Within the scope of the establishment of credit or financial institutions external sector statistics reporting is still to be observed. This topic is subject to substantial changes from July 2013 on.

From this date on the reports could only be filed electronically. Apart from that, the content of the reporting will be extended in order to meet the increased needs for information on both, national and international level. Additionally, there will be changes with respect to the persons subject to external sector statistics reporting obligations.

Not filing the external sector statistics report or filing delayed, incorrect and incomplete external sector statistics reports will still be considered administrative offenses and cause fines.

Please also refer to the Homepage of the Deutsche Bundesbank

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Christina Grulkechristina.grulke@de.pwc.comTel. +49 69 9585-5187Frankfurt am Main

Within the context of the establishment of a credit or financial institution the proper compliance with the German reporting regulations has to derive already from the respective application documentation. That means, one should deal with the German reporting duties at a very early stage. Even EU-Branches pursuant to Sect. 53b German Banking Act should be aware of German reporting requirements since they are also obligated to submit regulatory reports to a certain extent.

Due to the introduction/implementation of the CRD IV package there will be extensive changes regarding the regulatory reporting duties. For example the so-called monthly reports (in future financial information) which have to be submitted quarterly pursuant to Sect. 25 German Banking Act will change.

That means, based on the draft Financial Information Regulation (Finanzinformationenverordnung) there will be additional requirements for credit institutions. According to the current legislation credit institutions which already submit monthly reports for statistical reasons are exempt from the quarterly reports. However, it is planned that also these institutions shall submit quarterly profit and loss statements. Furthermore so-called planned profit and loss figures as well as additional information will be required.

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Maxi Wilkowskimaxi.margarethe.wilkowski@de.pwc.comTel. +49 69 9585-6452Frankfurt am Main

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Herbert Zerwasherbert.zerwas@de.pwc.comTel. +49 69 9585-6812Frankfurt am Main

While the last post addressed the issue of capital requirements (see below), the present blog deals with the question to which extent an AIFM may outsource functions already in the course of the licensing procedure (and later when conducting the business as licensed entity).

The outsourcing or delegating of tasks by an AIFM is possible as far as the outsourcing structure can be justified on objective grounds and certain other conditions, such as a written contract, are fulfilled.

However, an AIFM shall not transfer its functions to the extent that it becomes a mere letter box entity. The now adopted version of the implementing regulation (also known as Level II measures) gives indications under which conditions an AIFM is classified as a letter box entity.

An AIFM is generally required with respect to outsourcing that it maintains the necessary resources and expertise to supervise the outsourced functions and to control the risks associated with the outsourcing. Furthermore, the AIFM must be able to exercise the contractually stipulated information, auditing and managerial rights. The AIFM must also continue to make all important decisions especially with regard to the investment strategy.

To avoid to be classified as a letter box entity, the scope of the outsourced functions should not exceed the scope of the functions performed by the AIFM itself by a substantial margin.

The implementing regulation establishes not only quantitative criteria, such as the amount of assets managed, for evaluating the scope of the outsourced functions. The outsourcing structure is to be assessed by regulators with respect to the fulfillment of certain qualitative criteria. These are inter alia

• the importance of the assets the administration is outsourced to achieve the investment goals of funds

• the configuration of delegates

• the types of outsourced tasks in relation to the tasks retained by the AIFM

• the risk profile of the funds, etc.

The regulation was adopted on 19 December 2012 and shall enter into force after three months, unless the European Parliament or the Council raises objections. It is unlikely that the rules discussed here will change.

An AIFM should analyze its outsourcing structures accurately. It should take into account the requirements set forth in the regulation and adjust its outsourcing structures if necessary before submitting a license application to avoid classification as a letter box entity.

(To be continued)

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Veronika Ghedinaveronika.ghedina@de.pwc.comTel. +49 69 9585-6895Frankfurt am Main

As part of the revision of MiFID in the future also market access for providers of investment services from third countries should be regulated consistently across the EU. Sales to retail clients, including retail clients who have requested to be treated as professionals shall be possible only if a branch in the EU has been established.  Therefore, cross-border sales to retail clients will not be possible any more.

However, the precondition for establishing a branch is – according to the current status of the discussions – that the EU Commission has adopted an equivalence decision concerning the respective third country. In addition, a cooperation agreement between the third country and the Commission has to be in place. Furthermore, a Memorandum of Understanding between the third country and the Member State in which the branch is to be established will be necessary. These rules are likely to increase the entry barrier for investment service providers from third countries. As far as the regulatory rules of the country of origin are not recognized as equivalent to the EU regulations, investment services providers from non-EU-countries will not be able to establish a branch in the EU.

However, for third-country investment firms that are already operating on the basis of national regulations in the EU, a transitional regime will apply. The MiFID II draft in the version of 3 December 2012 provides for a transitional period of four years after the entry into force of MiFID II.

