Investment Act (Germany)
| NOTE: This article represents the InvG on a comparative basis to the old law. For this purpose, this is done from the perspective of January 1, 2004. |
| Basic data | |
|---|---|
| Title: | Investment Act |
| Abbreviation: | InvG |
| Type: | Federal law |
| Scope: | Federal Republic of Germany |
| Legal matter: | Business law , capital market law |
| References : | 7612-2 |
| Issued on: | December 15, 2003 ( BGBl. I p. 2676 ) |
| Entry into force on: | predominantly January 1, 2004 |
| Expiry: | July 22, 2013 (Art. 2a G of July 4, 2013, Federal Law Gazette I, p. 1981, 2149 ) |
| GESTA : | D098 |
| Please note the note on the applicable legal version. | |
The German Investment Act (InvG) was the predecessor of the Capital Investment Code (KAGB). It was created by the Investment Modernization Act and, at the initiative of the Federal Government, reformed the following regulations that had previously been in effect until it was expired on July 21, 2013:
- Law on Capital Investment Companies (KAGG) and
- Foreign Investment Act (AuslInvestmG).
The InvG served to further develop Germany as an investment location. This was in intense competition with other European financial centers. The legal framework in countries such as Luxembourg, Ireland and Great Britain was often considered by providers of investment funds to be more attractive than the national ones. Investment funds were therefore increasingly set up abroad. This development was able to intensify between 2000 and 2004 due to further harmonization at the European level.
The Investment Modernization Act was an article law consisting of a regulatory investment law (InvG) and an investment tax law (InvStG).
overview
With the Investment Act, the amending directives 2001/107 / EC and 2001/108 / EC of January 21, 2002 become the EU Investment Directive 85/611 / EEC (Directive on Undertakings for Collective Investment in Transferable Securities, UCITS Directive for short ) of December 20 Implemented in 1985. With the implementation of the directives, a further step towards the realization of the European internal market in the investment sector has been taken. In addition, by amalgamating the law on capital investment companies (KAGG) and the foreign investment law (AuslInvestmG), the national legal regulations in the investment fund area are modernized and standardized.
The InvG increasingly provides for authorizations to issue statutory ordinances in order to be able to adapt technical detailed regulations (e.g. on derivatives, for the valuation of assets, for accounting ) more quickly and flexibly to the ever more rapidly changing economic framework conditions. At the same time, the new InvG is intended to strengthen supervision by the Federal Financial Supervisory Authority (BaFin). In particular, the introduction of an accelerated approval process for contractual terms of investment funds will free up capacities for more important supervisory tasks at BaFin. As part of improved market supervision, new reporting obligations are also being introduced, which will enable BaFin to take prompt and targeted action against irregularities. The supervisory regulations are supplemented by a new version of the catalog of administrative offenses . The amount of the possible fines has been adjusted to the economic development.
Various other measures will also improve investor protection . This applies e.g. B. for new transparency rules in annual reports and sales prospectuses . In particular, more detailed information must now be provided about the costs and fees incurred. Standardized requirements also enable investors to better compare the domestic and foreign products offered on the market.
Major innovations in detail
As part of the implementation of the amending guidelines for Directive 85/611 / EEC and in connection with the revision of previous regulations, the InvG contains the following changes:
Creation of the fund categories
Up to now there have been different types of funds in Germany that are legally defined. The amended Directive 85/611 / EEC now also regulates derivatives, investment units, money market instruments and bank balances as assets. The statutory fund types that have previously been used in Germany to classify a special fund e.g. B. specified as money market funds or securities funds are not applicable. The name of an investment fund does not necessarily have to reflect the focus of the investment. In order to prevent possible misinformation of the investor based on the naming, the BaFin is given the opportunity to set guidelines in guidelines as to how an investment fund may be invested in order to be able to be referred to as a certain type of fund when naming or in advertising.
Simplified sales prospectus
In addition to the previous sales prospectus , there will now be a new standardized, so-called simplified sales prospectus. The simplified sales prospectus must contain the information required for an investment decision in an easily understandable form for the investor (brief description of the investment fund, investment information and economic information as well as information on the purchase and sale of units). This improves the information opportunities for investors, as the detailed sales prospectus is often not read by investors.
