Month: August 2022

New requirements for investment funds: PRIIPs key information document replaces key investor information – FAQs:

By Frank Müller | Hannah Henseling on 28. August, 2022

Posted In Funds

As of 1 January 2023, capital management companies (Kapitalverwaltungsgesellschaften) have to prepare a PRIIPs key information document for an investment fund that is distributed to private and semi-professional investors. The following is a summary of five frequently asked questions and answers on this topic:

 

What is the purpose of the key information document?

  • The key information document shall enable retail investors in the EU to better understand the basic features and risks of PRIIPs (Packaged Retail and Insurance-Based Investment Products).
  • In addition, the requirements for PRIIPs key information documents should lead to a better comparability of such products across Europe.

For which funds does a PRIIPs-KID have to be prepared?

  • All open-ended and closed-ended public investment funds with an existing sales notification (Vertriebsanzeige).
  • In principle, for all open-ended and closed-ended special investment funds that issue units to semi-professional investors. This does not apply to special funds that will no longer be actively distributed after 1 January 2023, i.e. no new units will be issued to investors and this does not have to be expected.

When does the PRIIPs-KID have to be made available?

  • Until 31 December 2022, capital management companies (Kapitalverwaltungsgesellschaften) are excluded from the obligation to prepare a PRIIPs-key information document if they prepare key investor information according to the KAGB (Kapitalanlagegesetzbuch).
  • As of 1 January 2023, capital management companies (Kapitalverwaltungsgesellschaften) must prepare the PRIIPs key investor information sheet for an investment fund that is distributed to private and semi-professional investors. At this time, the obligation to prepare key investor information will no longer apply. Reason: The key information document, which meets the requirements of the PRIIPs Regulation, is considered equivalent to the key investor information.

In which form does the PRIIPs-KID have to be provided?

  • The PRIIPs-KID must be made available free of charge.
  • In general, it has to be made available on paper. Under certain conditions, it may be made available via other media (permanent data carrier or website).

What is the scope and format of the PRIIPs-KID?

  • The PRIIPs Regulation and the Delegated Regulation specify numerous (in some cases complex) details regarding the form and content of the key information document.
  • To illustrate this, the following points should be mentioned here as examples:
    • The information contained must be precise, fair and clear and must not be misleading.
    • The order and headings of the sections for the key information document are compulsorily stipulated.
    • Certain passages or headings must be highlighted.
    • The key information document shall be drawn up with a maximum of three sides of A4-sized paper when printed.
BaFin on the new sustainability exploration in investment advice and financial portfolio management

By Annabelle Rau on 17. August, 2022

Posted In Financial Services

In a publication dated August 3, 2022, BaFin referred to the now applicable obligation of investment advisors and financial portfolio managers to conduct customer exploration with regard to the sustainability preferences of customers.

  • Customer exploration now also includes sustainability factors, which is why the suitability check and declaration is expanded to include the aspect of the customer’s sustainability preference.
  • The background is the Delegated Regulation (EU) 2021/1253 of the European Commission, which regulates the inclusion of sustainability factors, risks and preferences in certain organizational requirements and conditions for the operation of securities firms.
  • In practice, this means that investment advisors must now ask their clients about their sustainability preferences and may only recommend financial instruments to them that meet these sustainability preferences.
  • Sustainability preferences are divided into three categories:
    • environmentally sustainable investments within the meaning of the Taxonomy Regulation (Regulation (EU) 2020/852)
    • sustainable investments within the meaning of the Disclosure Regulation (Regulation (EU) 2019/2088).
    • according to whether a financial instrument should take into account the most significant adverse impacts on sustainability, thereby excluding financial instruments with certain negative impacts, such as human rights violations and greenhouse gas emissions.
  • Concrete specifications on the design of the exploration are still pending, but are expected with regard to guidelines of the European Securities and Markets Authority (“ESMA“), which are only available in draft form so far.

BaFin points out that it will closely monitor the implementation of the new regulations and – where necessary – request securities companies to make improvements. Compliance with the new regulations will also be examined in the annual audit under the German Securities Trading Act.

PSD3 on the horizon?

By Annabelle Rau on 17. August, 2022

Posted In Payment Services

The European Commission is currently consulting on the revision of the Payment Service Directive 2 („PSD2“).

PSD2 regulates uniform EU-wide requirements for payment service providers and the provision of payment services. In Germany, the regulatory requirements of PSD2 are implemented by the Payment Services Supervision Act (“ZAG“).

In this regard, the European Banking Authority (“EBA“) submitted proposals to amend PSD2 to the European Commission in a 126-page opinion on June 23, 2022.

The proposals include:

  • Adjustments to the catalogue of payment services, e.g., streamlining and clarification to enable clearer delineation between individual payment services as well as splitting and merging of individual payment services.
  • Adjustments to the licensing procedure and supervision of payment service providers (e.g., with regard to capital requirements, the distinction between freedom to provide services and freedom of establishment, regulatory arbitrage and the resulting forum shopping, and delays in the licensing procedure).
  • Clarification of liability rules and related key terms in connection with unauthorized transactions, which are said to have recently led to legal uncertainty and inconsistent application of the Directive.
  • Specification and adaptation of strong customer authentication (“SCA”), e.g. with regard to liability and necessity of implementation.
  • Requirement for account servicing payment service providers to make more information available to providers of account information and payment initiation services and exploration of the possibility of a single application programming interface (“API“) for these services as a standard in the EU.
  • Enforcement of PSD requirements, such as measures to address the delayed implementation of SCA in card-based e-commerce.

The targeted consultations ended already at the beginning of July 2022, the public consultation end-ed on August 2, 2022. Against the background of the comprehensive opinion of the EBA, it is expected that the European Commission will deal with one or the other proposal even more intensively.

EU Trilogue agreed on Markets in Crypto Assets Regulation (“MiCAR”)

By Annabelle Rau | Renate Prinz on 11. August, 2022

Posted In Crypto Regulation

The trilogue agreed on the final text for the Markets in Crypto Assets Regulation (“MiCAR“) on June 30, 2022, which now needs to be adopted by the member states (click here for the press release).

  • MiCAR will for the first time create a single European legal framework for crypto assets, crypto issuers and service providers. Crypto assets have been regulated in a predominantly inconsistent manner in Europe to date.
  • MiCAR provides for specific requirements for Utility Token, Value-Referenced Token and E-Money Token. It does not include Security Tokens, which are already subject to existing EU financial services regulations, and Non-fungible Tokens (“NFTs”), unless they fall under one of the crypto asset categories.
  • In addition, MiCAR regulates regulatory requirements for crypto issuers (e.g., obligation to prepare a white paper) and crypto service providers (e.g., requirement for licensing and ongoing conduct of business obligations).
  • New compared to the draft version is, for example, that companies on the crypto securities market are now required to submit a statement with information on their environmental and climate footprint. The content, methods and presentation of the statement will then be specified by ESMA (European Securities and Markets Authority) via technical standards.

The final text of MiCAR has not yet been published. The regulation is expected to enter into force at the end of the year, and the provisions will then be directly applicable in all EU member states after a transition period of 18 months following entry into force.