Topic Investment funds Act Implementing the UCITS V Directive
Article from the Annual Report 2016 of the BaFin
The German Act Implementing the UCITS V Directive (OGAW-V-Umsetzungsgesetz) entered into force on 18 March 2016. It firstly transposes the provisions of the fifth Directive on undertakings for collective investment in transferable securities (UCITS Directive)1, into German law. Secondly, the Act Implementing the UCITS V Directive introduces some changes that are not conditional on the Directive, for example rules regarding the granting of loans by alternative investment funds (AIFs).2
Remuneration schemes
Until now, only German AIF management companies (AIF-Kapitalverwaltungsgesellschaften) have had to determine remuneration policies for senior management and certain employees. In accordance with the UCITS V Directive, this now also applies to German UCITS management companies, which are required to establish and maintain remuneration policies and practices for senior managers and those categories of staff whose professional activities have a material impact on the risk profiles of the management company or the collective investment undertaking. The aim is to establish a sound and effective risk management system.
UCITS depositary
The UCITS V Directive has also expanded the range of tasks and duties of the UCITS depositary. In particular, more details were provided on the depositary's duties regarding assets that are capable of being held in custody and those that are not. The Act Implementing the UCITS V Directive also sets out stricter rules for the liability of depositaries. Until now, they were, under certain conditions, able to contractually exempt themselves from liability for the loss of financial instruments entrusted for safe keeping to a sub-delegate. This option will no longer be available.
Provisions on administrative fines
In addition, the UCITS V Directive strengthens the competent authorities' sanctioning powers. The ability to impose significantly higher fines and to publish the details is to act as a deterrent. This is why the German legislators restructured and increased the scale of administrative fines in the Act Implementing the UCITS V Directive. The old two-tier system with maximum administrative fines of €100,000 and €50,000 has been replaced with a three-tier system with fines of up to €5 million, €1 million or €200,000.3
Granting loans for the account of AIFs
In addition, the Act Implementing the UCITS V Directive will modify the German Investment Code (Kapitalanlagegesetzbuch) to the extent that German AIF management companies may now, under specific conditions, grant loans for the account of closed-ended special AIFs. The conditions include, for example, that the company may borrow no more than 30% of the AIF capital for the account of that closed-ended special AIF and that the loan will not be granted to consumers. Specific risk diversification guidance must also be observed when granting the loan.
Footnotes:
- 1 Directive 2014/91/EU, OJ EU L 257/186.
- 2 www.bafin.de/dok/7860058.
- 3 See Act Implementing the UCITS V Directive.