15.09.2015 | KPMG Law Insights

Investment Law – Investment | Law | Compact – Issue 9/2015

Dear Readers,

things are pretty quiet on the regulatory front these days. But we are expecting the delegated acts (Level 2) of the Financial Markets Directive MiFID II shortly.

In addition, the government draft of the UCITS V Implementation Act, which amends the KAGB, is still pending. So far, there is still “only” a draft bill.

The time to implement the changes brought about by UCITS V is short. In addition to the investment terms and conditions of the UCITS, the implementation work will also focus in particular on the new regulations on the depositary. For instance, all UCITS depositary contracts must be amended.

You guessed it: KPMG Law will again be happy to assist you in this respect.

With warm regards

Henning Brockhaus


Update on loan funds

In our July issue, we reported on the UCITS V referendum draft and the amendments it contains on lending and managing loans in funds. Many market participants and associations have now commented on the draft bill. In addition to fundamentally positive reactions, two points of criticism in particular are highlighted:

  • Open-ended special AIFs (alternative investment funds) may only invest up to 50% of their value in unsecuritized loan receivables. It was not until 2007 that the legislator introduced the possibility of acquiring loan receivables. Special funds have so far been able to invest up to 100% of their value in this asset class. From the point of view of the associations, there is no reason, based on the experience gained with this product category in recent years, to now impose a restriction to only 50% of the fund assets. The insurance industry in particular fears an unnecessary national go-it-alone with the danger that institutional investors could switch to Luxembourg fund products. In GDV’s view, even the politically desired infrastructure financing by institutional investors could ultimately be thwarted.
  • The granting of loans to companies in which a closed-end AIF holds an interest (shareholder loans) is to be subject to a limit of 30% of the fund’s capital. This does not appear to be appropriate, as the shareholder loan does not increase risk compared to loans to third parties, but rather reduces risk. The higher the participation of the closed-end AIF in the company, the less the granting of shareholder loans is economically comparable to the granting of loans to third parties. Industry associations are therefore calling for closed-end special AIFs to be able to grant unlimited shareholder loans to companies in which they hold an interest.

We will continue to monitor the legislative process and keep you informed of its progress.


Time pressure in the implementation of UCITS V depositary agreements

In our August issue, we already referred to the upcoming changes to investment conditions and the time pressure resulting from the short implementation period.

In addition to the investment conditions, other documents have to be adapted, which again increases the implementation effort. The UCITS depositary agreements also require renegotiation. Deviating from the previous provisions of the KAGB, UCITS V introduces the prohibition of an exclusion of liability in case of sub-custody. In the future, the UCITS depositary may no longer contractually transfer liability to the sub-depositary.

By the beginning of March 2016, all UCITS depositary contracts must have been adapted. Revision and negotiation of depository contracts should therefore be initiated soon.

KPMG Law will be happy to assist you in adapting and negotiating depositary agreements. Feel free to contact us.


Update: Continued wait for delegated acts for MiFID 2

Market participants continue to wait for the delegated acts and technical standards for the revised Financial Markets Directive MiFID 2. After it was last said that the texts could be published in September, it is currently hardly possible to make a forecast.

Behind the scenes, the ESMA proposals presented at the end of December 2014 are still the subject of controversial debate. In addition to fundamental points of content (for example, the concrete design of the future funding regime), important formal issues are at stake, such as whether the Commission should publish the delegated acts in the form of an implementing directive or an implementing regulation (or, if applicable, several of each).

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Henning Brockhaus


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