16.11.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 11/2015

Dear Readers,

In October, the German legislator presented a draft bill for a Financial Market Amendment Act (FimanoG). This represents an important step towards the national implementation of various European legal acts, in particular MiFID2/MiFIR.

The situation at European level remains exciting. In addition, level 2 measures for MiFID2/MiFIR will be discussed there. As of last week, these discussions also extend to the timing of the entire regulatory framework (or at least parts of it) taking effect.

The implementation of the UCITS V regulations in Germany is now also entering the decisive phase. The legislator is working on the final regulations and market participants are requested to adapt investment conditions, sales prospectuses and depositary agreements to the new requirements.

With warm regards

Henning Brockhaus

National legislation

Draft bill for a Financial Market Amendment Act (FimanoG) has been submitted

On October 16, 2015, the German Federal Ministry of Finance (BMF) sent the draft bill for a Financial Market Amendment Act (FimanoG) to affected market participants and associations and requested written comments on it. The deadline for comments was November 13, 2015.

The FimanoG serves to implement a number of European legal acts, in particular MiFID2 and MiFIR.

Although further concrete measures are still pending at EU level, an important step has thus been taken in the context of national implementation legislation. The present draft bill comprises 263 pages (including explanatory memorandum). In particular, the German Securities Trading Act (WpHG) is to be largely revised and expanded, and will be completely renumbered in the process. The rules of conduct and organizational duties of Sections 31 et seq. WpHG (Section 6) will in future be found, for example, in Sections 57 et seq. WpHG-neu (Section 12).

With regard to the implementation of MiFID2 and MiFIR, the following points – primarily relating to investor protection and securities distribution – are likely to be of particular interest (without claiming to be exhaustive):

  • BaFin’s power of product intervention (Section 4b WpHG; in future Section 8 WpHG-neu), recently introduced as part of the Small Investor Protection Act, will be limited to asset investments; in all other respects, the rules of MiFIR will apply in future.
  • According to the basic standard of the rules of conduct (Section 31 (1) no. 1 of the German Securities Trading Act (WpHG)), investment services were previously to be provided “in the interest” of customers. The revised provision (Section 57 (1) sentence 1 no. 1 WpHG-neu) now refers to the “best possible interest” of customers.
  • In connection with this, with regard to the handling of conflicts of interest, the (primary) obligation to avoid them (and not merely to disclose them) is emphasized more strongly (see Sections 31 (1) No. 2, 33 (1) Sentence 2 No. 3 WpHG on the one hand, Sections 57 (1) Sentence 1 No. 2, 68 (1) Sentence 2 No. 2 WpHG-neu on the other).
  • The MiFID2 rules on independent investment advice are to be incorporated into the national concept of fee-based investment advice introduced two years ago (cf. Section 57 (7) No. 1, (14) WpHG-neu).
  • The previous advisory protocol under national law (Section 34 (2a), (2b) WpHG) will be replaced by the so-called declaration of suitability under MiFID2 (see Section 57 (12) WpHG-new). The new record-keeping requirement for telephone calls and electronic communications is set out in section 71 para. 3 and 4 WpHG-neu, whereby in this context a written protocol obligation is provided for “personal conversations” (see section 71 (3) sentence 6 WpHG-neu).
  • The provisions of Section 31d of the German Securities Trading Act (WpHG) will remain largely unchanged (see Section 61 of the new WpHG). Here, too, the term “best possible interest” of the customer will be used in the future, and the disclosure is now to be “unambiguous” (previously: “clear”).
  • The basic rules on product governance (Section 33 (3b), (3c) and (3d) of the German Securities Trading Act (WpHG)), which have also already been laid down by the German legislator in the context of the Small Investor Protection Act, will in future be set out in Section 68 (3c) of the German Securities Trading Act (WpHG). 8, 9 and 10 WpHG-new, combined with some changes to the wording.
  • The exemption provisions for contractually bound intermediaries (Section 2 (10) KWG, Section 2a (2) WpHG) and financial investment intermediaries (Section 2 (6) sentence 1 No. 8 KWG, Section 2a (1) No. 7 WpHG) are basically retained (see, inter alia, Section 3 (2) and Section 3 (1) No. 7 WpHG-new). Accordingly, the activities of financial investment intermediaries will continue to be subject to the provisions of the Gewerbeordnung (GewO) and the Finanzanlagenvermittlungsverordnung (FinVermV).The draft also provides for amendments to the KAGB for the purpose of adapting it to the PRIIPs Regulation. Here, BaFin is granted powers of intervention in the event that market participants do not comply with the requirements of the PRIIPs Regulation. For the time being, however, this only applies to special AIFs marketed to semi-professional investors, European long-term investment funds (ELTIF), European venture capital funds (EuVECA), and European social entrepreneurship funds (EuSEF). UCITS and retail AIFs do not yet have to comply with the provisions of the PRIIPs Regulation until December 31, 2019.The text of the draft bill can be found at here.

Revised General Terms and Conditions of Investment for UCITS Special Assets

In October, the BVI published the amended model terms and conditions of investment for UCITS special funds, which were coordinated with BaFin. Various new requirements of the UCITS V Implementation Act made it necessary to revise the fund regulations. The General Terms and Conditions of Investment have been amended mainly in the following respects:

  • No transfer of liability to sub-custodians by the depositary: The UCITS depositary regulations no longer contain the option for the depositary to agree on a transfer of liability to sub-custodians for lost assets. The background to this is the deletion of paragraphs 4 and 5 in Section 77 KAGB-E, which currently still allow a shift in liability.
  • Change of capital management company: The capital management company may directly transfer the management of the investment fund to another capital management company with the approval of BaFin. The basis for this change is the newly inserted Section 100a KAGB. The previously only way to transfer management to another capital management company (termination of management of the investment fund and transfer of management by the depositary to the other capital management company) is thus no longer necessary, but is still available.
  • Global certificates of unit certificates: In the future, investors will no longer be entitled to individual securitization. The rights of investors can now only be securitized in a global certificate.

We will be happy to support and advise you on any implementation measures that may arise. Feel free to contact us.


ESMA publishes responses to consultation on guidelines on remuneration rules under UCITS and AIFM Directive

On October 29, 2015, the European Securities and Markets Authority (ESMA) published the responses to the consultation “Guidelines on sound remuneration policies under the UCITS Directive and AIFMD” from July 2015.

The consultation with the guidelines and all answers can be found here.

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