BaFin Plans to Prohibit Retail Distribution of Credit-Linked Notes
BaFin announced on its website that the regulator intends to prohibit the marketing, distribution and sale of credit-linked notes (“Bonitätsanleihen”) to retail clients for reasons of investor protection on 28 July 2016. BaFin’s Chief Executive Director, Elisabeth Roegele, said that "Structured products linked to credit risks can be a useful investment alternative for institutional investors, but we do not believe they belong in the hands of retail clients." and that BaFin is "aware that we will pose challenges to the certificates industry with this step, but precisely because the certificates market here in Germany is of great significance and its reputation and credibility are of central importance, we have to intervene with individual products". Due to investor protection concerns, particularly regarding the complexity of the product and the risk of conflict of interest – which according to BaFin is inherent in the product structure – BaFin has examined to which extent credit-linked notes are sold to retail investors and if these investors are provided with an adequate explanation of how these products operate. According to BaFin, retail clients generally are not provided with sufficient explanations. With the prohibition, BaFin is making use of its product intervention power, introduced by the German Retail Investor Protection Act in July 2015 and published a draft of its proposed General Administrative Act. Written comments on the draft were accepted by BaFin until 2 September 2016.
BaFin Establishes Reporting Platform for Whistleblowers
BaFin has established a reporting platform for whistleblowers (persons with a special knowledge of a company’s internal affairs) to report any violations of supervisory law or misconduct of individuals or entire companies in the financial sector. BaFin established a specific procedure to protect the identity of whistleblowers as well as persons affected by the reports made. The identity of the whistleblowers is not, in principle, passed on to third parties by BaFin and whistleblowers also have the opportunity of contacting BaFin anonymously. The legal basis for the platform for whistleblowers is section 4d of the German Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG) introduced by the First Financial Markets Amendment Act.
BGH Rules that Investment Funds are Allowed to Charge Necessary Expenses to the Fund’s Assets
The Federal Court of Justice (Bundesgerichtshof – BGH) ruled, as of 19 May 2016, that German fund management companies (Kapitalverwaltungsgesellschaften) may set out in their fund rules for open-ended investment funds that necessary expenses such as printing costs for the annual reports or costs in connection with the publication of subscription and redemption prices are charged to the fund’s assets. According to the BGH, these expenses are linked to the management of the fund since the management company is legally obliged to publish certain information on the fund. Therefore, pursuant to the BGH, these costs are chargeable to the fund’s assets.
Read the ruling in German.
Investment Statistics as of 30 June 2016
The German Investment Fund Association BVI has issued its latest investment statistics report dated June 2016, giving an overview of the net assets and net sales within the German investment fund and asset management markets. The statistics are broken down by asset class and provider. They provide information on net assets and net inflows of investment funds and assets outside investment funds.
