The new German Capital Investment Code – a comprehensive regulatory framework for investment funds
On 22 July 2013, the Act Implementing the Alternative Investment Fund Managers (AIFM) Directive entered into force. By virtue of the Act Implementing the AIFM Directive, the German Investment Act (Investmentgesetz – InvG) was repealed and replaced by the German Investment Code (Kapitalanlagegesetzbuch – KAGB). With the KAGB a unitary regulatory framework was enacted that regulates all types of investment funds and their management. In particular, and this can be regarded as main legislative innovation, the regulation encompasses also other investment funds (so-called “AIF”) than securities-based investment funds, that were formerly regulated under the German Investment Act.
The main purpose of the new regulatory framework is to prevent risks and to better protect investors. To that end, the managers of investment funds to which the KAGB applies will require a corresponding permit and will be subject to the supervision of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). The new law determines certain requirements regarding the corporate governance, the management fee structure, the avoidance of conflicts of interest, a reasonable risk and liquidity management, the valuation of the assets of the investment fund and, last but not least, the obligation to deposit the assets of the investment fund with a third party. Adherence to these rules is sanctioned by fines and criminal charges.