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New draft Act targets German closed-ended fund industry
Practical Law UK Legal Update 9-505-3456 (Approx. 3 pages)
New draft Act targets German closed-ended fund industry
by Dr Harald Glander and Norman Mayr, Simmons & Simmons
| Published on 31 Mar 2011 • Germany |
This article is part of the PLC Global Finance March 2011 e-mail update for Germany.
Speedread
The German draft Act amending the law for investment intermediaries and capital investments has been published on 16 February 2011. Under rules of the draft Act, issuers (the entities that issue or offer the products) and the distributors of so-called grey-market products have to prepare for changes in the future. Such products are; shares of German limited partnerships, registered bonds and profit participation rights. The Act will have a significant impact on the German fund and financial services industry.
In Germany, the draft Act amending the law for investment intermediaries and capital investments (Diskussionsentwurf für ein Gesetz zur Novellierung des Finanzanlagenvermittler- und Vermögensanlagenrechts) has been published on 16 February 2011.
Under the rules of the Draft Act, issuers (for example; the entities that issue or offer the products) and the distributors of so-called grey-market products have to set for changes in the future. In Germany, such products (referred to as Vermögensanlagen – capital investments) are, for example, shares of German limited partnerships (Kommanditgesellschaften), registered bonds (Namensschuldverschreibungen) and profit participation rights (Genussrechte).
The Draft Act will have a significant impact on the German fund and financial services industry. Issuers and distributors of capital investments will have to comply with enhanced regulatory requirements.
New rules for issuers
The rules for the investment in future capital investments will be set forth in a new Act, the Vermögensanlagengesetz (Act on Capital Investments) which will replace the Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz). The future Act on Capital Investments will introduce new rules. Most importantly, the issuers of capital investments have to provide a capital investments information sheet (Vermögensanlagen-Informationsblatt) no more than three pages in length to the investors which is comparable to the key investor information document for UCITS. This enables the investor to compare different kind of investments. Furthermore, issuers have to comply with certain new rules on accounting, audit and transparency. Amongst other things, the value of the investments has to be disclosed to the investors at least once a year. These rules are clearly in anticipation of the forthcoming AIFM implementation.
New rules for distributors
Under the current regulatory regime, capital investments (in line with the MiFID) do not qualify as financial instruments. The Draft Act will change the definition in the German Banking Act (Kreditwesengesetz – KWG) and the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG). Capital investments will in the future qualify as financial instruments. Those companies who already have a banking licence and do business with capital investments have to comply with the regulation for financial instruments also in respect to such products.
However, distributors who only sell capital investments are exempted from the KWG and WpHG. Such distributors continue to be regulated by German trade law (Gewerbeordnung - GewO). However, the Draft Act provides for strengthened requirements under the GewO. Distributors will have to comply with certain rules of conduct when advising investors. This includes the preparation of a protocol of the investment advice as well as the disclosure of sales commissions. Furthermore, distributors have to prove their investment knowledge in an exam and to ensure that the have entered into a professional liability insurance.