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Erscheinung:29.01.2016 | Topic Prospectuses Transposition of new European provisions on market abuse, key information documents and central securities depositories Filip Melovski, Birgit Ortkemper, Michael Weisenfels / BaFin

First Act Amending Financial Market Regulations

On 6 January 2016, the Federal Cabinet adopted the government draft (only available in German) of the First Act Amending Financial Market Regulations (Erstes Finanzmarktnovellierungsgesetz). This act, like a large number of German financial markets provisions, mainly serves to adjust national legislation to new European provisions. The latter are intended to strengthen the integrity and transparency of capital markets and improve investor protection.

Specifically, they are the Market Abuse Directive and Market Abuse Regulation, the Central Securities Depositories Regulation and the Packaged Retail and Insurance-based Investment Products Regulation. Adoption of the new act is expected in the first half of 2016 with the new rules gradually entering into force.

Transposition of the Markets in Financial Instruments Directive II (MiFID II) and accompanying Markets in Financial Instruments Regulation (MiFIR), on the other hand, will not be transposed until a Second Act Amending Financial Market Regulations is adopted, since MiFID II and MiFIR will not apply until later than originally planned.

Market abuse

The new provisions of the Market Abuse Regulation and Market Abuse Directive entered into force on 2 July 2014, replacing the previous version of the Market Abuse Directive. While most of the provisions of the Regulation will apply directly from 3 July 2016, the stipulations on the supervisory and sanctioning powers of BaFin as well as all provisions of the Directive must be transposed into national law.

The new European market abuse laws serve to adjust the existing rules to changes in the area of market infrastructures. For instance, the market abuse rules will also apply to financial instruments traded on new types of trading platforms such as multilateral trading facilities (MTFs) and organised trading facilities (OTFs). Reporting and transmission requirements, for example for inside information and insider lists, will also apply to issuers whose financial instruments are traded only on an MTF or OTF. This is provided that the issuer consents to the financial instruments being admitted to trading on said platforms or that admission to trading has been applied for, either by the issuer itself or with the issuer's consent. In addition, the ban on market manipulation has been extended to include the manipulation of benchmarks.

The monitoring and intervention powers of the national competent supervisory authorities will increase and sanctioning of insider trading and market manipulation will be tightened and standardised across the EU. In future, all EU member states will have to provide for sanctions under criminal law, at least for intentional and serious contraventions of the ban on insider trading and market manipulation.

Provisions concerning criminal penalties and administrative fines

In particular, the German provisions concerning criminal penalties and administrative fines must be adapted to the new European market abuse rules. Given that the new Regulation applies directly, the provisions on administrative fines will no longer refer to the prohibitions and requirements of the German Securities Trading Act (WertpapierhandelsgesetzWpHG ) but directly to the Regulation.

Administrative fines under the WpHG will increase significantly based on the European provisions: contraventions of the ban on market manipulation by natural persons, for example, were previously subject to an administrative fine of up to EUR 1m. BaFin will now be able to sanction such administrative offences with fines of up to EUR 5m. The WpHG will also include concrete stipulations concerning administrative fines imposed on legal persons. Fines for contraventions may then also be based on turnover. Contraventions of the ban on insider trading or market manipulation, for instance, may incur fines of up to 15 percent of total annual turnover.

The WpHG provisions concerning criminal penalties will also have to be amended: according to the stipulations of the Market Abuse Directive, not only primary insiders but also secondary insiders are now subject to penalty for all forms of insider trading. In addition to attempted insider trading, which is already a punishable offence, attempted market manipulation will also be penalised.

Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation

Under the PRIIPs Regulation, manufacturers of packaged retail and insurance-based investment products will be required to publish key information documents as of 31 December 2016. All investment products and contracts in which consumers' money is invested indirectly, rather than directly, in the capital market or where its repayment is otherwise linked to the performance of certain securities or reference values are classed as packaged within the meaning of the PRIIPs Regulation. Any person selling or advising on such products must provide retail investors with the key information documents in good time before those investors are bound by any contract or offer. The PRIIPs Regulation contains provisions on the form and content of the key information documents. It also transfers direct power to the competent authorities to carry out product intervention for insurance-based investment products and grants them additional powers of intervention in case of contraventions of the PRIIPs Regulation.

The draft First Act Amending Financial Market Regulations provides for an amendment of the WpHG, the German Banking Act (KreditwesengesetzKWG), the German Investment Code (KapitalanlagegesetzbuchKAGB) and the German Insurance Supervision Act (VersicherungsaufsichtsgesetzVAG) to accommodate these additional powers of BaFin. The lists of sanctions in the relevant national supervisory laws will also be amended to include offences subject to administrative fines for contraventions of the PRIIPs Regulation. In addition, corresponding implementing provisions governing the distribution by insurance and investment intermediaries pursuant to the German Industrial Code (GewerbeordnungGewO), among others, will also be included in the GewO and its implementing regulations.

Products which are governed by the PRIIPs Regulation will not be subject to additional national requirements concerning the drawing up of information sheets. Therefore, product information sheets under the WpHG or capital investments information sheets under the German Capital Investment Act (VermögensanlagengesetzVermAnlG) will no longer need to be drawn up for packaged retail investment products as of 31 December, according to the draft legislation. Semi-professional investors in special alternative investment funds (AIFs) must be provided with either the key investor information as specified in the KAGB or the key information documents as specified in the PRIIPs Regulation. Products to which the PRIIPs Regulation does not apply continue to require the information documents as prescribed by national law.

Central securities depositories (CSDs)

Another intention is for the First Act Amending Financial Market Regulations to adapt the KWG to the provisions of the European CSD Regulation. The latter harmonises the relevant rules for the authorisation and ongoing supervision of CSDs.

BaFin will be responsible for the new authorisation procedure pursuant to the German Act Implementing the Transparency Directive Amending Directive (Gesetz zur Umsetzung der Transparenzrichtlinie-Änderungsrichtlinie; only available in German), which amends the KWG accordingly. Under the CSD Regulation, the provision of banking services in connection with CSD activities will be subject to a separate approval procedure which will also be the responsibility of BaFin. National law will continue to apply to the existing German CSD until the decision on applications for authorisation and approval under the European CSD Regulation is final.

Under the draft First Act Amending Financial Market Regulations, the new authorisation as stipulated by the CSD Regulation will replace authorisation as stipulated by the KWG which CSDs currently require to provide their services. In addition, competency will remain with BaFin for the ongoing supervision of CSDs under the European Regulation, as is currently the case under the KWG. BaFin's supervisory powers will remain in force and they will be amended to the new European provisions.

Finally, in transposing the provisions of the CSD Regulation, the draft legislation includes an extensive list of administrative offences. CSDs contravening the new European provisions will be subject to administrative fines of up to EUR 20m or up to ten percent of their total turnover generated in the business year prior to the decision of the competent authority, whichever is greater.

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