Section 34f Explained– ESG Requirements for German Financial Investment Intermediaries

Introduction

A new regulation (Verordnung zur Änderung der Gewerbeanzeigeverordnung und der Finanzanlagenvermittlungsverordnung – the “Regulation“)  amended the German Financial Investment Intermediaries Ordinance (Finanzanlagenvermittlungsverordnung – “FinVermV”) having effect also on the German Trade Ordinance (Gewerbeordnung – “GewO”). As a result, German financial intermediaries operating under section 34f GewO must now take into account the sustainability preferences of their clients and show that they have basic knowledge of sustainability criteria for financial products as part of their expertise assessment.

Provision of services under section34f GewO

The provision of financial services, such as investment advice, generally requires a licence from the national competent supervisory authority, except for individuals who operate within the legal framework of section 2 (8) No 6 of the German Banking Act (Kreditwesengesetz – “KWG”) in connection with section 34f (1) of the German Trade Ordinance (“34f exemption”).  Legal or natural persons in Germany can obtain a permission limited to provide investment advice on open and closed-ended domestic, EU and foreign investment funds (if registered for marketing in Germany).[1] Financial intermediaries acting under the section 34f exemptions are subject to registration on the register for financial investment intermediaries in accordance with Section 11a GewO and must comply with the good conduct rules set out in  the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”).

Expertise Requirements and Clients’ Sustainability Preferences

The Regulation expanded the requirement of expertise for individuals operating under the 34f exemption to include showing basic knowledge of sustainability criteria for financial products as part of their expertise assessment concerning financial instruments and categories of financial products (Item 2.2.4 of Annex 1 to Section 1 (2) FinVermV).[2]

In addition, section 11a (3) FinVermV will be amended with reference to the Delegated Regulation (EU) 2017/565 (“MiFID II Delegated Regulation”) and Directive 2014/65/EU (“MiFID”), so that financial investment intermediaries acting under the scope of the 34f exemption are required to ask clients about their sustainability preferences.[3] This in turn means that financial investment intermediaries must ask their clients about their preferences regarding sustainability and may only recommend financial instruments that correspond to their sustainability preferences. In terms of processes and procedures on how this needs to be done in practice, please refer to the ESMA guidelines on certain aspects of the MiFID II suitability requirements that will soon enter into force

Effective Date

The new requirements apply from 20 April 2023.[5]

Next step

We recommend our clients to start integrating the ESMA Guidelines and firms who operate through investment intermediaries in Germany to get in touch with them and discuss the exchange of information in relation to sustainability to ensure continued marketing/distributions of one’s products as well as future compliance with the ESMA Guidelines on Sustainability Preferences.

If you have any questions or require support, the Zeidler team is here to help. Our global team of professionals remains up to date on the latest legal, regulatory and compliance changes affecting the asset management industry.

[1] BaFin – Publications & data – Frequently asked questions about the marketing and acquisition of …

[2] Anlage 1 FinVermV – Einzelnorm (gesetze-im-internet.de)

[3] EUR-Lex – 02017R0565-20220802 – EN – EUR-Lex (europa.eu).

[4] Bundesrat zur Verordnung zur Änderung der Gewerbeanzeigeverordnung und der Finanzanlagenvermittlungsverordnung, S. 14.

[5] Bundesrat zur Verordnung zur Änderung der Gewerbeanzeigeverordnung und der Finanzanlagenvermittlungsverordnung, S. 10.