There is currently an ongoing discussion about the criteria of demarcation between closed and open ended funds between the European Commission and the European Securities and Markets Authority (ESMA). The determination of these criteria is relevant not only with regard to compliance obligations of the asset management companies – in particular with respect to rules related to liquidity management-, but also with regard to the application of the transitional provisions of the KAGB.
Depending on whether a fund is classified as open ended or closed, different rules apply. This is in particular decisive for the question whether the management of funds preexisting to the entry into force of the KAGB requires a license according to the KAGB and thus whether the respective manager of an AIF shall submit an application for a license.
ESMA set the frequency of redemption opportunities as a criterion for the distinction between open ended and closed AIFs. An annual redemption frequency should lead to a classification as open-ended AIFs. An AIF should be deemed closed if the redemption possibility is provided less than once annually.
The application of this criterion was rejected by the European Commission; hence ESMA has developed a new proposal (2013/ESMA/1119), which provides that any possibility of redemption of the investor prior to the liquidation of the AIF leads to a classification as open-ended AIF. In addition, ESMA proposes to apply the currently applicable Member States’ law for the transitional provisions. This solution would provide legal certainty for those managers of AIFs that operate without a license on the basis of preexisting investment management contracts.
It remains to be seen how the European Commission will react on this new proposal.
On 20 October 2011, a draft of the revised Markets in Financial Instruments Directive (MiFID) flanked by the draft of a new Market in Financial Instruments regulation (MiFIR) was published by the EU Commission. The two drafts are hereinafter referred to collectively as "MiFID II". The revision of the existing MiFID is part of reforms designed after the financial crisis to create a safer and sounder financial system.
MiFID II is expected to expand the existing licensing obligation to a larger number of enterprises.
The MiFID II draft plans an extension of the definition of "financial instrument". Under MiFID II, emission certificates will be classified as financial instruments. In addition, any forward contracts on commodities that are traded on organized trading systems, will qualify as financial instruments. The trading of financial instruments, especially for a third party, can trigger a license requirement.
MiFID II aims to ensure that the entire organized trading takes place on regulated market places. Existing commercial systems that are currently not regulated are then expected to be subject to a license requirement.
MiFID II will also restrict the existing exemptions. Currently, commodity dealers use often the so called "commodities dealer exemption", which exempts particular the "Back to back" trading from the license requirement. This exemption will probably be abolished. The so-called "ancillary exception", which can also be used by commodities traders will be redesigned.
It is likely that some market participants, who were not previously covered by a license requirement under MiFID, will face a licensing obligation under MiFID II. Thus there is for commodity dealers in larger scale than before the risk of being subject to licensing requirements.
Companies that could be subject to a license requirement pursuant to MiFID II must face this challenge in time and analyze appropriate solutions. There are different ways to structure the activity carried out so that they still could operate without a license. If a company decides to file a license application, the entire business of the legal entity has to meet the regulatory requirements under the Banking Act, the Securities Trading Act and other regulations, so that in this respect new structures within the company or the group may be necessary.