Financial Services SpeedRead - Germany: 18 March 2024 edition

Welcome to the first edition of the Germany specific Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight.  Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.

Financial Markets

1. BaFin: Publication: Update of FAQ on investment prospectuses

On 27 February 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) updated its FAQ on investment prospectuses (Prospekte für Vermögensanlagen).

The FAQ contains 24 questions and answers. These concern in particular, the content and form of investment prospectuses, the procedure of their approval, the details on their publication and on their ex-post adjustments, and the advertisement of investments.

2. Council of the EU: Press Release: Council adopts new rules to strengthen market data transparency

On 20 February 2024, the Council of the EU published a press release confirming that it has adopted the proposed Directive amending MiFID II and the proposed Regulation amending MiFIR. 

The amendments to the EU's trading rules are intended to equip investors with better access to the market data necessary for investing in financial instruments more easily and to increase the global competitiveness of the EU's capital markets and ensure a level playing field.

In particular, the amendments establish:

• Consolidated market data: EU-level "consolidated tapes" which bring together market data provided by platforms used to trade financial instruments in the EU. The consolidated tapes will aim to publish the information as close as possible to real time, providing investors with up-to-date transaction information for the whole of the EU; 
• Ban on payment for order flow: a general ban on "payment for order flow" (PFOF). EU member states where PFOF already existed have discretion to allow PFOF until 30 June 2026, by which time it must be phased out; and
• Commodity derivatives: new rules on commodity derivatives.

The texts will now be published in the EU’s Official Journal and enter into force 20 days later. The regulation will apply immediately in all EU member states, and member states will have 18 months to incorporate the directive into their national law.

Banking and Prudential

3. ECB: Publication: ECB guide to internal models

On 19 February 2024, the European Central Bank (ECB) published its revised guide to internal models for credit risk, market risk and counterparty credit risk. 

The guide follows the EBC's public consultation on internal models ending in September 2023. Alongside the updated guide, the ECB published a feedback statement in which it sets out comments received on the public consultation and the ECB's responses. 

In particular, the revisions to the guide include:

• clarifying how banks should take into account material climate-related and environmental risks in their models;
• outlining how banks can revert to the standardised approach for calculating risk-weighted assets;
• in relation to credit risk, helping banks to move towards a common definition of default and consistent treatment of "massive disposals" (i.e. bulk sales of non-performing loans);
• detailing how to measure default risk in trading book positions; and
• clarifying issues regarding counterparty credit risk.

The guide aims to provide transparency for relevant institutions on how the ECB understands and intends to apply the rules around internal models when assessing whether institutions meet the relevant requirements.

4. ECB: Publication: Memorandum of cooperation between NCAs in relation to the supervision of third-country groups and third-country branches

On 19 February 2024, the ECB published a memorandum of cooperation (Memorandum) entered into with Member State NCAs for the performance of their supervisory tasks in relation to the supervision of third-country groups and third-country branches. Under CRD IV, NCAs supervising branches of credit institutions with their head office in a third country and NCAs supervising institutions that are part of the same third-country group are required to cooperate closely to ensure that all activities of the third-country group in the EU are subject to comprehensive supervision.

The Memorandum aims to:

• strengthen and foster the supervisory framework established by CRD IV and CRR that apply to third country groups in the EU;
• prevent the circumvention of requirements and any detrimental impact on the financial stability of the EU;
• facilitate the exchange of information between the NCAs on third-country groups and third-country branches, including in emergency situations;
• facilitate the building of consensus on supervisory approaches taken by NCAs; and
• establish supervisory fora for NCAs to collaborate and coordinate actions.

The memorandum was signed on 19 January 2024 and came into effect the following day.

Funds Management

No new entries.

Senior Managers and Governance

5. BaFin: Publication: Update of Circular 05/2018 on minimum requirements for the compliance function

On 28 February 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published its revised circular 05/2018 on minimum requirements for the compliance function and the further conduct, organisation and transparency obligations (Mindestanforderungen an die Compliance-Funktion und weitere Verhaltens-, Organisations- und Transparenzpflichten, MaComp).

The revisions to the MaComp followed the European Securities and Markets Authority's (ESMA) Guidelines on certain aspects of the MiFID II remuneration requirements (ESMA35-43-3565), which have been incorporated into module BT 8 of the MaComp.

In particular, the revisions to the MaComp include:

• detailing the general requirements of the design of remuneration policies and practices;
• clarifying the requirements of variable remuneration and of ex-post adjustment criteria and clawback clauses;
• describing the controlling risks related to remuneration policies and practices;
• with regard to governance, specifying the responsibilities of the management body.

The revised MaComp is targeted to comply with ESMA's expectation by enhancing the value of existing standards and strengthening investor protection.

Financial Crime

6. Council of the EU: Press release: Frankfurt to host the EU’s new anti-money laundering authority

On 26 February 2024, the Council of the EU published a press release announcing that it and the European Parliament have agreed that the new Anti-Money Laundering Authority (AMLA) will be based in Frankfurt, beginning operations from July 2025. The location of AMLA's seat will be included in the regulation establishing the AMLA (AMLA Regulation).

AMLA will have direct and indirect supervisory powers over obliged entities and power to impose sanctions and other measures. This is part of a wider package of laws to reform the EU's framework against money-laundering and terrorist financing.

Retail Services

No new entries.

Payments

No new entries.

Digital Services and Fintech

No new entries.

ESG

No new entries.

Other

No new entries.