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ESG query obligation will also apply to German investment intermediaries (Finanzanlagenvermittler)

By on February 3, 2023

ESG is also coming to German investment intermediaries!
On November 11, 2022, the German Federal Ministry of Economics presented a draft bill for a Regulation Amending the Trade Notification Regulation and the Financial Investment Intermediaries Regulation. As a result of the amendment, German investment intermediaries licensed under Section 34f of the German Trade Regulation Act (Gewerbeordnung – „GewO“) will have to ask their customers about their sustainability preferences in the context of investment advice and take these into account in a suitability test.

Alignment of the ESG query obligation with the European regulatory standard
Since August 2022, investment advisors and financial portfolio managers licensed under the German Banking Act (Kreditwesengesetz – “KWG“) have been required to ask their clients about their sustainability preferences and to recommend only financial instruments that meet these sustainability preferences (we reported here).

The background to this was a delegated act of the European Commission on MiFID II (“Delegated Regulation”), which imposed an ESG query obligation on European banks and investment firms.

However, the German Investment Intermediaries Regulation (Finanzanlagenvermittlungsverordnung – “FinVermV“), which applies to German investment intermediaries, has so far only referred “rigidly” to a specific version of the EU regulations – the newly imposed ESG query obligation therefore remained without consequence for national investment intermediaries.

The draft legislation now provides for a so-called “dynamic” reference to the EU-Regulation “as amended”. This means that future amendments to the Delegated Regulation will automatically apply to investment intermediaries licensed in Germany.

What does this mean in concrete terms for German investment intermediaries?
In future, German investment intermediaries will have to obtain information from their customers about their sustainability preferences when providing investment advice and then take this information into account and document it when assessing the suitability.

The sustainability preferences to be determined are divided into three categories:

  • Do the financial instruments contain a minimum proportion of environmentally sustainable investments as defined in the Taxonomy Regulation (Regulation (EU) 2020/852)?
  • Do the financial instruments contain a minimum proportion of sustainable investments within the meaning of the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088)?
  • Do the financial instruments take into account the main adverse impacts on sustainability, thereby excluding financial instruments with certain negative impacts (e.g. human rights violations and greenhouse gas emissions)?

Further changes for German investment intermediaries
In addition to the new obligation for sustainability exploration, the draft bill provides for further amendments to the FinVermV:

  • The catalog of professional qualifications that are treated as equivalent to the necessary expert examination (Section 4 (1) FinVermV) is expanded to include the successfully passed final examination as a businessman or businesswoman for insurance and financial investments.
  • The written form requirement for the negative declaration (Section 24 (1) sentence 5 FinVermV) is replaced by a text form requirement.
  • The subject of “sustainable financial investment products” will be included in the subject area catalog of the qualification examination for German investment intermediaries.

The draft bill still needs to be agreed within the German government, but it can be assumed that the new regulations will be implemented. However, it is not yet known when the regulation will come into force and when the new rules will apply to financial investment intermediaries.

Annabelle Rau
Annabelle Rau focuses on banking and financial services law, European financial supervisory law, and corporate law. Her advisory practice ranges from issues related to the regulation of traditional financial services to new FinTech business models, including crypto regulation. In addition, Annabelle Rau advises several listed companies on their general meetings and ongoing capital markets legal obligations.