15.04.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 4/2015

Dear Readers,

in the shadow of MiFID II, the revised UCITS Directive (UCITS V) is approaching: In March 2016, i.e. in less than 11 months, the new regulations must come into force in Germany.

In July 2013, the German legislator already introduced some investor-protecting provisions of the AIFM Directive also for UCITS. But there is still work to be done.

Particular attention should be paid to the discussion on depositary independence requirements. Capital management companies whose depositaries belong to the same group are threatened with trouble here. This is because the demand for the almost complete unbundling of the depositary and the capital management company under company law is not yet off the table.

With warm regards

Henning Brockhaus


UCITS V is just around the corner

In view of the extensive discussions surrounding the revised Financial Markets Directive MiFID 2, UCITS V has recently taken somewhat of a back seat. And this despite the fact that the new regulations of the UCITS Directive have to enter into force in the member states already on March 18, 2016, i.e. in about 11 months.

In the course of implementing the AIFM Directive, the German legislator has already introduced many investor-protecting provisions of the AIFM Directive, which are now also the subject of UCITS V, into the KAGB for UCITS as well. These include, for example, rules on the safekeeping of assets, control obligations of the depositary, outsourcing of custody tasks to a sub-custodian, and remuneration rules.

UCITS V will, however, require adjustments beyond this. In particular, the regulations on the depositary are affected here. The revised directive brings innovations for liability in the case of sub-custody. In the future, a contractual exclusion or limitation of liability will no longer be possible for the depositary in the case of sub-custody of UCITS assets. In this respect, UCITS investors are more strongly protected than investors in an AIF.

In addition, it remains to be seen what criteria the European Commission will impose as requirements for the independence of the depositary. Please also refer to the supplementary article further down in this issue.

Also new are the authorities’ expanded sanction options. Thereafter, sanctions may also be directed against individual persons of the management body or against any other person responsible for a breach of regulatory provisions. Violations that may be sanctioned include:

  • repeated violations of investment limits;
  • false information in the course of the authorization as a capital management company;
  • Violations of notification requirements in the distribution of investment units in other member states;
  • repeated violations of information obligations towards the investor.

The UCITS V guideline can be found here.


New discussions about the independence of the depositary according to UCITS V

Not for the first time in the history of the UCITS Directive, the question of the requirements for the independence of the depositary is raised. Most recently, in the context of the amendment of the Investment Act in 2007, the question was discussed whether the principle of independence between the capital management company and the depositary laid down in the UCITS Directive did not require that the depositary may not belong to the same group.

ESMA had raised this issue again in a consultation paper dated September 26, 2014, proposing, among other things, an almost complete unbundling of the capital management company and the depositary under company law. However, in the Final Report of November 28, 2014, ESMA had dropped this strict requirement again.

According to informed circles, the European Commission has now recently taken up the issue again in its deliberations on ESMA’s Final Report. It is reported that consideration is being given to re-examining all options available to preserve the independence of the depositary. However, it remains to be seen whether this will result in a return to the proposals presented by ESMA in the consultation paper. We will keep you up to date.


ESMA publishes updated Q&A on the implementation of the AIFM Directive and on the KIID for UCITS

On March 26, 2015, the European Securities and Markets Authority (ESMA) again published an updated set of “Questions and Answers” (Q&A) regarding the implementation of Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD).

This includes updated and new Q&A’s on reporting, notification requirements, calculation of leverage, additional own funds and the scope of the AIFMD.

Among other things, ESMA clarifies that an AIFM that already manages an AIF in another Member State does not have to make a completely new marketing notification for another AIF it intends to manage in that Member State. In such cases, it should be sufficient to add the new AIF to be managed to the original distribution notice.

Also on March 26, 2015, ESMA published an updated Q&A catalog on the application of the Key Investor Information Document (KIID) for UCITS. In it, ESMA makes clear that in the event of a merger of two UCITS, the past performance of the fund that is ceasing to exist may be carried forward if

  • the receiving fund has been relaunched and
  • the merger does not affect the performance of the fund, for example through a change in investment policy.

The Q&A on the implementation of the AIFMD can be found here. The Q&A on the KIID is available here.


BMF publishes interpretative letter on Section 1 (1b) No. 3 Investment Tax Act

In March 2015, the German Federal Ministry of Finance (BMF), in consultation with the supreme tax authorities of the German states, published a letter on various questions of interpretation regarding Section 1 (1b) No. 3 InvStG.

In the letter, the BMF comments on the following topics, among others:

  • Clarification of the characteristics of the investment fund concept
  • Differentiation of a commercial activity from an asset management activity;
  • Distinction between entrepreneurial management and asset management in the context of securities transactions;
  • Participation in active management in the context of corporate investments;
  • Peculiarities of real estate investment through open-end real estate funds, individual issues concerning rental activity and sale of real estate.

The interpretative letter is applicable for the first time to the fiscal year of an investment fund beginning after the publication of the letter.

You can find the BMF’s interpretative letter here.


BaFin revises FAQ on the distribution and acquisition of investment assets under the KAGB

On March 20, 2015, BaFin published a revised version of the FAQ on the distribution and acquisition of investment assets under the KAGB.

The following statements in particular are new:

  • The acquisition of units or shares in an investment fund by an asset manager for clients shall be considered as distribution of units or shares in an investment fund within the meaning of Section 293 KAGB; in the case of (semi-)professional investors, this shall only apply if the acquisition is made on the initiative or on behalf of the management company.
  • When AIFs are marketed to (semi-)professional investors by an EU AIF management company, a marketing notification does not have to be filed for each AIF that is to be marketed in the domestic market. § Section 330a KAGB is to be interpreted in such a way that it is sufficient that a registered EU AIF management company only has to indicate that it wishes to market the AIFs it manages in Germany. However, a prerequisite for the completeness of the notification is that at least one AIF that is to be marketed in Germany is named in the notification.
  • In accordance with Section 297 of the German Investment Code (KAGB), the sales documents must also be made available to the customer in non-advisory business. Something else can only apply if the management company did not have the opportunity to provide the customer with the sales documents before the customer placed the order and cannot be accused of doing so. This is the case, for example, when placing an order by e-mail, letter or fax. Under certain narrow conditions, the transmission of sales documents may also be waived in the case of orders placed by telephone.

You can find the FAQ of BaFin here.

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Henning Brockhaus


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