16.01.2017 | KPMG Law Insights

Investment law – Investment | Law | Compact – Issue 1/2017

Dear Readers,

we wish you a healthy and successful new year!

We are happy to accompany you also through 2017 with our monthly update on legal and regulatory topics related to asset management.

But first, back to the old year: Shortly before Christmas, the German government passed the draft of a “Second Act to Amend Financial Market Regulations Based on European Legal Acts (Second Financial Market Amendment Act – 2. FiMaNoG)”.

BaFin has also been active in recent weeks and months and has issued the new capital investment circular for consultation and published the final minimum requirements for the risk management of capital management companies (KaMaRisk).

Once again this year, we look forward to assisting you with the wide range of legal and practical topics. Feel free to contact us.

With warm regards

Henning Brockhaus


Government Draft of the 2nd FiMaNoG

On December 21, 2016, the German government passed the “Draft of a Second Act to Amend Financial Market Regulations Based on European Legal Acts (Second Financial Market Amendment Act – 2. FiMaNoG)” in addition to several other legislative projects. The document was made available on the website of the Federal Ministry of Finance (BMF) shortly before Christmas.

The present government draft (RegE) follows the corresponding draft bill (RefE) of September 29, 2016 (see our issue 10/2016). While the RefE comprised 379 pages, the RegE now has 348 pages (including the explanatory memorandum in each case).

The RegE is to implement the European requirements “as far as possible 1:1”.

The following changes compared to the RefE appear worth mentioning at first glance (only concerning investor protection and without any claim to completeness):

  • The WpHG was renumbered once again. It now contains a total of 137 paragraphs. The basic standard of the investor-protecting rules of conduct (under current law: Section 31 WpHG, in the draft: Section 55 WpHG-E) is now found in Section 63 WpHG-E.
  • The rules contained in Section 55 WpHG-E as amended by the RefE have been restructured and are now contained in two provisions: Section 63 WpHG-E contains a set of general rules of conduct, and Section 64 WpHG-E includes certain specific rules for the provision of investment advice and financial portfolio management. This improves readability and systematic understanding. This does not appear to involve any significant changes in terms of content. However, it is noticeable that the previous “fee-based investment advice” is now referred to as “independent fee-based investment advice” (see section 64 (1) sentence 1 no. 1, (5) and (6) WpHG-E).
  • The previous Section 33 WpHG (organizational duties) now becomes Section 80 WpHG-E (in the RefE: Section 69 WpHG-E). The basic rules on product governance contained therein, among other things, have been consolidated once again and reworded (see Sec. 80 (9) to (14) WpHG-E).
  • The new version of the WpDVerOV provided for in the RefE is no longer included in the RegE. This relates, among other things, to the further detailing of the new product governance requirements for product manufacturers (“conceptors”) and distributors, and also to further concretization of the provisions relating to incentives or benefits, in particular with regard to so-called “minor non-monetary benefits” and the improvement of quality in non-independent investment advice and certain other investment services. Thus, for the time being, the relevant provisions in Art. 9 and 10 or Art. 11 and 12 of the Delegated Directive of April 7, 2016 shall apply.
  • The WpHG Employee Notification Ordinance is also no longer found in the RegE. In this respect, there had recently been discussions about, among other things, new requirements for employees in financial portfolio management.
  • Financial investment intermediaries must continue to wait to see in what form the new (minimum) requirements under Art. 3 para. 2 MiFID2 must be implemented in the GewO and the FinVermV. Due to its departmental responsibilities, the Federal Ministry for Economic Affairs and Energy (BMWi) is likely to be in charge in this respect.

The Bundestag and Bundesrat will deal with the RegE in the coming weeks and months. As is well known, the national legislative process must be completed by July 3, 2017.

You can find the draft of the 2nd FiMaNoG here.

We will be happy to support you in implementing the new requirements of the 2nd FiMaNoG. Contact us.


BaFin consults on capital investment circulars

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

The draft is addressed only to all companies licensed to conduct primary insurance business to which the provisions for small insurance companies (Sections 212 to 217 ISA) apply, as well as to domestic pension funds and pension funds. It regulates according to § 1 para. 5 AnlV the more detailed requirements for the provisions of the Investment Ordinance of April 18, 2016 and pursuant to § 16 para. 4 PFAV the more detailed requirements for the special provisions of Chapter 4 of the Pension Fund Supervision Ordinance of April 18, 2016.

