Institutions within scope of WpIG
The IFR and WpIG form an overall package for the future regulation of the activities of small and medium-sized securities institutions. For large securities institutions and CRR credit institutions, on the other hand, the regulations of the German Banking Act (Kreditwesengesetz, hereinafter KWG) and the Capital Requirements Regulation (EU) 575/2013 (CRR), which also apply to banks, remain largely applicable. The following guidelines can be used to determine whether an entity will continue to fall within the scope of the KWG and so not be deemed to be a securities institution within the meaning of the WpIG:
- CRR credit institutions: systemically important firms which conduct issuing business or proprietary trading and have a balance sheet total of at least €30 billion.
- Large securities institutions: not CRR credit institutions, but due to their size or bank-like business activities they remain subject to the CRR.
- Conduct of business supervision remains unchanged under the relevant stipulations of the Securities Trading Act (Wertpapierhandelsgesetz) and the MiFID implementing acts.
The new regime for small and medium-sized investment institutions
The new regime for small and medium-sized investment institutions
General
The IFR regulates, among other things, capital requirements, concentration risk requirements, liquidity requirements, reporting requirements and disclosure requirements, whereas the WpIG mainly deals with solvency supervision and supervisory powers, the licensing procedure, requirements for managers and administrative or supervisory bodies as well as holders of significant participations, and requirements for internal corporate governance.
The provisions of the WpIG in detail
It is important to know that the regulatory regime for medium-sized and small securities institutions is self-contained. That means that all regulations for small and medium-sized securities institutions have been removed from the KWG and can now be found (as modified) in the WpIG. At the same time, the MiFID regulations contained in the KWG can also be found in the WpIG. In detail:
- Investment Services. The MiFID licensing requirements, which are defined in the KWG as “banking business or financial services”, are defined in section 2 paragraph 2 WpIG as “investment services”.
- Permission requirement. The obligation to obtain permission is stipulated in section 15 WpIG.
- Ancillary securities services and ancillary transactions. In addition, section 15 paragraph 2 WpIG allows for ancillary securities services and ancillary transactions, provided that these are exercised together with at least one securities service.
- Requirements for the managers and members of administrative or supervisory bodies. The requirements for managers and members of administrative or supervisory bodies will in future also be regulated for medium-sized and small companies, under sections 20 to 23 WpIG and no longer under the KWG.
- Ownership control procedure. The ownership control procedure adopted by securities institutions will be governed by the provisions of sections 24 to 27 WpIG. As before, the provisions of Delegated Regulation (EU) 2017/1946 must also be observed.
- Intention to fill key positions. It should be noted here, however, that for large securities institutions and CRR credit institutions, the provisions of sections 25c, 25d and 36 KWG continue to apply, but in addition, pursuant to section 65 paragraph 1 WpIG, the intention to fill key positions must also be notified to the supervisory authority.
- Proper conduct of business. Standards for organisational arrangements for the proper conduct of business by securities institutions are set out under sections 38 to 46 WpIG.
- Duty of disclosure. The duty of disclosure will be governed by the provisions of sections 64 to 68 WpIG.
- EU/EEA passporting regime. The regulations on the EU/EEA passporting regime for domestic securities institutions can be found in sections 70 to 72 WpIG and those for securities institutions with business activities in Germany but their registered office in another member state, in sections 73 to 75 WpIG.
The final draft of the WpIG is available at www.bmjv.de.
Client Alert 2021-144
