AIFMD/UCITSD/KAGB

27. November 2020

The main European sources of law in the area of funds and market regulation are the Alternative Investment Fund Managers Directive (AIFMD) and the UCITS Directive (Undertakings for Collective Investments in Transferable Securities) or UCITS V Directive, supplemented and concretized in each case on the basis of delegations by executive acts of the European Commission. This applies, for example, to the further elaboration (Delegated Acts – DA) and the uniform and consistent application of the law in the EU Member States (Implementing Regulations, Implementing Acts – IA). Publications, statements, guidelines, Q&A etc. of the European Securities and Markets Authority (ESMA) provide application assistance and further clarification. The AIFMD, as its name suggests, is a Directive regulating Alternative Investment Fund (AIFs) Managers, whereas the UCITS Directive is also product regulation.

EU legislation in the field of financial and securities markets legislation, including investment law, is done through the so-called Lamfalussy process, named after Alexandre Lamfalussy, and aims to simplify and speed up legislation. The procedure has 4 stages:

Stage 1: Basic Directives and Regulations are adopted by the Council and the European Parliament.
Level 2: The more technical details are laid down in the form of Implementing Directives and Regulations in so-called comitology committees (experts from the EU Commission and the Member States).
Level 3: Common standards and guidelines for the uniform material implementation are developed by the National Competent Authorities (NCAs).
In Level 4, the Commission reviews the implementation of the directives on the basis of comprehensive reports, which the Member States are obliged to submit.

AIFMD/ELTIF/EuVECA/EuSEF

The AIFMD, as its name suggests, is a directive that regulates Alternative Investment Fund Managers (AIFs). It is the EU framework directive, complemented by the important, directly applicable AIFMD Level II Regulation (Commission Delegated Regulation (EU) No. 231/2013 as regards exemptions, operating conditions, depositaries, leverage, transparency and supervision).

The ELTIF, EuVECA and EuSEF Regulations have created specific legal acts for particular types of AIFs (so-called product regulated EU-AIFs), which are directly applicable without transposition in national law: These are the European Long-Term Investment Funds, the European Venture Capital Fund and the European Social Entrepreneurship Fund, the qualified fund for social entrepreneurship.

AIFMD Review:

The AIFMD is currently undergoing a comprehensive review as foreseen in Art. 69 of the Directive. BAI had already participated in the preparatory Survey 2018 with the Fund and Market Regulation Committee. The result and a kind of inventory of the effectiveness of the AIFMD implementation was the KPMG report commissioned by the EU Commission, which was presented in December 2018 and published in January 2019.

Report on the operation of the alternative investment fund managers directive (AIFMD)

The official consultation of the AIFMD review was launched by the EU Commission on 22 October 2020; the deadline is 29 January 2021.

The consultation document with the extensive list of questions can be found here:

Consultation Document on the AIFMD Review

You will find current information on the AIFMD review and BAI's activities in this regard in the section of the Committee of Experts on Fund and Market Regulation.

Level I: Framework directive and framework regulations

Level II: Overview of executive acts

AIFMD Level II Regulation (EU) Nr. 231/2013 and list of other executive acts

ELTIF Regulation: list of other executive acts

EuVECA Regulation: list of other executive acts

EuSEF Regulation: list of other executive acts

Level III: Overview ESMA Updates Q&A and ESMA Guidelines

ESMA Updates AIFMD Q&A

ESMA Guidelines (Guidelines Tracker; Guidelines with regard to the AIFMD in lines 3 and following):

Guidelines on reporting obligations under Articles 3(3)(d) and 24(1),(2) and (4) of the AIFMD
Guidelines on the model MoU concerning consultation, cooperation and the exchange of information related to the supervision of AIFMD entities
Key concepts of the AIFMD
Guidelines on sound remuneration policies under the AIFMD
Guidelines on Article 25 of Directive 2011/61/EU

UCITS V Directive

UCITS V Directive

The UCITS Directive with its formal name Council Directive 85/611/EC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) is a European directive that defines specific requirements for funds and their management companies. Unlike the AIFMD, the UCITS Directive is also product regulation. One of its main features is the regulation of eligible assets in which a UCITS may invest. Detailed regulations on this topic are contained in the European Commission's implementing directive Directive 2007/16/EC (so-called Eligible Assets Directive). Amendments such as simplifying the notification procedure for cross-border distribution, enabling cross-border fund mergers and the introduction of a new concept of investor information with the basic information sheets (BIB), which replaced the previous simplified prospectus, led to a recast of the UCITS Directive as UCITS V Directive 2009/65/EC. Among other things, Directive 2010/43/EU and Directive 2010/44/EU were adopted for its further implementation.

Level I: Framework Directive

UCITS V Directive (consolidated version)

Interactive Single Rule Book for UCITS V by ESMA

Level II

Implementing Directive 2010/43/EU as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company

Implementing Directive 2010/44/EU as regards certain provisions concerning fund mergers, master-feeder structures and notification procedure

CImplementing Directive 2007/16/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions (so-called Eligible Assets Directive)

Level III

Questions and Answers: Application of the UCITS Directive

ESMA Guidelines (Guidelines Tracker; Guidelines with regard to the UCITS Directive in lines 66 and following):

Guidelines on sound remuneration policies under the UCITS Directive and AIFMD (UCITS policies)
Guidelines on sound remuneration policies under the UCITS Directive and AIFMD (AIFMD policies)
Guidelines on ETFs and other UCITS issues
Guidelines on risk measurement and the calculation of global exposure for certain types of structured UCITS
Guidelines on ETFs and other UCITS issues
Guidelines on performance fees in UCITS
Guidelines on liquidity stress testing in UCITS and AIFs

KAGB (German Capital Investment Code) and other national legal sources

As it is a Directive and not a Regulation, the contents and rules of the European AIFMD are only applicable after transposition into national law. The German Capital Investment Code (KAGB) makes use of the national scope for legal design by deviating from the AIFMD in numerous areas and by making some prescriptions stricter than those of the Directive itself (so-called gold-plating). As a codification of the entire German investment funds’ law, the KAGB not only regulates AIFMs, but also includes rules for UCITS and also regulates numerous types of AIFs. The KAGB is concretized by executive acts/ordinances of the Federal Ministry of Finance (BMF) and the Federal Financial Supervisory Authority (BaFin). As a rule, the BaFin issues the ordinances instead of the actual ordinance issuer BMF, based on the ordinance on the transfer of powers to issue ordinances to the BaFin. BaFin also provides insights into its current administrative practice through publications such as circulars, Q&As, guidelines etc.

The following chart provides an overview of the KAGB's system and fund categories:

National law

KAGB (German Capital Investment Code) (in German only, there is no convenience translation of this voluminous code)

Reading version KAGB (in German)
(May 2021)

Legal ordinances of BMF or BaFin

Derivative Ordinance (DerivateV) (in German only, there is no convenience translation)

Capital Investment Audit Reports Ordinance (in German only, there is no convenience translation) Kapitalanlage-Prüfungsberichte-VO (KAPrüfbV)

Investment Accounting and Valuation Ordinance (Kapitalanlage-Rechnungslegungs- und BewertungsVO (KARBV)) (in German only, there is no convenience translation)

Investment Conduct and Organization Ordinance (Kapitalanlage-Verhaltens- und OrganisationsVO (KAVerOV)) (in German only, there is no convenience translation)

Ordinance on the electronic notification procedure (Verordnung zum elektronischen Anzeigeverfahren (EAKAV)) (in German only, there is no convenience translation)

Administrative practice of BaFin (in German only, there are no convenience translations)

Guidances Notices

Circulars

Interpretation decisions

FAQs