Investment Funds Update – Europe: Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles - Issue 11, 2019: Germany

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Law amending Financial Market Laws to Regulation (EU) 2017/2402 and Regulation (EU) No 575/2013 as amended by Regulation (EU) 2017/2401 published in the Federal Law Gazette

The Law amending Financial Market Laws to Regulation (EU) 2017/2402 and Regulation (EU) No 575/2013 as amended by Regulation (EU) 2017/2401, by which different financial market laws have been adapted to EU securitization legislation was published in the Federal Law Gazette on December 21, 2018. The law, which is in force since 1 January 2019, contains i.a. adjustments to the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB), the German Banking Act (Kreditwesengesetz – KWG), the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG)  with regard to the STS Securitization Ordinance, which also applies since the beginning of the year, and the amending Regulation on prudential requirements for credit institutions and investment firms. Relevant changes amending the Capital Investment Code refer to the adjustment of the term "significant participation" in a management company to the requirements of Directive 2009/65/EC, which also creates a synchronism with the parallel provisions in the KWG and the VAG. In addition to that, also the application procedure for the authorization and amending of the investment conditions has been simplified, as the procedure for the authorization and the amendment of the investment conditions no longer needs to be signed by the directors, but can also be provided by authorized representatives.

German Federal Ministry of Finance consults on MiFID II/MiFIR until 15 March 2019

The German Federal Ministry of Finance (Bundesfinanzministerium – BMF) has launched a consultation regarding the provisions of MiFID II (Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU) and MiFIR (Regulation (EU) No 600/2014 on markets in financial instruments and amending Regulation (EU) No 648/2012), which have been implemented in German law and in effect since January 2018.

The objective of the consultation is to obtain an overview of the experience gained by financial institutions, market operators, issuers and investors with the MiFID II/MiFIR provisions and to analyze any needs for amendments. All submissions will be forwarded to the EU Commission. According to the BMF, initial comments refer to an inadequate interlocking of the MiFID II/MiFIR with other national and European provisions, in particular with the PRIIPS Regulation (Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products).

The BMF will accept written comments until 15 March 2019.

Federal Financial Supervisory Authority published a draft general directive prohibiting the marketing, distribution and sale of binary options to retail clients

The Federal Financial Supervisory Authority (BaFin) published a draft general directive on November 29, 2018 prohibiting the marketing, distribution and sale of binary options to retail investors. The marketing, distribution and sale of binary options to retail investors is already prohibited in the European Union following a temporary measure by the European Securities and Markets Authority (ESMA). BaFin is preparing for the expiry of ESMA's product intervention measure with this general ruling. Their ban on the sale of binary options to retail investors was extended by decision of ESMA from 01 October 2018 to 1 January 2019. 

Binary options are generally marketed, distributed and sold electronically via internet platforms. The number of investors investing in binary options is difficult to quantify due to the often relatively short life span of client accounts for binary options and the cross-border dimension of activities. ESMA had estimated before the adoption of its Decision (EU) 2018/795 of 22/05/2018 on the basis of the data it had received from a number of national competent authorities that the number of retail accounts of retail investors of CFDs (Contracts for Difference) and binary options based in the EEA has risen from 1.5 million in 2015 to approximately 2.2 million in 2017. With regard to the planned prohibition, BaFin states that it sees significant risks and therefore investor protection concerns with regard to binary options, as these are complex and not very transparent. 

By 20 December 2018, market participants could comment in writing on the draft General Provisions.

Brexit: Frankfurt attracts more firms than expected

Felix Hufeld, president of Germany’s Financial Supervisory Authority BaFin, said at the regulator’s New Year reception that “more than 45 financial services firms are in the process of establishing or significantly expanding their presence in Germany.”

He told guests at the event that this “can in all modesty be understood as a vote of confidence in the work of BaFin," according to the German newspaper Handelsblatt. The publication says the figure is higher than expected. A report published by Frankfurt-based public-sector bank Helaba last autumn showed that 25 firms had decided to set up a new base or expand their existing sites in Germany’s financial capital in order to protect their businesses against the UK’s planned exit from the EU. The German newspaper Frankfurter Allgemeine Zeitung reports that BaFin’s figure of over 45 exceeds the around 30 that was recently announced by local lobby group Frankfurt Main Finance.

Investment statistics as of 16 January 2019

The German Investment Fund Association BVI has issued its updated funds raising report as of January 16, 2019. 

From the beginning of January to the end of November 2018, investment funds in Germany collected EUR 100.7 billion net in new money. Fund sales are therefore at the level of the preceding years, with the exception of the two record years of 2015 (EUR 193 billion in inflows) and 2017 (EUR 160 billion in inflows). Apparently, new business in the current year 2018 is significantly lower in other European countries. Funds launched in Europe raised EUR 275 billion net by the end of October 2018, with the German sales market contributing approximately 31 percent of this volume. During 2017, Germany’s share stood at 17 percent (or EUR 163 billion of EUR 949 billion over the period from the beginning of January to the end of December). Open-ended special funds remain the stable linchpin of inflows in Germany. Institutional investors, such as retirement benefit schemes and insurance companies, invested new money to the tune of EUR 76.3 billion net in these funds by the end of November 2018. Open-ended retail funds attracted EUR 22.9 billion in fresh capital, with balanced funds alone raising EUR 21.6 billion. Property funds collected EUR 5.7 billion. Other segments, such as bond funds, registered outflows. November saw retail funds’ new business characterized by inflows into money market funds for institutional investors. Closed-ended funds brought in EUR 1.6 billion during the current year 2018. Institutional investors withdrew EUR 27.6 billion from discretionary mandates. As at the end of November 2018, the German fund industry represented assets totalling EUR 3 trillion.

Read: The statistics

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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