Since not all Member States see the need for a uniform market access regulation of banks and financial services institutions from third countries, this issue of MiFID II draft is still under discussion. We will see how the new rules under the Irish Presidency will develop.

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Herbert Zerwasherbert.zerwas@de.pwc.comTel. +49 69 9585-6812Frankfurt am Main

There are numerous requirements that have to be met in order to obtain an AIFM-license by the Federal Financial Supervisory Authority (BaFin). One of these conditions is the availability of adequate capital.

The applying AIFM has to prove that it disposes of adequate capital. In this regard, a distinction is drawn between initial capital and own funds.

The initial capital is at least EUR 300,000 for an internal AIFM. Internal AIFMs are investment companies that have not designated an external management company. The initial capital for an external AIFM amounts at least to EUR 125,000. External AIFMs are management companies that manage at least one AIF. The amount of additional own funds required varies depending on the value of the managed investment funds. For providing the additional amount a relief is provided: 50% of the required additional capital may be replaced by a guarantee. Such a guarantee is, however, only recognized if it is issued by banks and insurance companies which comply with the regulatory requirements established by the European legislator.

It has to be considered furthermore that an AIFM at any time must have own funds which include inter alia a quarter of the cost of general administrative expenses.

Concerned AIFMs should act now on the capital requirements for the licensing procedure and ensure that adequate resources, including where appropriate by providing a guarantee, are available within the licensing process.

(To be continued)

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Veronika Ghedinaveronika.ghedina@de.pwc.comTel. +49 69 9585-6895Frankfurt am Main

The development bank’s rating can be disconnected from the country rating by collateralization using natural resources, more specifically the future cash flows from developed natural resources. Furthermore, by involving a trusted third party, through which cash flows will be redirected, the ownership of natural resources can be retained by the individual governments.

By initially supplying financing for the further development of industry, the domestic development of infrastructure and the state can be indirectly financed. This “circular flow” of funds helps create cash flows which in turn can be used for collateralization and thus secure the favourable provision of refinancing for the newly founded development bank.

Using specific projects, sustainable development structures can be achieved and expanded toward development structures independent of specific project causes. The long-term goal of improved infrastructure and economic growth can be achieved.

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Hartmut Liehrhartmut.liehr@de.pwc.comTel. +49 211 981-1492Düsseldorf

In order to offer financial services today, companies usually require a banking license and are therefore subject to the supervision of the BaFin. However, there are financial services which can be exempted from the supervision and are therefore not bound to license requirements. These businesses named “Financing Without a Bank” are often ancillary or secondary businesses, which can be offered as a complement to the core business. A possible release of the license requirements depends on the business volume of the respective company.

Generally an increasing intention of non-banks to establish a bank can be observed. This is due to the fact that regulatory requirements are continually intensified and therefore less financial services can be found in the area of a possible release.

However, it should not create the impression that it is easy to implement “Financing Without a Bank”.  For this purpose certain core processes should be set up and a suitable risk management should be established in any case.

With regard to risk management it is especially advisable to acquire a banking license because then companies must meet the minimum requirements for risk management (MaRisk). Consequently, they should be able to better assess and control risks. 

Additionally, a banking license ensures professionalism in different areas and provides legal security for the conduct of the banking business. Hence, a greater security and loyalty can be gained with regard to the customers.

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Hartmut Liehrhartmut.liehr@de.pwc.comTel. +49 211 981-1492Düsseldorf

Industrial companies are thinking to establish their own bank or have established their own bank already. The motifs to found a bank can be totally different.

The range of existing bank products and services does not always correspond to the needs and requirements of the respective company. Through the acquisition of an own banking license, the company is able to develop new financing models for either internal or external purposes and can also create company specific products and services. Furthermore, companies with high refinancing needs may then obtain access to low interest ECB loans if applicable. Additionally, they get the possibility to place liquidity reserves and other cash assets profitably. Consequently, new value creation possibilities can be revealed through an own banking license.

The developments of the financial markets can also be a decisive factor for the decision of founding a bank.
Lately many banks were downgraded by the rating agencies, so that some companies might be anxious and that therefore the establishment of an own bank could contribute to the long-term protection of the company’s success.

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Hartmut Liehrhartmut.liehr@de.pwc.comTel. +49 211 981-1492Düsseldorf

An own development bank is a very sustainable instrument in order to strategically set up and establish the support in a country.

Especially emerging countries have often realized the growing importance of development banks for their countries. Thus, even in European countries there are concrete plans to establish a development bank later this year hoping that a development bank stimulates the struggling economy by giving money to companies having difficulties obtaining commercial loans.  Thereby, such banks direct their focus at SME’s as they constitute a high proportion of the countries’ economy and therefore employ many people.

But a final decision regarding the foundation of a development bank has not been made yet.

In many cases, development banks are owned by the government of the respective country and therefore the support through development banks goes in line with the interests of the current government.

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Hartmut Liehrhartmut.liehr@de.pwc.comTel. +49 211 981-1492Düsseldorf