Extension of the European passport for investment funds
The extension of Directive 85/611 / EEC to include bank balances, investment units, money market instruments and derivatives - and thus the first-time harmonization beyond securities investment funds - contributes to the fact that more investment funds can receive the so-called European passport (amending Directive 2001/108 / EG ).
European passport for management companies
Management companies will receive an EU-wide approval for the first time if they meet the newly formulated requirements and comply with the intended notification procedure. Once authorized, a management company can then also pursue its activities in other Member States with the help of branches or within the framework of the free movement of services. In this case, not only the fund, but also the investment company will have a European passport.
Lowering the initial capital of investment companies
The amended version of Directive 85/611 / EEC provides for a significant reduction in the necessary initial capital for management companies. A lower initial capital enables a higher return on equity , a criterion that should be taken into account when making location decisions. A minimum capital of € 125,000 is now required, as well as additional equity capital that is dynamically oriented towards business development. Due to their credit institution status, capital investment companies based in Germany must have an initial capital of at least € 730,000 (new: 300,000; KAGs and InvAGs are equated). In order to compensate for this competitive disadvantage economically, the dynamic capital adjustment for German investment companies only starts when the business value is € 3 billion (new: € 1.125 billion). Management companies that also operate the custody business should show equity of € 2.5 million due to the additional operational risks . The same applies to investment companies for real estate special funds, for which increased capital requirements have already existed (previously € 5 million). Irrespective of this, capital investment companies must at all times have their own funds that correspond to at least a quarter of their costs, which should ensure that the companies are adequately capitalized.
Expansion of the activities of capital investment companies
In addition to the management of special assets, the change guidelines also permit individual financial portfolio management as a main activity requiring a permit. Secondary activities such as the custody of third-party funds and the distribution of shares no longer prevent an EU passport from being issued.
Outsourcing of activities of the investment company
Management companies can now delegate activities (e.g. fund accounting) to third parties. However, supervision must not be impaired. The transfer of portfolio management , which is now also permitted, may only take place to companies that are approved for asset management purposes. In order to take account of the core of the investment concept, the fundamental investment decision must remain with the outsourcing investment company when the portfolio management is transferred. However, the transferring investment company cannot “outsource” its liability. Due to the trust relationship that is typical for investment companies, the outsourcing must not affect the interests of the investors. The legal regulation on outsourcing gives interested investment companies the legal security for the structuring of so-called " Master-KAG ".
Use of derivatives
The expanded investment options in derivatives generally lead to an increase in the market risk potential of investment funds. The amended version of Directive 85/611 / EEC does not clearly state the degree to which derivative transactions may increase the market risk potential. In accordance with the interpretation of the majority of the member states, the InvG therefore stipulates that the use of derivatives may at most double the market risk potential of investment funds. The necessary decision by the EU Commission on the uniform interpretation and application of the corresponding regulation in all member states is still pending. The regulations on the permitted derivative transactions, the requirements for the risk measurement systems and details for determining the market risk potential will be laid down in a statutory ordinance.
Speeding up the approval process for contract terms
The InvG provides for a redesign of the test procedure that is in line with the provisions of Directive 85/611 / EEC and the national requirements. The audit documents to be submitted by the managers should be better prepared. This strengthens the personal responsibility of the company managers - supported by the auditors - for the contractual conditions and also makes it clearer in the law. As a rule, BaFin will now base its examination on the statements and information provided by the managers and will quickly approve the contractual conditions in unproblematic circumstances. The approval can be provided with ancillary provisions. There are sufficient regulatory measures in place for cases of abuse so that investor protection is guaranteed.
Obligations to report to BaFin
On the way from a formal to a material market supervision and the dismantling of bureaucracy , the reporting obligations of investment companies to the BaFin are regulated in the InvG. The previous market supervision to protect the integrity of Germany as an investment location and to protect the interests of investors was inadequate due to a lack of available data. This deficiency is remedied by the companies' obligation to submit a statement of assets on each valuation day and to electronically report data on the portfolio of the investment fund and the transactions carried out to BaFin. The messages that used to be laborious to create manually are no longer necessary.
Accounting and valuation
The accounting rules for special funds have been partially revised. The aim is to further standardize accounting in order to improve the comparability of investment funds in order to protect investors. The content of the accounting should now be regulated in a statutory ordinance. Another statutory ordinance will establish the basis for the assessment, especially of innovative financial instruments , and also lead to uniform practice here.
