16.10.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 10/2015

Dear Readers,

The Federal Cabinet has meanwhile published the government draft of the UCITS V Implementation Act. There is not much time left – on March 18, 2016, the new law must come into force.

The government draft contains a whole series of changes compared to the July draft bill – but unfortunately not only positive ones: The draft law no longer includes the restructuring of unsecuritized loan receivables among the activities that a capital management company is allowed to provide as part of collective asset management for open-ended special AIFs. We have outlined these and some other significant innovations for you in more detail below.

Now the Bundestag will deal with the draft law. However, we do not expect it to be promulgated in the Federal Law Gazette before the end of the year.

With warm regards

Henning Brockhaus

National legislation

Government draft of the UCITS V Implementation Act published

On September 23, 2015, the German Federal Cabinet published the government draft of the UCITS V Implementation Act. This contains some changes compared to the draft bill from July 2015. We present the key points from our point of view:

1. open-ended special AIFs – light and shade for unsecuritized loan receivables

BaFin’s administrative practice of allowing open-ended special AIFs to change the terms and conditions of unsecuritized loan receivables during the term of the loan, which was only amended in May, is not to be enshrined in law after all. The draft bill had initially followed the new administrative practice of BaFin and had not considered restructurings and prolongations of the loan as granting of loans according to the KWG, but as part of collective asset management according to the KAGB. Due to an addition in section 20 (9) sentence 2 of the draft KAGB, this option is now deleted again for open-ended special AIFs and remains reserved for closed-ended AIFs only. It is likely that BaFin will now revise its amended administrative practice on this point. While it could be argued against, the new view reflects the European view on this asset class. However, the supervisory authority had remarkably justified its new administrative practice with the then planned changes to the KAGB – which are now not to take place according to the government draft.

In the case of unsecuritized loan receivables, however, there is also a positive change: the limit of 50% of the value of a special AIF for investment in unsecuritized loan receivables, which was only newly introduced in the draft bill, has been removed again. The first draft had introduced this restriction as a risk mitigation measure in the course of legalizing restructurings of loan receivables. According to the government draft, open-ended special AIFs may now continue to invest up to 100% of their value in unsecuritized loan receivables.

2. closed-end AIF – granting of shareholder loans facilitated

Closed-end special AIFs may now grant loans of more than 30% of their fund assets to companies in which the closed-end special AIF holds an interest (shareholder loans), if a subordination is agreed for the loan and if the closed-end special AIF does not itself borrow more than 30% of its capital.

The possibility of granting shareholder loans is now also opened up to open-end special AIFs and closed-end public AIFs. The same conditions apply as for closed-end special AIFs.

3. implementation period for public AIFs

The government bill also brings a technical relief. Public AIFs do not have to be converted to the requirements of the UCITS V Implementation Act already on September 18, 2016, but only on March 18, 2017. In addition, changes to the investment conditions other than those required for adaptation to the new KAGB may also be made in this course.

The government draft of the UCITS V Implementation Act can be found here.


BaFin publishes new depositary circular

On October 7, 2015, BaFin published Circular 08/2015 (WA) – Tasks and Duties of the Custodian pursuant to Chapter 1 Section 3 of the German Investment Code (KAGB), which replaces Circular 6/2010 (WA) on the Tasks and Duties of the Custodian pursuant to Sections 20 et seq. InvG dated July 2, 2010.

The new depositary circular specifies the depositary’s duties according to the KAGB and the AIFMD Level 2 Regulation, but does not yet contain those contents which the UCITS V Implementation Act will entail. BaFin therefore announces several times in the circular that the same will be adjusted after the UCITS V Implementation Act enters into force.

The depository circular can be found here.


Updated Q&A Catalog on the AIFM Directive Published

The European Securities and Markets Authority (ESMA) published an updated Q&A catalog on the applicability of the AIFM Directive on October 1, 2015.

Added a question on the transfer of the depositary’s custody function to a CSD in accordance with Regulation 909/2014 of the European Parliament and of the Council.

ESMA clarifies that also a CSD to which the depositary has delegated the safekeeping of assets of an AIF has to comply with the rules of Article 21(8) of the AIFM Directive on safekeeping of assets. The Central Administrator is also considered a “third party” within the meaning of Article 21(11) of the AIFM Directive.

In addition, the depositary may also delegate the custody function to a central administrator only under the conditions set out in Article 21(11) of the AIFM Directive.

ESMA’s updated Q&A can be found here.


ESMA publishes Technical Standards on MiFID2/MiFIR

On September 29, 2015, ESMA published its final drafts of a number of Technical Standards to further specify MiFID2 and MiFIR and submitted them to the EU Commission.

The Final Report of ESMA (2015/1464) including Annex I and Annex II contains 28 Technical Standards, 27 of which are Regulatory Technical Standards (RTS) and one Implementing Technical Standard (ITS). The new extensive papers (totaling 1532 pages in English) are based on previous consultations and ESMA’s discussion papers or consultation papers of May and December 2014 and February 2015.

The vast majority of the Technical Standards (26 out of 28) relate to trading and market topics, the other two Technical Standards specify investor protection rules (concerning information to be published in the context of best execution, see Art. 27 para. 10 MiFID2).

All 28 Technical Standards have the legal form of a – directly valid and applicable – EU regulation.

The draft Technical Standards presented today were originally due for completion by July 3, 2015. ESMA and the EU Commission had agreed in the meantime that an early legal review by the EU Commission should take place first and that the publication of the drafts would be postponed until the end of September 2015.

The EU Commission now has another three months to review the drafts and then formally adopt them. In addition, delegated acts of the EU Commission on investor protection topics are still expected.

ESMA’s press release with links to the texts can be found here.


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Henning Brockhaus


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