18.12.2017 | KPMG Law Insights

Investment | Law | Compact – Issue 12/2017

Dear Readers,

Shortly before the end of the year, BaFin once again became active with various publications and announcements.

Earlier this week, it published the new Capital Investment Circular 11/2017 (VA). BaFin had already conducted the consultation procedure for this circular in the period from December 21, 2016 to January 31, 2017.

In addition, the financial supervisory

  • published a report with guidelines for liquidity stress tests of KVGs,
  • Leaflets on the licensing procedure of UCITS and AIF KVGs published or amended,
  • announced its amended administrative practice on the granting of shareholder loans and
  • updated its FAQ on outsourcing by KVGen.

So there’s plenty of reading material for the holidays.

I wish you a Merry Christmas and a healthy and prosperous 2018.

With warm regards
Henning Brockhaus

National supervision

BaFin publishes new capital investment circular

On December 12, 2017, BaFin published the long-awaited new capital investment circular (“Notes on the investment of the security assets of primary insurance undertakings to which the provisions for small insurance undertakings (sections 212 to 217 VAG) apply, as well as of domestic Pensionskassen and Pensionsfonds,” Circular 11/2017 (VA)).

After a first review, the circular contains some changes worth mentioning for fund investments compared to the consultation draft of December 21, 2016 (see our January 2017 issue):

In the future, investments in UCITS shall also be subject to the provisions of § 2 para. 1 No. 15 of the AnlV are permissible if they contain a small number of target funds that are not transparent.

For investments in special AIFs according to § 284 KAGB, BaFin clarifies:

  • They may only hold securities pursuant to § 193 KAGB (UCITS-compliant securities). Other securities in accordance with the “extended” definition of securities in Section 284 para. 2 No. 2 a) KAGB are therefore no longer permissible. Investments in accordance with section 198 of the KAGB are permitted as before.
  • Target funds must also be open-ended and qualified for backup assets.
  • Investments in companies that are not admitted to trading on a stock exchange or included in an organized market, including units and shares in closed-end private equity funds, are also permitted. However, these are to be limited to up to 20% of the value of the special AIF.
  • The administrative practice outlined in the circular is applicable with immediate effect. At the same time, Circulars 1/2002 (VA) (on investments in asset-backed securities (ABS) and credit-linked notes (CLN)) and 7/2004 (VA) (on investments in hedge funds) as well as the previous Capital Investment Policy Letter 4/2011 will be repealed.

The capital investment circular 11/2017 (VA) can be found here.

National supervision

BaFin publishes report with guidelines for liquidity stress tests of KVGs

BaFin published a report with guidelines for liquidity stress tests of German capital management companies on December 8, 2017.

The report describes both current industry practice and the specifics of the German fund market.

According to the guidelines, the appropriate design depends on the business model and size of the respective capital management company. The design and stress test scenarios, as well as their frequency, should be tailored to the fund as much as possible.

BaFin emphasizes that there is no ideal solution for liquidity stress tests. Rather, he said, it is the responsibility of the capital management companies to use the most appropriate tools to manage liquidity risks.

You can find the report with the guidelines here.

National supervision

BaFin publishes fact sheets on licensing procedures for UCITS and AIF KVGs

On November 21, 2017, BaFin published for the first time a fact sheet on the licensing procedure for a UCITS capital management company.

In the leaflet on the licensing procedure for UCITS capital management companies, BaFin explains details of the licensing procedure pursuant to Section 21 KAGB. In addition to the required information (e.g. managing director) and documents (e.g. articles of association or partnership agreement), the leaflet also deals with selected points concerning the further procedure (e.g. earliest time for the start of UCITS management).

In addition, on November 27, 2017, BaFin updated its fact sheet on the licensing procedure for an AIF capital management company, which has already existed since 2013. The supervisory authority has made both editorial and substantive changes, the latter in particular to the disclosures on outsourcing arrangements and the remuneration policy.

National supervision

BaFin changes administrative practice on the granting of shareholder loans

On November 24, 2017, BaFin announced its revised administrative practice on the granting of shareholder loans.

With immediate effect, AIF capital management companies that provide so-called “shareholder loans” for the account of an AIF within the meaning of Sec. 261 para. 1 No. 8, 282 para. 2 sentence 3, 284 para. 5 or 285 para. 3 KAGB no longer wish to grant a permit extension.

The announcement of the change in administrative practice on the granting of shareholder loans can be found here.

National supervision

BaFin updates FAQ catalog on outsourcing by KVGs

On November 15, 2017, BaFin updated its FAQ catalog on outsourcing undertaken by capital management companies.

With regard to the activities pursuant to Annex I No. 2 of the AIFM Directive, BaFin clarifies that the performance of administrative activities by third parties may also be considered as mere third-party procurement of services. In addition, BaFin continues to adhere to its legal opinion that the distribution of investment units by intermediaries is regularly not to be classified as outsourcing.

The Financial Supervisory Authority is also expanding the requirements for the outsourcing notification. Among other things, the capital management company must submit additional documents when outsourcing portfolio or risk management to an outsourcing company domiciled abroad. In addition, BaFin has newly stipulated that the outsourcing notification must be submitted no later than one day before the outsourcing agreement takes effect.

Furthermore, BaFin clarifies that the level of the company as a whole is no longer decisive for assessing whether the capital management company becomes a letterbox company as a result of the outsourcing. In the future, this must be done on a fund-by-fund basis. BaFin is thus following a recommendation by ESMA.

You can find the updated FAQ catalog here.

European supervision

ESMA publishes report on money market fund regulation

ESMA published its final report with recommendations for action on the MMF Regulation on November 17, 2017.

The final report includes Technical Advice, draft technical implementation standards, and guidance on stress tests that managers of money market funds must conduct.

You can find the final report here.

European supervision

ESMA updates Q&A on the implementation of the Market Abuse Regulation

ESMA updated its Q&A catalog on the implementation of the Market Abuse Regulation (MAR) on November 21, 2017.

The newly included questions and answers deal with executives’ own business during a closed period. ESMA clarifies that the prohibition of insider trading also applies if a senior executive has been permitted to conduct proprietary trading during a closed period.

In addition, ESMA confirms that the types of “transaction” referred to in Article 19(11) MAR are the same as those in Article 19(1) MAR.

The updated Q&A on the implementation of MAR can be found here.

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