15.01.2016 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 1/2016

Dear Readers,

We wish you a happy and successful new year and look forward to informing you again this year about current regulatory topics and legal issues.

For the investment industry, the task is to master the implementation of UCITS V by March. This means some effort with regard to the adaptation of investment conditions and sales prospectuses of the UCITS.

But also the depositaries are in the focus of UCITS V. The EU Commission recently published the draft for an implementing regulation on the duties of the depositary and provides clarity, among other things, on the question of which requirements are to be placed on the independence of the depositary.

Contact us – we will be happy to advise and support you.

With warm regards

Henning Brockhaus



EU Commission publishes draft regulation on the duties of the UCITS depositary

On December 17, 2015, the EU Commission published its draft implementing regulation on depositary obligations under the UCITS V Directive.

The ordinance contains detailed regulations on the content of depositary agreements as well as the depositary’s control and custody duties. The requirements for sub-custody and liability issues in the event of a loss of financial instruments are also regulated in detail.

After a lengthy consultation period, the regulation now also provides clarity on the requirements for the independence of the UCITS depositary. As most recently proposed by ESMA, independence must be ensured in terms of both personnel and corporate law.

Personal independence

Thus, no more than one third of the members of the supervisory board of the capital management company and the depositary may be members of the management, supervisory board or employees of the other entity.

Independence under company law

In addition, the regulation requires a certain degree of independence at the level of company law. It is still permissible for the capital management company and the depositary to be linked by a capital or voting interest or to belong to the same group. The previous interpretation of the concept of independence is nevertheless tightened. The draft regulation provides, inter alia, for the following measures to ensure the independence of the depositary under company law:

  • Establish an objective decision-making process for the selection and appointment of the depositary and maintain an evaluation comparing the merits of an intragroup depositary with the merits of a non-group depositary.
  • Establishment of an effective conflict of interest management system to deal with potential conflicts of interest arising from the affiliation under company law.
  • Disclosure of the links under company law to the investor; this could be done in the sales prospectus or information document pursuant to section 307 KAGB.

In addition, if the capital management company and the depositary belong to the same group, some of the members of the management and supervisory boards of the capital management company and the depositary must each be independent.

The Council and the Parliament of the European Union now have three months to evaluate the texts of the EU Commission. The regulation comes into force 20 days after publication. The regulation provides for a transition period of 6 months for compliance.

You can find the draft of the regulation here.


EU institutions reach agreement on benchmark regulation

After several attempts, the EU Parliament, EU Council and EU Commission have reached a compromise on the benchmark regulation. According to this, benchmarks and their providers will be subject to regulation in the future and will be listed in an ESMA register.

The regulation is also relevant for investment funds. For example, the regulations contain references to the performance of funds, the combination of indices, benchmark indices as well as asset selection and the calculation of performance-related remuneration.

You can find the draft of the regulation here.


BaFin publishes fact sheet on managing directors and supervisory bodies

On January 4, 2016, BaFin published the second edition of the leaflet on business managers pursuant to the German Banking Act (KWG), the German Payment Services Supervision Act (ZAG) and the German Investment Code (KAGB). In addition, the Financial Supervisory Authority has provided forms and checklists to be used in this context.

The information sheet replaces the previously applicable “Information Sheet for the Examination of the Professional Suitability and Reliability of Managing Directors Pursuant to the VAG, KWG, ZAG and InvG” dated February 20, 2013 and explains the professional and personal requirements for persons appointed as managing directors under the respective supervisory laws. It provides an overview of the related notification requirements, including the documents that must be submitted.

For the first time, the requirements for business managers within the scope of the KAGB are also the subject of the leaflet. Among other things, it specifies the requirements for the professional suitability of business managers. Thus, the professional suitability with regard to the fund-specific business activity intended by the capital management company must be present.

You can find the fact sheet here. In addition, you will find a number of forms and checklists to be used to facilitate the filing of notifications as of now.


Government draft for a First Financial Market Amendment Act published

In our November 2015 issue, we had already reported on the draft bill for a Financial Market Amendment Act (FimanoG), which was intended, among other things, to transpose the revised Financial Markets Directive MiFID2 into national law.

At the beginning of January, the German government published the “Government Draft of a First Act to Amend Financial Market Regulations Based on European Legal Acts” (First Financial Market Amendment Act – 1. FimanoG). However, the government draft no longer contains the regulations for the implementation of MiFID2 still contained in the draft bill, as the implementation deadline for MiFID2 appears to have been delayed by one year. The legislator has announced its intention to implement this at a later date by means of a “Second Financial Market Amendment Act”.

The government draft, which is much shorter than the draft bill, anchors the Market Abuse Directive (MAD, Directive 2014/57/EU), the Market Abuse Regulation (MAR, Regulation (EU) No. 596/2014), the EU Regulation on Central Securities Depositories (CSD-VO, Regulation (EU) No. 909/2014) and the EU Regulation on key information documents for packaged retail investment products and insurance investment products (Regulation (EU) No. 1286/2014) in German law.

The PRIIPs Regulation lays down uniform Europe-wide requirements for information sheets that must be provided to retail investors when selling “packaged” investment products and insurance investment products, and sets out requirements for national sanctioning regulations.

Numerous amendments to the German Securities Trading Act, the German Banking Act, the German Capital Investment Code and the German Insurance Supervision Act are necessary to implement the European legal acts in German law. In addition to adapting national regulations to the EU requirements, these amendments serve to tighten the provisions on penalties and fines and to create additional supervisory powers for the German Federal Financial Supervisory Authority.

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Henning Brockhaus


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