Merging of special funds
The transfer of all assets of a fund to another fund should already be regulated under the Fourth Financial Market Promotion Act, but failed due to tax law issues. The transfer is now possible with the approval of BaFin. It is permissible if, among other things, the absorbing fund is managed by the same investment company and the investment limits and investment principles do not differ significantly from one another. The amalgamation of special funds can lead to a streamlining of the product range that is desirable from the investment company's point of view and in certain cases can also be advantageous for the investor. In this way, a need of the economy is met and at the same time the interests of the investors in the special funds involved are better protected.
Cost transparency
Investment companies should, within the framework of far-reaching transparency rules, provide information on all costs and fees in the annual report and sales prospectuses, including e.g. B. Make flat fees that are to be borne directly or indirectly by the investor. In particular, the so-called total expense ratio will give the investor an overview of the effective cost burden. The total expense ratio represents the ratio of all costs incurred in the management of a fund to the average net asset value of the fund within the previous financial year. The bases and methods of calculation are regulated in a statutory instrument.
The total expense ratio mentioned above and the costs to be recorded there have been the subject of heated discussions since the law came into force. Investor advocates complain that in practice the largest cost component, namely transaction costs, is not included in the total expense ratio. The fund investor is thus deprived of the opportunity to check at least to some extent whether the number of securities transactions carried out by the fund management - and the transaction costs caused by them - are in an acceptable relationship to the investment policy pursued. This means a loss of transparency, the goal to which the regulations of the InvG are committed. The BVI, the interest group of the German fund industry, is opposed to efforts to make transaction costs part of the total expense ratio. According to the BVI, it is not technically feasible to determine the transaction costs, since many transactions, particularly bond transactions, are carried out “net”, that is to say without a separate disclosure of the transaction costs. It should be noted that it is part of the fund management's duty to properly manage the assets entrusted to it (see Section 9 InvG) to maintain an overview of the cost situation at all times. With regard to the transaction costs, it would be advisable to oblige the executing bank or broker to report the relevant costs separately.
Sub-fund
In addition to the unit classes introduced by the Fourth Financial Market Promotion Act, special funds with different investment focuses can now be combined under a virtual umbrella. With the structure of these “ umbrella funds ”, the investor is given an inexpensive opportunity to switch between individual sub-funds with different investment policies. This form of investment is already being practiced successfully in Luxembourg, Ireland and Great Britain. Germany draws level with the new regulation.
Distribution of investment funds based outside the EU and the EEA
With regard to foreign investment units that have not been harmonized by Directive 85/611 / EEC, the InvG aims to harmonize the requirements for the contractual conditions, the sales prospectus and the accounting in order to give investors the opportunity to compare domestic and foreign products facilitate. The distribution of investment units based outside the European Union and the European Economic Area is permitted if the responsible supervisory bodies in the third country are willing to cooperate with BaFin. The same applies to the cooperation with regard to tax-relevant data. Investment units that are already registered for public distribution in Germany (mainly from the USA and Switzerland ) enjoy grandfathering.
Hedge funds
With the introduction of a special fund with additional risks , the so-called hedge funds , investment companies are now also allowed to set up and sell hedge funds in Germany. The private investor can purchase shares in hedge funds via funds of funds supervised by BaFin instead of just the unregulated hedge fund certificates. In addition to improving the competitive situation in the Frankfurt financial center in the area of alternative financial products, this also significantly strengthens investor protection in this investment segment.
In this context, the legislature has opted for a final catalog of the assets and rules for the selection of target funds for the funds of funds with additional risks in order to prevent providers of products with a different focus from using the hedge funds now supervised by BaFin for tax reasons alone make use of.
