations, graduated commissions, benefits and complaint handling.

The consultation period ends on November 30, 2017. The consultation paper can be found here.

European supervision

ESMA updates Q&A on benchmark regulation

On November 8, 2017, ESMA updated the question and answer (Q&A) catalog on the Benchmark Regulation.

The newly included topics address the issue of the applicability of the Regulation to non-European benchmarks. ESMA clarifies that what matters for the application of the Benchmark Regulation is whether the non-European benchmark is actually used within the EU.

In addition, ESMA comments on the interpretation of the term “already used” in Article 51 para. 5 of the Regulation.

You can find the Q&A on the benchmark regulation here.

European supervision

ESMA updates investor protection Q&A on MiFID2

On November 10, 2017, ESMA updated the question and answer (Q&A) catalog on the investor protection provisions of MiFID2.

The newly included questions and answers address recordkeeping requirements, loss threshold reporting, and grants.

The updated Q&A on MiFID2 investor protection topics can be found here.

National supervision

BaFin conference on MiFID2 conduct of business rules

On October 27, 2017, the German Federal Financial Supervisory Authority hosted a full-day conference with individual presentations on the key investor protection provisions of MiFID2.

BaFin took this opportunity to point out that ESMA’s question and answer catalogs were important for uniform European supervisory practice and that BaFin would take them into account in its supervisory practice.

On the subject of gratuities, the supervisor clarified that the retention of parts of gratuities as profit of the investment services company is no longer possible. The grants must be used in total to improve quality for the respective customer. However, BaFin would not currently provide any further information on the appropriate ratio of the allowance to the additional or higher-value service, but would examine whether the regulations had been implemented appropriately once they had been implemented.

The presentation materials used in the presentations are available here.

European supervision

EU Commission mandates ESMA to review costs and performance of investment products

In the context of the EU Commission’s Capital Markets Union (CMU) initiative, on October 13, 2017, the EU Commission asked ESMA to take a closer look at the costs and performance of retail investment products and to report on corresponding findings.

It is explicitly stated that the upcoming implementation of the new MiFID2 and PRIIPs requirements provides a suitable framework for this study.

ESMA has announced that it will initially focus on costs and performance of UCITS, including the differences between active and passive investment strategies. ESMA’s first report is expected to be available in the second half of 2018.

You can find more information about it here.

ESMA had previously published an article on the impact of charges onmutual fund performance(The impact of charges on mutual fund returns), based on a previous study.

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Henning Brockhaus


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