UCITS-Directive and AIFMD in Germany: Regulatory changes ahead

What you should know

On 5 August 2024, the German Federal Ministry of Finance (Bundesfinanzministerium – BMF) has proposed a draft legislation (Referentenentwurf), namely the Fund Market Strengthening Act (Fondsmarktstärkungsgesetz – FoMasG) for strengthening the German fund market and implementing amendments to the Directives 2009/65/EC (UCITS-Directive) and 2011/61/EU (AIFMD) as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds.

Key content

The FoMasG largely mirrors the amendments to the European legislation 1:1 without any gold-plating. Key points to note are:

• Managers of open-ended funds will be obliged to select at least two suitable liquidity management instruments for their funds. This serves the purpose to strengthen the resilience of the German fund market and is considered an important factor for the stability of the financial market as a whole.
• There will be new reporting obligations on outsourcing as well as material incidents in outsourcing cases. The aim here is to give the German regulator a better overview of outsourcing of fund management functions, particularly to third countries.
• In future, the German regulator will be able to appoint a special representative (Sonderbeauftragter) at capital management companies in line with the practice already known in the German banking sector.
• The previous national requirements for lending by investment funds will be adapted to the new European standards. Among other things, limits will be imposed on the amount of debt such funds may take on and the amount they may lend to other financial market participants.

The FoMasG also introduces changes to Germany-specific regulations:

• It will be possible to establish closed-ended contractual funds in the mutual fund segment. This will enable fund providers to launch competitive products, for example for ELTIFs (European long-term investment funds that invest primarily in infrastructure).
• With the suggested amendments, providers of closed-end funds should also find it easier to offer citizen participation in the area of renewable energies.
• Finally, it will also be possible to establish open-ended real estate and infrastructure funds in the form of open investment companies (Investment-AGs).

Timing

The draft legislation is the first step of the German legislative procedure. It is now published for review and comments until 2 September 2024, after which the legislative process will continue. The FoMasG is expected to take effect gradually and will become applicable in its entirety on 16 April 2026.