What does the new BaFin circular bring?
The circular replaces the previous guidance note on the licensing procedure for external and internal AIF capital management companies. The guidance notes on the suitability of managing directors and on the professional suitability of members of supervisory bodies remain in force alongside it.
When should registered managers start preparing?
Preparation of a full licence application should not begin only once the relevant thresholds have been exceeded. Registered capital management companies should continuously monitor the assets under their management. The relevant thresholds remain EUR 100 million with leverage or EUR 500 million without leverage. An unprepared breach of the thresholds may, in individual cases, raise questions as to the reliability of the managing directors and may even jeopardise the granting of the licence.
At an early stage, the future structure must also be clarified. If an existing registered KVG applies for a full licence, it can further develop its existing systems. In that case, however, it must also include the existing funds in the fully regulated regime. Alternatively, a new capital management company can be established alongside the registered company. The existing funds may remain with the registered company for as long as the requirements for registration continue to be met and remain met. Potential cost savings are offset by dual structures.
What deadlines must be observed in the licensing procedure?
Three deadlines must be distinguished:
- If the exceptional privileging requirements for registered KVGs under sec. 2 (4), (6) or (7) KAGB cease to apply, a licence application must in principle be submitted within 30 days, or the transfer of the management rights of the funds concerned to another AIF capital management company must be ensured (sec. 44 (6) KAGB).
- In addition, a three-month period applies where BaFin requests the complete submission of the required information and documents (sec. 44 (6a) KAGB). If this period expires without success, the application is deemed to be withdrawn.
- The third deadline, for BaFin’s processing and decision, only begins once the application is complete within the meaning of sec. 22 (3) KAGB (sec. 22 (2) KAGB). It is generally three months. In case of particular circumstances, an extension of up to three months is possible. This does not result in a flat-rate overall processing time: the time needed for preparation and until the application is complete must be factored in additionally.
What matters most in the application?
A topic that is central to every application and to the circular alike is the professional suitability of the managing directors. BaFin recommends discussing potential candidates with it already before the application is submitted. A frequent challenge for the position of the managing director responsible for risk management is that, from BaFin’s perspective, professional experience gained at a registered KVG is not necessarily sufficient for a fully licensed company. This applies in particular where risk management processes that are functionally separated and structured in accordance with supervisory law have so far been lacking.
The management must consist of at least two reliable and professionally suitable persons. Responsibilities, reporting lines, time budgets and supporting resources must be consistent with one another. A corresponding organisational chart as well as clear arrangements for representation and escalation are required. In the case of an external AIF capital management company, the supervisory board and its composition must also be planned at an early stage.
In addition to these personnel and structural matters, the applicant must ensure sufficient own funds (starting point: EUR 125,000) and attend to DORA-compliant IT processes and external service providers.