The Fund Risk Limitation Act (FRiG) intends to transpose the European requirements of the AIFM Directive II (AIFMD II) into German law and provides, in particular, for amendments to the German Capital Investment Act (KAGB).
Executive Summary
Compared to the ministerial draft, the government draft of the FRiG contains significantly less national gold-plating and some welcome clarifications. These include in particular:
- The recalculation of thresholds for registered AIFMs based on market values proposed in the ministerial draft bill has been deleted; the valuation in accordance with the German Commercial Code (HGB) remains in place.
- The obligation of registered AIFMs to comply with increased organizational requirements when granting loans, as currently stated in the law, will be completely removed.
These improvements are also the result of a successful consultation process on the ministerial draft bill, which POELLATH played a key role in facilitating.
Improvements compared to the ministerial draft bill
No recalculation of thresholds for registered AIFMs
The ministerial draft bill of the FRiG provided for a new reference basis for calculating the assets under management (AuM) of an AIFM. The threshold calculation was no longer to be based on acquisition costs in accordance with HGB valuation principles, but on the basis of fair market values. This proposal represented genuine national gold-plating, as neither the AIFMD II nor the Delegated Regulation on the AIFMD (Regulation (EU) 231/2013) provided for a change in threshold calculation.
Good news: the proposal for the new reference basis was deleted in the government draft of the FRiG. The previous practice of valuation in accordance with the HGB valuation principles therefore remains in place. For registered AIFMs, maintaining the current legal situation increases operational predictability with regard to reaching the threshold for full authorization and avoids uncertainties caused by potential periodic fluctuations in the calculation pursuant to fair market values.
Omission of increased organizational requirements for loan origination by registered AIFMs
The government draft does not include a provision requiring compliance with increased organizational requirements when registered AIFMs grant loans. With the complete deletion of § 2 (4) sentence 1 no. 4 KAGB draft, registered AIFMs will no longer be subject to any obligation to implement extensive risk management and organizational requirements when granting loans. The deletion even liberalizes the current law, which provides for increased organizational requirements insofar as registered AIFMs grant loans to third parties.
According to the explanatory memorandum to the government draft, it is not seen as necessary to apply the new regulations regarding loan origination to registered AIFMs, as lending activities executed by registered AIFMs are not considered to bear a systemic risk. At the same time, applying the regulations on loan origination to registered AIFMs would lead to competitive disadvantages for German AIFMs in comparison with other European AIFMs. In the future, BaFin will gather information on lending activities of registered AIFMs solely through the extended reporting requirements in §§ 45-47 KAGB (draft version). However, §§ 46-47 KAGB (draft version) in particular only apply to loan-originating AIFs and are currently not included in the exhaustive list in § 2 (4) sentence 1 KAGB (draft version), which defines the scope of application of the KAGB for registered AIFMs. In this respect, clarification is still needed.
Further topics
The government draft of the FRiG also continues to stipulate that the annual financial statements of AIFMs managing EuVECA or EuSEF funds will have to be audited by external auditors in the future. This means that the hoped-for relief for EuVECA or EuSEF fund managers will not materialize. In this respect, the federal government is foregoing the announced 1:1 implementation of AIFMD II, which does not provide for a corresponding audit requirement (national gold-plating).
Furthermore, the cut-off date for completing an authorization application, which was heavily criticized during the consultation process, remains in place (§ 44 (6a) KAGB (draft version)). According to the draft, a license application is deemed to have been withdrawn if an AIFM does not submit the complete documents within three months of a request by BaFin. In the explanatory memorandum, the cut-off date is described as serving to expedite the authorization procedure. However, it entails the risk of unintentional withdrawals for AIFMs if BaFin requests additional documents in an unspecific manner. A more precise definition of the cut-off date in BaFin’s information sheet on the authorization procedure therefore remains desirable.
Entry into force and transitional provisions
The main changes to the FRiG will come into force on 16 April 2026. However, transitional provisions apply to existing loan-originating AIFs, which in some cases postpone implementation of the new requirements until 2029. In detail, the following applies:
- AIFs that were launched before 15 April 2024 and still raise additional capital after this date: Limited transition period until 16 April 2029 (risk diversification, leverage and type restrictions are deemed to have been complied with).
- AIFs launched before 15 April 2024 that do not raise additional capital after that date: It is assumed for the time being that the requirements for risk diversification, leverage and type restrictions are being complied with.
- AIFs that granted loans before 15 April 2024: These can continue to be managed without complying with the requirements on general risk management, credit prohibitions due to conflicts of interest, revenue and cost transparency, and the originate-to-distribute prohibition.
Outlook
The government draft has implemented important and welcome changes to the FRiG. Compared to the ministerial draft, the government draft is now even closer to the announced 1:1 implementation of AIFMD II. As things stand at present, the further legislative process is to be completed swiftly.