GERMANY Law and Practice Contributed by: Amos Veith, Jens Steinmüller, Ronald Buge and Stephan Schade, POELLATH
German insurance companies (Solvency II inves - tors) have certain transparency requirements due to the prudent person principle under Sol - vency II. Investors usually require look-through information on the basis of a standardised tri- partite reporting template. Moreover, Solvency II investors are subject to capital requirements, which are determined by risks in connection with investments, among other factors. Unleveraged closed-end funds are privileged in that respect. Due to rules implementing further Basel III rules in 2021, fund managers must also accommo - date the increasing transparency requirements of the growing group of banks reaching out for investments in AIFs – eg, in order to avoid invest - ing banks having to fully back their investments with regulatory own funds (funds that institutions must have to absorb losses and comply with EU legislation). Last but not least, ESG concerns are on the agenda of an increasing number of investors. Some institutional investors are already sub - ject to statutory ESG obligations – eg, pension funds have to consider ESG aspects in connec - tion with their business organisation and risk management, and are obliged to be transparent with regard to their handling of ESG factors. Sol - vency II investors have to consider sustainability aspects as part of the prudent person principle. 2.3 Regulatory Environment 2.3.1 Regulatory Regime BaFin is responsible for regulating funds and fund managers. In Germany, the management of investment funds is regulated by the KAGB, which imple - ments the AIFMD and the UCITS Directive. The law requires that the manager is fully licensed or registered with BaFin under the KAGB. If a fund
is internally managed, then the fund itself needs a licence or registration. For details on investment limitations and other rules applicable to alternative funds, see 2.4 Operational Requirements . 2.3.2 Requirements for Non-Local Service Providers There is, in general, no registration or regulation requirement for non-local service providers such as administrators, custodians and director ser - vices providers. However, when a German man - ager outsources portfolio or risk management, the delegate must be authorised or registered in their home country. In addition, any delegate domiciled outside of the EU must appoint a domestic authorised agent to whom notifica - tions and service of process can be effected by the respective German authority. An outsourcing delegate who provides services falling under the Markets in Financial Instru - ments Directive (MiFID) will be subject to a licence requirement under the German Banking Act (KWG) or the recently introduced German Securities Institutions Act (WpIG) if they actively solicited the relationship with the manager (as opposed to reverse solicitation). Acting as tied agent for such services is also possible. If German regulatory law requires a depositary for a German AIF, the depositary – or at least a branch of the depositary – must be domiciled in Germany. 2.3.3 Local Regulatory Requirements for Non- Local Managers EU Fund Managers EU fund managers are allowed to perform fund management services under the AIFMD pass - port regime with regard to German Special AIFs.
174 CHAMBERS.COM
Powered by FlippingBook