In our article “Draft bill on the Financial Market Integrity Strengthening Act (FISG) – Increased controls, more sovereign powers and threats of punishment as a deterrent” we looked at the planned changes to the draft government bill on the Financial Market Integrity Strengthening Act (Finanzmarktintegritätsstärkungsgesetz, “FISG”) (“RefE-FISG”). The proposed legislation intends to implement measures to restore and permanently strengthen confidence in the German financial market. In the meantime, the government draft of the FISG (“RegE-FISG”) has been published.
We have taken a closer look at the RegE-FISG and show below the most important changes compared to the RefE-FISG. In doing so, we will first focus on the topics that we have already highlighted in our previous article, then explain further changes compared to the RefE-FISG and finally take a look at the main practical effects of the proposed legislation.
Financial Statement Control
In the area of financial statement, the draft law provides for a fundamental reform, which we explained in more detail in our previous article. The RegE-FISG does not result in any significant changes compared to the RefE-FISG.
Financial Transaction Investigation
Section 31 para 5 and 5a GwG-E (draft of the German Money Laundering Act) and section 31 para. 2a and 2b AO-E (draft of the German Tax Code) provide that the German Central Office for Financial Transaction Investigations (Zentralstelle für Finanztransaktionsuntersuchungen) shall be enabled to automatically retrieve selected basic tax data from the tax authorities. The RegE-FISG now additionally provides that the German Central Financial Transaction Investigation Authority shall immediately examine the extent to which it requires the data transmitted by the tax authorities in a specific individual case and shall immediately delete any data that is not required. If the result of the analysis is not transmitted to the competent prosecuting authority, the collected data must also be deleted without delay. Thus, the tax data cannot be kept by the German Central Financial Transaction Investigation Authority at will.
In our previous article, we presented the amendments planned in the RefE-FISG to various supervisory laws (in particular German Banking Act (Kreditwesengesetz – “KWG”) and the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – “ZAG”)) to clarify and expand the German Federal Financial Supervisory Authority´s (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) powers in the area of outsourcing.
In the RefE-FISG, the catalog of notification obligations with regard to outsourcing has been significantly expanded in Section 28 para. 1 no. 10 ZAG and section 24 para. 1 no. 19 KWG, among others. Here, the RegE-FISG brings a certain mitigations, whereby the notification obligations with regard to outsourcing are still considerably expanded compared to the current legal situation.
The RegE-FISG does not result in any alterations with regard to the inclusion of investments planned in section 1 para. 2 no. 8 German Asset Management Act (Vermögensanlagegesetz – “VermAnlG”), which grant or hold out the prospect of an interest payment and repayment or an interest payment and surrender of precious metals or another pecuniary compensation in exchange for the temporary surrender of money or precious metals.
Improvements have been made in the RegE-FISG with regard to data protection:
As already described in the previous article, BaFin is to be able to publish both the order to audit the financial statements and the reason for this order in the Federal Gazette (Bundesanzeiger) and on its website as part of the financial statement audit, insofar as there is a public interest in this. The RegE-FISG now clarifies, among other things, that the publication of the reason for the order may not contain any personal data.
Right to exchange information
The RegE-FISG provides for an addition by section 109 WpHG-E (draft of the German Securities Trading Act). The legal provision contains the right to exchange information between BaFin, the inspecting authority (Prüfstelle), the auditor oversight authority (Abschlussprüferaufsichtsstelle), the Federal Ministry of Finance (Bundesministerium der Finanzen), the Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) and the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) regarding audits performed or the financial statement of companies to be audited. Within the scope of the exchange of information, the exchanging bodies are not subject to any statutory secrecy or confidentiality obligations among each other.
Significant Practical Effects
Particularly in the area of outsourcing, the draft law will result in changes of practical relevance. Of particular relevance here are section 26 para. 1 ZAG, section 25b para. 3 KWG and Section 36 para. 1 sentence 1 no. 7 German Capital Investment Code (Kapitalanlagegesetzbuch – “KAGB”), according to which, in the event of outsourcing to a company in a third country, it must be contractually ensured that the outsourcing company has to appoint a domestic delivery agent to whom notifications and deliveries by BaFin can be effected. If an institution outsources to a company that is not already represented in Germany, the requirement to appoint a domestic agent for service of documents appears problematic. Cross-border outsourcing could be made considerably more difficult by this regulation.
The expanded powers of BaFin towards the outsourcing companies will also bring new challenges in practice, which will make it more difficult to conclude outsourcing agreements.
The FISG is scheduled to enter into force on July 1, 2021. Prior to this, it requires the approval of the German Federal Parliament (Bundestag). We will of course continue to keep track of the proposed legislation and will keep you updated on PayTechLaw.