On June 26, 2021, the new Securities Institutions Act will come into force. Asset managers and advisors need to prepare for implementation.

The German legislator has now reacted extensively to Directive 2019/2034/EU on the supervision of investment firms (so-called Investment Firms Directive, IFD), which was already published in the Official Journal of the European Union at the end of 2019. With the government draft of December 2, 2020, the IFD is to be implemented into German law by the Securities Institutions Act (WpIG).

The need for action for the addressed investment firms is urgent: already on June 26, 2021, the WpIG is to enter into force.

I. Scope of application of the WpIG

With the WpIG and the directly applicable Regulation 2019/2033/EU on prudential requirements for investment firms (so-called Investment Firms Regulation, IFR), the regulation and supervision of investment firms is now separated from the KWG and largely from the CRR and transferred to a separate, self-contained supervisory regime.

In the well-known diction of the Federal Ministry of Finance, the WpIG is to be geared to the standards of risk adequacy and proportionality as a further building block for the implementation of the Capital Markets Union. In the future, the new regime will therefore distinguish between three groups of investment firms, each of which will be subject to different levels of regulation:

• Large securities institutions that do not qualify as CRR credit institutions and are therefore not supervised by the ECB, but are still subject to the scope of application of the CRR due to their bank-like nature;
• Medium-sized securities institutions that, among other things, have assets under management of more than EUR 1.2 billion; and
• Small securities institutions that meet the dedicated requirements of Art. 12 IFR.

II. regulatory content and impact

Since the WpIG will in future provide an independent supervisory regime for securities institutions, the Act – comparable to the KWG – essentially regulates the entire range of prudential requirements of financial market intermediaries: from initial capital to additional capital requirements and outsourcing to remuneration systems.
Despite the many familiar building blocks, some of the implications of the new supervisory regime for different groups of investment firms are far-reaching and complex. For example, medium-sized securities institutions will have to adjust to fundamentally revised provisions on internal governance, disclosure and reporting requirements, and capital and liquidity requirements, while small and non-interconnected securities institutions will be able to benefit from numerous relief measures. Also, some modalities regarding the licensing of ancillary investment services and transactions, including the notification procedure in the context of cross-border service provision, are changing.

III. outlook

While the IFD and IFR have so far been sleeping beauty in national implementation, the stretch to the summer 2021 implementation deadline is now becoming short for affected asset managers and advisors. In addition to the design and implementation required by the WpIG, the numerous Level 2 and 3 measures at the European level must also be taken into account here. The European Banking Authority’s (EBA) Roadmap on Investments Firms, published in June 2020, provides for 23 Level 2 measures alone, in addition to the mandates enshrined in the IFD and IFR, to be rolled out in four phases by 2025.
We keep an eye on the new requirements for you and provide support both in national and cross-border licensing procedures under the new supervisory regime and in the classification, implementation and enforcement of the requirements of the WpIG. Feel free to contact us!