Regulatory framework and authorities
How is fund management regulated in your jurisdiction? Which authorities have primary responsibility for regulating funds, fund managers and those marketing funds?
Fund management is regulated in Germany by the German Capital Investment Act (KAGB). The KAGB implements the EU Undertakings for Collective Investments in Transferable Securities (UCITS) Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (AIFMD).
The Federal Financial Supervisory Authority (BaFin) is responsible for regulating funds, fund managers and those marketing funds.
Is fund administration regulated in your jurisdiction?
Fund administration is not regulated per se in Germany. The regulation depends on whether the particular services fall within a specifically regulated environment. As a rule, general assistance in fund administration is not regulated, such as the preparation of reports or distribution notices.
Certain administrative services are regulated by professional services laws. Before offering bookkeeping services on the market, a minimum of three years’ professional experience is required. Trade settlement is typically licensable as the financial service of the execution of orders on behalf of clients or the banking activity of trading on behalf of others.
What is the authorisation or licensing process for funds? What are the key requirements that apply to managers and operators of investment funds in your jurisdiction?
Regulation of funds is primarily exercised through regulation of managers. It requires that the manager is either fully licensed or registered with BaFin under the KAGB. If a fund is internally managed, then the fund itself needs a licence or registration.
Registered managers – Registration process
The registration process is only available to certain small or mediumsized managers. The most important category of these small to medium-sized managers is known as ‘sub-threshold managers’ under the AIFMD and KAGB. In practice, most German fund managers fall within this category.
Sub-threshold managers, under the KAGB, are managers with assets under management of not more than €100 million (in the case of leverage) or not more than €500 million (no leverage) and who only manage special alternative investment funds (special AIFs). These are AIFs whose interests or shares may only be acquired according to the fund documents by professional investors or semi-professional investors (ie, non-retail funds).
Professional investors are defined in the AIFMD and in the Markets in Financial Instruments Directive II. A semi-professional investor is a person who:
- commits to invest at least €200,000;
- confirms in writing that he or she is aware of the risks; and
- has the expertise, experience and knowledge to participate in the investment opportunity. This must be assessed and confirmed by the manager.
In addition, senior management, risk-takers and other staff of the manager within the meaning of article 13 of the AIFMD are considered semi-professional. A person with a minimum commitment of €10 million is also considered semi-professional.
Besides the requirements mentioned above, special AIFs managed by sub-threshold managers are, in principle, not regulated.
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Fund Management 2020_Lexology_Getting the Deal through_Chapter Germany
This article was first published in: Fund Management 2020, Lexology / Getting the Deal through