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.
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 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
- 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)
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)
Interpretation decisions