With the regulation, hedge funds are only to be removed from the gray capital market under certain conditions and included in the scope of the Investment Act and the Investment Tax Act. Other alternative forms of investment such as private equity and venture capital are not regulated; other solutions must be sought for these. The main features of hedge funds are flexible investment strategies and a high degree of freedom for managers to invest. According to the InvG, providers of hedge funds in Germany should encounter modern legal framework conditions. The German financial center is now ripe for the approval of alternative investment products. The hedge fund industry appears to have evolved into an industry that is aware of the risks associated with hedge funds. The regulatory approach pursued in the InvG provides for a generous regulation with regard to the short sales that are often carried out as part of the investment strategies, as well as for borrowing and the use of derivatives to achieve leverage effects ( leverage effect ) and provides providers who want to sell their products to institutional investors, no restrictions on. Instead, high demands are placed on the companies that set up these funds and their managers. Private investors should also be able to benefit from the advantages of an investment in shares of hedge funds, but the protection of the investor is the main focus for the legislature. Therefore, because of the different and complex structure of the products and the associated additional risk, the sale of so-called single hedge funds is restricted, i.e. private investors are only allowed to acquire shares in funds of funds that invest in hedge funds and already offer a risk diversification that allows this Risk of loss for private investors reduced. However, due to the unmistakable risk of an investment in units in hedge funds, an express warning is required that makes it clear to potential private investors that they can lose up to 100% of their invested assets. Hedge funds can now be set up as special assets by an investment company. In Germany, these are traditionally special credit institutions , which means that the special requirements of the German Banking Act must be met. These increased requirements could prove to be an obstacle for hedge fund managers who intend to manage hedge funds in Germany.
Investment AG
An alternative is the investment stock corporation , which as a financial services institution has to meet lower requirements under the Banking Act. In addition to the modified investment stock corporation with fixed capital, the InvG also provides for a variant with variable capital. The Investment-AG as it has been designed so far is a closed-ended investment fund, which, however, has not yet been accepted by industry, for which not only the tax treatment but also the legal framework are responsible. The new investment company with variable capital has already established itself in other EU member states such as Luxembourg ( SICAV ) or Ireland .
Tax regulations
The reform of the taxation of investment funds is closely related to the reorganization of the regulatory aspects of the investment system in Germany. In the case of foreign funds , disadvantages resulting from the non-application of the so-called half - income method to investment income and the sale of investment units are eliminated. Since more and more financial products such as certificates are coming onto the market that do not yield current capital gains, but lead to capital gains that have not been taxed so far, unjustified results are the result for investors, which should be eliminated by including private securities sales gains in a withholding tax . The new investment law led to a number of changes. The following are to be mentioned in particular:
- the inclusion of the investment stock corporation and the special funds with additional risks,
- the medium-term introduction of a formal legal investment term for foreign investment funds,
- a regulation for the tax determination of the income,
- the announcement of the tax bases in the electronic Federal Gazette,
- the introduction of a separate assessment for domestic income,
- a compensation for incorrectly disclosed tax bases at the next announcement,
Legal protection
Administrative legal action is available against decisions by BaFin under the InvG . The Frankfurt Administrative Court is responsible .
Expiry
On December 28, 2007, the Investment Amendment Act (InvÄndG) became a comprehensive amendment to the law and the associated changes to other laws.
In July 2011, extensive changes to the Investment Act came into force with the UCITS IV Implementation Act. These were used to implement the revised UCITS Directive , which has since replaced the old Directive 85/611 / EEC.
In the meantime, Directive 2011/61 / EU (PDF) came into force for the European Union . To implement this, the federal government submitted a bill on the managers of alternative investment funds. With the act issued on July 4, 2013, the previous Investment Act is repealed and its regulatory content is transferred to the newly created Capital Investment Code (KAGB) with effect from July 22, 2013 .
literature
- PricewaterhouseCoopers AG (Ed.) (2008): Practical manual for the amendment of the investment law 2007 according to the Investment Amendment Act . 1st edition, Fachverlag Moderne Wirtschaft, ISBN 3-934803-26-1 .
- Carsten Nickel: The amendment to the Investment Act . 1st edition 2008, Deutscher Sparkassenverlag Stuttgart, ISBN 3-09-305998-4 .
- Hanno Berger, Kai-Uwe Steck, Dieter Lübbehüsen: Investment Act (InvG), Investment Tax Act (InvStG) - comment . 1st edition 2010, Verlag CH Beck, ISBN 3406581714 .
- Andreas Patzner, Achim Döser: Commentary on the Investment Act (InvG), loose-leaf work, Das Deutsche Bundesrecht III H 27, Nomos Verlagsgesellschaft, ISBN 3-7890-0191-0
swell
- ↑ Text of the InvÄndG, together with a synopsis of all changes (HTML)
- ↑ Text and changes by the UCITS IV Implementation Act of June 22, 2011 (Federal Law Gazette I p. 1126)
- ↑ Directive 2009/65 / EC (PDF)
- ↑ Bundestag printed matter 17/12294 (PDF; 2.8 MB) from February 6, 2013.
