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New regulations for German IFAs
Practical Law Legal Update 9-505-9910 (Approx. 3 pages)
New regulations for German IFAs
by Dr Harald Glander and Norman Mayr, Simmons & Simmons
| Published on 05 May 2011 • Germany |
This article is part of the PLC Global Finance April 2011 e-mail update for Germany.
Speedread
In Germany, the draft act amending the law for investment intermediaries and capital investments (Regierungsentwurf für ein Gesetz zur Novellierung des Finanzanlagenvermittler- und Vermögensanlagenrechts) (Draft Act) was published on 6 April 2011. Under the Draft Act German IFAs will have to comply with a number of additional requirements.
As well as having to show that they have professional liability insurance (Berufshaftpflichtversicherung), they will have to present a certificate of competence (Sachkundenachweis) which can only be obtained after passing an exam to be taken at the German Chamber of Industry and Commerce (Industrie- und Handelskammer). The certificate of competence is designed to prove that IFAs have the necessary expertise in relation to the services they offer. Further details will be provided in a separate regulation (Verordnung) which has not been published yet. In addition, German IFAs will be required to be registered in a newly created register (Vermittlerregister), to be maintained by the German Chamber of Industry and Commence. To ensure a high and uniform level of investor protection, certain requirements regarding the provision of information to clients, investment advice and documentation (which at the moment only apply to banks and financial institutions) will be extended so as to apply also to German IFAs.
In Germany, the draft act amending the law for investment intermediaries and capital investments (Regierungsentwurf für ein Gesetz zur Novellierung des Finanzanlagenvermittler- und Vermögensanlagenrechts) (Draft Act) was published on 6 April 2011.
The Draft Act will involve changes for issuers (i.e. entities that issue or offer) and distributors of so-called “grey-market products”. In Germany, such products (referred to as Vermögensanlagen (capital investments)) are, for example, shares of German limited partnerships (Kommanditgesellschaften), registered bonds (Namensschuldverschreibungen) and profit participation rights (Genussrechte).
Under the current regulatory regime, capital investments do (in line with the MiFID) not qualify as financial instruments. The Draft Act will change the definition of a capital investment in the German Banking Act (Kreditwesengesetz) (KWG) and the German Securities Trading Act (Wertpapierhandelsgesetz) (WpHG) so that capital investments will in the future qualify as financial instruments. Those companies which already have a banking licence and do business involving capital investments will also have to comply with the regulations for financial instruments in respect of such products.
However, although capital investments will qualify as financial instruments, distributors who only sell capital investments will be exempted from regulation under the KWG and WpHG (as amended by the Draft Act). Such distributors continue to be regulated by German trade law (Gewerbeordnung) (GewO); the Draft Act provides for strengthened requirements under the GewO.
A new Section 34f will be included in the GewO which will apply to German independent financial advisors (IFAs) who advise on and/or distribute any of the following products without having a banking licence: investment fund units that are registered for public distribution in Germany pursuant to the German Investment Act (Investmentgesetz), units in closed-ended funds or capital investment units as defined in the Draft Act. Under Section 34f GewO there will be additional li-censing requirements for German IFAs.
Under the Draft Act German IFAs will have to comply with a number of additional requirements. As well as having to show that they have professional liability insurance (Berufshaftpflichtversi-cherung), they will have to present a certificate of competence (Sachkundenachweis) which can only be obtained after passing an exam to be taken at the German Chamber of Industry and Commerce (Industrie- und Handelskammer). The certificate of competence is designed to prove that IFAs have the necessary expertise in relation to the services they offer. Further details will be provided in a separate regulation (Verordnung) which has not been published yet.
In addition, German IFAs will be required to be registered in a newly created register (Vermittler-register), to be maintained by the German Chamber of Industry and Commence.
In order to ensure a high and uniform level of investor protection, certain requirements regarding the provision of information to clients, investment advice and documentation (which at the mo-ment only apply to banks and financial institutions) will be extended so as to apply also to German IFAs.
There will be a transition period for German IFAs that already have a licence pursuant to the GewO (at the moment section 34c, GewO). More than 80,000 German IFAs will be affected by the new licence requirements; they are required to apply for a licence within six months after the Draft Act comes into force. However, they have two years after the Draft Act comes into force to provide the certificate of competence; if an IFA fails to provide the certificate by this time it will by operation of law lose its licence.
As a consequence of these increased requirements it is expected that the German IFA sector will change significantly and achieve higher professional standards in the near future.