Investment Funds Update - Europe: Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles - October 2016 - Issue 8: Germany


Dechert LLP

Exception from the License Requirement for Investment Intermediaries in the Future Only in Case of a First Public Offer of Investment Assets (Vermögensanlagen)

As of 31 December 2016, investment advisors and intermediaries, which exclusively provide investment advice and investment intermediation with regard to certain financial instruments (Vermögensanlagen) in the meaning of section 1 (2) of the Asset Investment Act (Vermögensanlagegesetz) (e.g., shareholder loans, subordinated loans, profit participation rights, registered bonds) are only exempt from the license requirement pursuant to section 32 of the German Banking Act (Gesetz über Kreditwesen) in case of the initial public offering. Especially intermediaries and secondary market platforms, which provide their services in the secondary market are affected by this modification. The legal basis for this modification is the First Act Amending Financial Market Regulations (Erstes Finanzmarktnovellierungsgesetz) which changed the exception for intermediaries and issuers of investment assets pursuant to section 2 (6) sentence 1 number 8 lit. e of the German Banking Act. The BaFin guidance on this subject has also been updated accordingly.

Read the updated guidance here (in German).

BaFin Updates FAQ on the Investment of Own Funds of German Fund Management Companies According to Section 25 (7) KAGB

The German Financial Supervisory Authority BaFin updated its FAQ on 31 August 2016, on the requirements of the investments of own funds by German Fund Management Companies. Section 25 (7) of the German Investment Code (Kapitalanlagegesetzbuch - KAGB), implementing Art. 9 (8) AFMD, provides that own funds shall be held in liquid assets or assets readily convertible to cash in the short term and shall not include speculative positions. BaFin has now clarified that “speculative positions” include shares or units in funds that use leverage on a substantial basis in the meaning of section 283 KAGB (Art. 111 Level 2 Regulation) which is why an investment in hedge funds is not deemed compliant with section 25 (7) KAGB. BaFin furthermore states that not only investments in hedge funds are deemed speculative positions but also any investment in an investment fund whose exposure calculated in accordance with the gross method exceeds its NAV by two times are speculative positions and therefore not in compliance with the KAGB.

Read the updated FAQ here (in German).

Federal Ministry of Finance Consults Draft Second Act Amending Financial Market Regulations (Zweites Finanzmarktnovellierungsgesetz)

The Second Act Amending Financial Market Regulations (Zweites Finanzmarktnovellierungsgesetz - 2. FiMaNoG) will primarily change the Securities Trading Act (Wertpapierhandelsgesetz) and will, inter alia, implement MiFID II and MiFIR in Germany. For German MiFID regulated entities and German Fund Management Companies providing MiFID regulated investment services in Germany (i.e., individual portfolio management, investment advice, management of accounts, intermediation of investments in financial instruments), the 2. FiMaNoG will, inter alia, cover the following MiFID II requirements: general rules of conduct for investment services including investment advice and portfolio management and provisions regarding the disclosure of costs, inducements and research and recording obligations when handling client orders. Furthermore, the draft bill is making use of the possibility provided in the MiFID II Level 2 Directive to expand the presumptive examples for inducements: according to the draft bill, inducements enhance the quality of the service to the client if the access to investment advice services is facilitated and ensured in particular in rural regions, for example through the establishment of local branches.

Read the draft bill here (in German).

Latest Investment Fund Statistics for Germany 

The German Investment Fund Association BVI has issued its latest investment statistics report dated July 2016, giving an overview of the net assets and net sales within the German investment fund and asset management markets. The statistics are broken down by asset class and provider. They provide information on net assets and net inflows of investment funds and assets outside investment funds.

The statistics are available here.

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