GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Beatrice Zobel, Freshfields
tive risk management requirements for the origination of loans and direct investments in unsecuritised loans since they were permitted to originate loans to Ger - man borrowers in 2016. Non-EU funds, meanwhile, are not allowed to origi - nate loans to German borrowers until the Alternative Investment Fund Managers Directive (AIFMD) pass - port extends to non-EU jurisdictions, which is unlikely in the near future. The revised AIFMD (“AIFMD II”) will impose additional risk management obligations on loan-originating funds (LOFs) across the EU, aligning the requirements for German and other EU funds. Further, the government is proposing to prohibit alternative investment funds from granting consumer loans within the meaning of the EU Consumer Credit Directive. Moreover, the European Commission has begun a public consultation that aims to identify the vulner - abilities and risks of – and to map the existing macro - prudential framework for – non-bank financial inter - mediaries, including private credit funds. 2. Regulatory Environment 2.1 Licensing and Regulatory Approval In Germany, the granting of loans is subject to a bank - ing licence requirement. Foreign lenders are consid - ered to engage in such granting of loans if they offer their services to customers who are considered Ger - man residents. An exemption applies if the customer seeks out the foreign lender explicitly and such lender does not market its services to German customers (“reverse solicitation”). This exemption is generally applicable to both foreign EU lenders and non-EU lenders. How - ever, for EU-regulated lenders, an exemption from the requirement to hold a banking licence applies. Further, no licence is required for the acquisition and holding of loan claims, but there is a very fine line between mere “holding” and other actions in respect of those claims (eg, extensions) that trigger a licence require - ment. Non-banks may co-operate with credit institu -
tions in order to be involved in the loan business (the “fronting-bank model” or “white label model”). Banking licences for domestic lenders are granted by the Federal Financial Supervisory Authority ( Bun- desanstalt für Finanzdienstleistungsaufsicht – BaFin) and, if combined with a deposit-taking licence, the European Central Bank (ECB). EU lenders also require a licence, except where they hold a banking licence in their home jurisdiction and are supervised by com - petent authorities in their home EU jurisdiction. These institutions may passport their banking licence to Ger - many if they fulfil the relevant requirements. The receiving of security or guarantees is generally not a licensable business in Germany. 2.2 Regulators of Private Credit Funds The primary regulator is the BaFin and, where the lender is a large credit institution, the ECB. 2.3 Restrictions on Foreign Investments German private credit funds are only eligible for investment by professional and semi-professional investors. Other than that, there are no restrictions on investments in private credit funds that are specific to investment law. As regards general restrictions on investment into Germany, there are no foreign currency controls but there are reporting obligations in the case of inbound or outbound payments regardless of currency. How - ever, financial institutions are required to freeze assets of persons subject to EU sanctions. This affects all assets/funds, regardless of currency. Funds subject to a freeze are required to be reported to the competent authorities. 2.4 Compliance and Reporting Requirements Please refer to 2.1 Licensing and Regulatory Approv- al and 2.3 Restrictions on Foreign Investments . 2.5 Club Lending and Antitrust Club lending by private credit providers can give rise to potential antitrust concerns if there are no appropri - ate guard rails in place to steer private credit provid - ers away from oversharing of information, price-fixing, allocation of customers, or other forms of collusion.
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