15.07.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 7/2015

Dear Readers,

At the beginning of July, the Federal Ministry of Finance published the long-awaited draft of a UCITS V Implementation Act. The draft does not only contain contents already known from the renewed directive. Rather, the legislator is using this opportunity to revise the KAGB in other places. We present the main topics in this issue.

We would also have liked to report news from the MiFID 2 front, as we had actually expected the delegated acts prepared by ESMA at the end of June. Now, however, publication is delayed because the drafts are still the subject of controversial discussions at EU level (Commission, Council and Parliament).

We will keep you up to date.

With warm regards

Henning Brockhaus

Federal legislation

UCITS-V draft law published

On July 3, 2015, the Federal Ministry of Finance published a draft bill on the UCITS V Implementation Act. The primary background is to implement the contents of Directive 2014/91/EU (UCITS V) into national law. In addition, the legislator takes the opportunity to make further amendments, clarifications and additions at the same time.

The adjustments are primarily implemented in the German Investment Code (KAGB). We would like to highlight the following points:

1st UCITS V implementation


Within the scope of the implementation of UCITS V, the legislator has to transfer in particular the regulations on remuneration, depositary and sanction possibilities into national law. Specifically, the bill contains the following changes:


In the future, UCITS KVGs are to introduce remuneration systems in the same way as AIF KVGs. For many market participants, this should not be a major innovation, as they have already introduced these regulations as a whole as part of the AIFMD implementation: AIF KVGs that are also UCITS KVGs would already have to have established a remuneration system according to the AIFM standard.


With the AIFMD Implementation Act (AIFMD-Umsetzungsgesetz), the German legislator already implemented many provisions of the AIFM Directive for UCITS in July 2013 – including provisions relating to the depositary. Many of the provisions of UCITS V concerning the depositary are already applicable law in Germany.

Nevertheless, UCITS V contains further tightening compared to the AIFMD Directive. Thus, UCITS V introduces the prohibition of a disclaimer in case of sub-custody. The UCITS depositary may not transfer liability to the sub-depositary.

In addition, the draft law contains detailed provisions on the type of custody of individual assets. In addition, the reuse of assets belonging to mutual funds (UCITS and AIF) is now regulated: This is now only possible under certain conditions.

Expansion of the catalog of penalties and fines

The catalog of penalties and fines is significantly expanded. The following points are newly included:

Violations against

  • Behavioral and organizational duties;
  • certain information requirements;
  • lack of information on outsourcing in the sales prospectus;
  • Duties of the depositary, such as proper safekeeping, listing of assets, control duties;
  • Publication obligations, such as issue or redemption price or net asset value;
  • Requirements for derivative transactions including requirements of the DerivateV.

In the event of certain violations, BaFin may also prohibit the responsible board member or managing director or other responsible person from continuing to perform management duties in KVGs or other institutions in the financial sector.

2. changes in the loan funds area

As already reported in our May issue, BaFin already amended its administrative practice on May 12, 2015 with regard to the expected UCITS V – Implementation Act, thus paving the way for a more practice-oriented “handling” of unsecuritized loan receivables.

The present bill now legalizes this administrative practice. It contains proposals for an amended statutory regulation on the basic granting of loans and on the possibility of restructuring measures in the management of unsecuritized loan receivables by the KVG.


Until now, lending for the account of a fund was only possible in very few individual cases, such as the shareholder loan in real estate funds. However, AIF-KVGen should be able to grant loans in the future, at least for the account of closed-end special AIFs.

To this end, the managing KVGs must, in particular, establish an appropriate organizational and operational structure, procedures for the early identification of risks and procedures for the classification of risks; in addition, an appropriate liquidity management system must be established.

Lending shall continue to be prohibited for open-ended AIFs and UCITS.

Restructuring of unsecuritized loan receivables

The restructuring of unsecuritized loan receivables is also to be permitted in the future.

However, the draft imposes some new requirements on the acquisition of unsecuritized loan receivables. Now, the legislator limits the acquisition of unsecuritized loan receivables by open-ended special AIFs to 50 percent of the value of the special AIF. On the other hand, AIFs that invest in unsecuritized loan receivables must also comply with certain requirements regarding the organizational structure and processes, procedures for the early identification and classification of risks.

3. share certificates

Share certificates made out to the bearer shall not be issued more than effective units. This exclusion shall be set forth in the terms and conditions of investment. The background to these regulations is the implementation of the FATCA agreement between Germany and the USA. Effective pieces are to become invalid at the end of December 31, 2016.

4. transfer of a fund to another KVG


With the insertion of the new section 100a KAGB, it is now to be possible to transfer the right of management and disposal of a fund to a new KVG without giving notice. Currently, a fund can only be transferred if the KVG first terminates the management right and the depositary transfers the management of the fund to a new KVG.

Previously, a notice period of at least six months had to be waited before the depositary could transfer the management of the fund to the new KVG. According to the draft law, the transfer may be executed with the approval of BaFin three months after the transfer is announced in the Federal Gazette. Here, the legislator is meeting a practical need for more efficient administration without neglecting investor protection.

Federal legislation

Retail Investor Protection Act published in the Federal Law Gazette

On July 9, 2015, the Small Investor Protection Act was published in the Federal Law Gazette. The law largely entered into force the day after its promulgation. In deviation from this, some amendments to the German Securities Prospectus Act will not enter into force until January 1, 2016. Changes to the WpHG that are already being made with regard to MiFID 2, such as regulations on product governance, will not take effect until January 3, 2017.

You can find the Retail Investor Protection Act here.


Consultation on the investment of own funds pursuant to § 25 para. 7 KAGB

On June 17, 2015, BaFin published a draft FAQ on investment of own funds pursuant to section 25 para. 7 KAGB for consultation.

For background: According to § 25 para. 7 KAGB, the own funds of a KVG must either be held in liquid assets or invested in assets that can be directly converted into bank deposits in the short term and do not contain speculative positions. With this provision, the legislator has amended Art. 9 para. 8 of the AIFM Directive (2011/61/EU) transposed. The requirements of § 25 para. 7 KAGB must be complied with by both AIF and UCITS KVGs.

The catalog of FAQs presented is not exhaustive, but is to be continuously updated and supplemented with further questions.

In the present FAQ, BaFin clarifies, among other things, that the requirements of section 25 para. 7 KAGB only apply to the minimum own funds to be held in accordance with section 25 KAGB. Furthermore, questions of principle regarding the undefined elements of the offense in Section 25 para. 7 KAGB, such as “liquid assets”, “speculative positions” or the characteristic of “short-term” with regard to various assets. In addition, the supervisory authority takes a position on the specific investment option for own funds, for example in (fund of) hedge funds or futures or options transactions.

Comments on the draft can be submitted until July 16, 2015. Consultation is carried out only by written procedure. According to BaFin, a subsequent hearing is not planned.

The BaFin consultation can be found here.


IOSCO launches consultation on costs and fees for funds

The International Organization of Securities Commissions (IOSCO) is reviewing the international standards for fund costs and fees published in 2004. The 2004 paper makes some recommendations on international standards on best practices for asset managers and regulators.

The current consultation is intended to re-examine the standards set at that time and revise them if necessary.

Among other things, IOSCO discusses the following in the consultation paper:

  • Guidance on costs and fees that cannot be deducted from fund assets;
  • a list of costs and fees that may or may not be deducted from the fund’s assets;
  • Approval requirement of authorities for new types of costs and fees;
  • Specifications for performance fees, such as their calculation method;
  • precise definition of costs to be classified as transaction costs.

Comments can be submitted until September 23, 2015.

The consultation paper can be found here.

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Henning Brockhaus


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