Financial Services

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

By Annabelle Rau on 03. February, 2023

Posted In Financial Services, Financial situation intermediary

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.

The year is drawing to a close – what’s new for 2023?

By Renate Prinz on 19. December, 2022

Posted In Banking Law, Financial Services, Funds

As the year draws to a close, it is worth taking a look at new regulations at the start of the year: As of January 1, the new Regulatory Technical Standards (RTS) on the EU Disclosure Regulation will apply to financial market participants and financial advisors. With the Disclosure Regulation, which already came into force in March 2021, respective companies must prove how sustainable their products are, the extent to which ESG criteria, i.e. ecological and social standards and good corporate governance, are observed and pursued and which strategies are applied here.

The Disclosure and Taxonomy Regulation applies to financial market participants, especially in the fund sector, but also to insurance companies offering insurance investment products, credit institutions and investment services companies providing portfolio management, as well as providers of pension products and financial advisors in these areas.

Important points of the disclosure regulation remained unclear and left questions unanswered. This is now to be remedied by the technical standards, which were already adopted in August 2022. These will once again specify with more detail what information is to be disclosed about individual financial products, how it is to be disclosed and, in particular, how information is to be disclosed about how significant environmental impacts are avoided.

From January 1, 2023, the Regulatory Technical Standards on the Disclosure Regulation must be taken into account. However, this will not be the end of the story – the EU Commission has already initiated a review to revise the RTS, with a particular focus on financial products that invest in nuclear energy and gas.

More information can be found here with further links to more detailed information.

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.