22. February 2022

Key European legal sources in the area of fund and market regulation are the Undertakings for Collective Investments in Transferable Securities (UCITS Directive) and the Alternative Investment Fund Managers Directive (AIFMD). Both directives have been implemented in German law in the German Capital Investment Code (Kapitalanlagegesetzbuch, KAGB). They are supplemented and concretized in each case on the basis of authorizations by executive legal acts of the European Commission. This applies, for example, to the further elaboration (Delegated Acts - DA) and the uniform application of the law in the member states (Implementing Acts - IA).

Publications by the European Securities and Markets Authority (ESMA) on the basis of a corresponding directive authorization or its own initiative provide application assistance, and the specifications of the German Federal Financial Supervisory Authority (BaFin) supplement the regulations or monitor implementation at national level.

The UCITS Directive concerns investment funds that invest in legally defined types of securities and other financial instruments (securities funds) and also includes product regulation, whereas the AIFMD deals with alternative investments (hedge funds, private equity, etc.) and primarily regulates the managers of these funds.

Together, these two sets of rules form the cornerstone of fund and market regulation.

Current Activities


The AIFMD is currently undergoing a comprehensive review as provided for in Art. 69 of the Directive. The EU Commission presented a draft at the end of November 2021, which was open for public discussion until the end of March 2022 – the BAI submitted a position paper (see below). The European Council and the European Parliament then deliberated before entering into the trilogues. Entry into force is expected at the end of 2022 at the earliest, so that the implementation period in the member states is not due before 2025.

The draft provides for the greatest innovations on the topics of: Credit funds, outsourcing, third countries, liquidity management tools and custody.

The BAI had already contributed to the preparatory survey in 2018. The result and a kind of stocktaking 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 (available at: Report on the operation of the alternative investment fund managers directive (AIFMD)).

The overview of the current status of the initiative can be found here.



The EU Commission had launched the consultation on the ELTIF review on October 19, 2020. The consultation period ran until January 19, 2021. The draft - which was published at the same time as the AIFMD draft on November 25, 2021 - was open for public discussion End of march 2022. Before entering into the trilogues, the European Parliament and European Council deliberated. The new legislation will enter into force at the end of 2022 at the earliest, so that the implementation period in the member states is not due before 2025.

In particular, the need for change was recognized in the previous investment hurdles for private investors, the restrictive requirements on investable assets and their diversification, the lack of facilitation for funds with institutional investors, and the inadmissibility of master-feeder structures. The innovations in these areas are intended to make the hitherto little-launched ELTIF more attractive.

The overview of the current status of the initiative can be found here.

Lamfalussy Process

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.



The AIFMD is a directive that regulates alternative investment fund managers. It is the EU Framework Directive, supplemented by the important AIFMD Level II Regulation (Commission Delegated Regulation (EU) No. 231/2013 regarding exemptions, operating conditions, depositaries, leverage, transparency and supervision).

The Directive regulates alternative investment fund managers that were not covered by the UCITS Directive. Affected are both managers domiciled in the EU and managers from third countries who wish to distribute their funds in the EU. In Germany, the Directive was transposed into national law in the form of the KAGB.


With the ELTIF, EuVECA and EuSEF Regulations, special legal acts were created for special fund product types (so-called product-regulated EU AIFs) that are directly applicable. These are the European Long-Term Investment Funds (ELTIF), the European Venture Capital Funds (EuVECA) and the European Social Entrepreneurship Funds (EuSEF).

Level I: Framework directive and framework regulations


ELTIF Regulation

EuVECA Regulation

EuSEF Regulation

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

The UCITS Directive (Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities) defines specific requirements for funds and their management companies.

The UCITS Directive also concerns product regulation. One focus here is the regulation of the permissible assets in which investments may be made. Detailed regulations on this subject are contained in the EU Commission's implementing Directive 2007/16/EC (the so-called Eligible Assets Directive). Changes such as the simplification of the notification procedure for cross-border distribution, the enabling of 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 sales prospectus, led to a recast of the UCITS Directive as UCITS V Directive 2009/65/EC.

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)

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


Interpretation decisions



In June 2019, the EU Directive 2019/1160 amending the UCITS Directive and the AIFM Directive and Regulation (EU) 2019/1156 were adopted.

According to the new and EU-uniform definition, pre-marketing is - in short - the direct or indirect provision of information on investment strategies or investment concepts to potential professional investors domiciled in the EU in order to test their interest in a fund that has not yet been launched or for which there is not yet a sales notification in the respective member state.

In order to implement the Directive, the Fondsstandortgesetz ("FoStoG") was adopted in Germany, which entered into force on July 01, 2021 and was transferred into the KAGB.

Fondsstandortgesetz (Fund Location Act)
(Act to strengthen Germany as a fund location and to implement Directive (EU) 2019/1160 amending Directives 2009/65/EC and 2011/61/EU with regard to the cross-border marketing of undertakings for collective investment)

Pre-Marketing - FAQ
BAI, July 2021

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