The draft is intended to replace the previously applicable Capital Investment Circular 4/2011 (VA) dated April 15, 2011. In addition, Circulars 1/2002 (VA) of April 12, 2002 (GZ: Q 4-99/02) and 7/2004 (VA) of August 20, 2004 (GZ: VA 14-O 1000-200/04) are repealed with the new capital investment circular.

An der Konsultation kann man sich bis zum 31. Januar 2017 beteiligen.

You can find the draft here.


BaFin comments on ESMA Q&A catalog

In our December issue, we reported on the European Securities and Markets Authority’s (ESMA) November 16, 2016 update of the Q&A catalog on the AIFM Directive.

According to ESMA’s Q&A, outsourcing occurs when the manager of an alternative investment fund delegates functions listed in Annex 1 of the AIFM Directive to a third party. This would also include distribution.

BaFin has now taken a position on this vis-à-vis the fund industry. It confirmed its previous view that in the case of the distribution of investment shares by intermediaries, there is regularly no case of outsourcing.


BaFin circular on KAMaRisk published

In our November issue, we reported that BaFin had issued the circular on the minimum requirements for the risk management of capital management companies (KAMaRisk) for consultation.

On January 10, 2017, BaFin has now published the final circular, which replaces the predecessor circular, the “Circular on the Minimum Requirements for Risk Management for Investment Companies” (InvMaRisk).

Changes in content compared to the InvMaRisk relate in particular to the adjustment of supervisory practice to the Delegated Regulation to the AIFM Directive with regard to certain requirements on organization, risk management or outsourcing. Also included are minimum risk management requirements for capital management companies that grant money loans or invest in unsecuritized loan receivables for the account of the AIF.

With the exception of section 5 (item 5) on risk management when granting loans and investing in unsecuritized loan receivables, the requirements of KAMaRisk apply immediately. Section 5 shall enter into force 9 months after the publication of the circular.

You can find the KAMaRisk here.


BaFin consultation on further disclosures in the sales prospectuses of investment funds

On December 21, 2016, BaFin proposed to add clarifying information to the sales prospectuses of equity funds with regard to the use of indices or other reference values. For this purpose, it consults the draft of a corresponding pronouncement. Most recently, the Financial Supervisory Authority had investigated whether German equity funds are described in sales documents as actively managed, although they pursue a passive investment strategy (“closet index tracking”).

BaFin proposes to include the following points in the sales prospectuses:

  • Indication of whether the investment fund is actively managed by means of discretionary stock selection or whether the management of the investment fund is only intended to track an index.
  • A description of the investment strategy must be provided. In connection with the description of the investment strategy, the capital management company must state whether and to what extent its discretionary stock selection is carried out within the framework of active management. If a reference value is used, it must be named and an explanation must also be provided as to whether and how methods and processes can lead to the reference value being exceeded or fallen short of. In the event that no reference value is used for the management of the investment fund, the waiver of such reference value shall be explained.
  • If, for risk management purposes, the fund management is given guidelines on the maximum deviation from the performance of the reference value, the investor must be informed of this in the sales prospectus. The designation of a concrete current figure must then be made on the website of the capital management company. The investor shall be informed of the relevant Internet location in the sales prospectus.
  • A suitable graphical comparison of the performance of the redemption price of the fund and the corresponding reference value must be included in the sales prospectus. The presentation should be in the form of a chart or curve diagram over a period of ten years. If the investment fund has not yet existed for ten years, a correspondingly shorter period must be selected. If the investment fund has not yet been in existence for a full year, include a statement that sufficient data is not yet available to provide investors with useful information about past performance.

The sales prospectuses may be amended in accordance with the above requirements as part of the next upcoming amendment; however, these must be included in the sales prospectuses no later than June 30, 2017.

The consultation period ends on January 27, 2017.

The draft and more detailed information can be found here.

We will be happy to assist you in adapting the sales brochures. Contact us.

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Henning Brockhaus


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