General Administrative Act to Ensure Legal Certainty for Netting Agreements in the Scope of German Insolvency Law
As of June 9th 2016 BaFin issued a General Administrative Act to ensure legal certainty for netting agreements in regard of German insolvency law. BaFin is reacting to a Court ruling on that same day (9 June 2016) of the Federal Court of Justice (Bundesgerichtshof – BGH).
The decision of the BGH ruled that German law governed settlement arrangements in option transactions which are in contradiction to the German Insolvency Code (Insolvenzordnung) are invalid.
Contractual netting agreements underlying the matter ruled on by the BGH are used in numerous master agreements. They are model clauses which are not only used in the German master agreement ruled on by the BGH but in the same or a slightly altered form in numerous other model agreements as well. These model clauses are intended for model master agreements such as those issued by the International Swaps and Derivatives Association (ISDA). BaFin as well as market participants assume that this type of contractual clauses are used in a very high number of contracts which are subject to the InsO in the case of insolvency.
Given that the consequences of the BGH's decision cannot yet be conclusively estimated and that this raises many open questions regarding the application of European legal provisions which could lead to significant uncertainty for financial market participants and thus to a loss of confidence in the proper functioning of financial markets, BaFin in consultation with the Deutsche Bundesbank therefore has decided to issue a preliminary General Administrative Act in order to prevent such an undesirable development.
BaFin takes the view that a possible invalidity of contractual netting agreements might contravene amongst others with Article 7(1) of Directive 2002/47/EC ("Financial Collateral Arrangements Directive"). Pursuant to this, the Federal Republic of Germany would be obliged to ensure that a close-out netting provision based on a contractual agreement can take effect in accordance with its terms notwithstanding the commencement of insolvency proceedings in respect of a counterparty. The Financial Collateral Arrangements Directive was transposed into German law by the German Act Transposing Directive 2002/47/EC of 6 June 2002 on Financial Collateral Arrangements and Amending the Mortgage Bank Act and other Acts of 5 April 2004.
In order to combat uncertainty arising BGH’s ruling, BaFin has issued a General Administrative Act with the ordinance that netting under the existing master agreements which fall under the scope of this administrative act must be carried out in accordance with the wording of the contractual agreements until further notice.
Read the General Administrative Act by BaFin.
BaFin Suspicious Transaction Order Reporting
The requirement to report suspicious orders and transactions to the competent authorities as set out in Art. 16 of the European Market Abuse Regulation (EU) No. 596/2014 becomes effective on 3 July 2016 and replaces the respective national notification obligations pursuant to Sec. 10 of 9 June of the German Securities Act (Wertpapierhandelsgesetzbuch –WpHG).
As of 9 June, 2016 BaFin expects that the future notifications (so called "Suspicious Transaction and Order Reports", - STORs) shall be provided electronically. For this reason BaFin facilitates a new electronic reporting channel within the already existing MVP-Portal. During a workshop in Frankfurt BaFin answered several questions in regard of access to the MVP-Portal and how to register for STORs.
View the presentation from the BaFin STOR Workshop 2016 (in German).
Latest Investment Fund Statistics for Germany
The German Investment Fund Association BVI issued its latest investment statistics report in June 2016. The report provides 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.
