New German regulation on crowdinvesting-platforms

No matter if residing in Germany or abroad, crowdinvesting-platforms have to comply with German laws if they offer their services to German customers. Such platforms should now pay attention to some important changes to the applicable complex regulation which will enter into force this summer.

Short overview of the current German regulation on crowdinvesting-platforms

Crowdinvesting describes a type of funding where capital-seeking issuers are being brought together with potential investors in the context of funding projects that are mostly presented via online marketing places run by platform operators. Platform operators should be aware that such profit-orientated crowdinvesting projects raise several supervisory issues, if German investors are being addressed. On the German market, commercial brokerage of such crowdinvesting projects is only permitted if the platform (respectively the liable enterprise in cases where the platform operates as tied agent) does hold a specific license. Which supervisory regulations are applicable to the respective crowdinvesting-platform and thus which of the respective licenses is required depends on the design of the individual project and platform which may come in numerous variations.

However, the vast majority of crowdinvesting-platforms operating in the German market typically brokers solely capital investments (Vermögensanlagen) as laid down in sec. 1 (2) of the German Capital Investment Act (Vermögensanlagengesetz - VermAnlG). Such platforms regularly benefit from the exemption set out in sec. 2a of VermAnlG which is a provision customized specifically for crowdinvestments. Provided that under the business model the platform operators additionally do not accept any monies from investors (if they do, this might also trigger authorisation requirements under the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG)), they usually fall within the scope of sec. 2 (6) no. 8 e) of the German Banking Act (Kreditwesengesetz - KWG). This has the effect that no authorisation pursuant to sec. 32 (1) sentence 1 KWG for the provision of financial services is required. Instead, it is mandatory to obtain a license for financial asset brokers (Finanzanlagenvermittler) according to sec. 34f of the German Trade Regulation Act (GewerbeordnungGewO) (or in rare cases according to sec. 34c GewO).

Even platforms which are not residing in Germany are required to obtain the afore-mentioned sec. 34f GewO-license from the competent trade office, if they want to offer their services to German customers on the basis of the exemption of sec. 2 (6) no. 8 e) KWG. Such 34f GewO-license might however be dispensable in cases where platforms own a license in accordance with MIFID II and the corresponding law of the member state the platform operators are residing in (i.e. securities trading firms - Wertpapierhandelsunternehmen). In such a case the platform operators would be permitted to offer their services to German customers on the basis of a “European passport” (sec. 53b KWG).

Upcoming changes to the current regulation

On 20th September 2019, German Federal Council (Bundesrat) passed the revised regulation on brokerage of financial assets (FinanzanlagenvermittlungsverordnungFinVermV-new) containing procedural organizational and auditing obligations applicable inter alia to the afore-mentioned financial asset brokers (Finanzanlagenvermittler) according to sec. 34f GewO. In the course of said re-regulation, compliance obligations of these GewO-brokers have been aligned with obligations applicable to brokers underlying the regimen of MiFID II (without being completely synchronized).

Whereas it was initially intended by the legislator to make these adjustments simultaneously with the entry into force of MiFID II, the revised regulation will now finally come into force on 1st of August 2020. The adjustments are also being made with regard to the fact that from 2021 on, the German Federal Financial Supervisory Authority (Bundesanstalt für FinanzdienstleistungsaufsichtBaFin) will be the supervisory authority responsible for financial asset brokers. The re-regulation of FinVermV-new is therefore only an interim measure as along with the change in supervision, FinVermV-new will be replaced by corresponding sections to be incorporated in the German Securities Trading Act (WertpapierhandelsgesetzWpHG) (cf. key issue paper jointly published by several German ministries).

Crowdinvesting-Platforms operating as financial asset brokers according to sec. 34f GewO are thus being regulated by FinVermV-new from 1st of August 2020 on. The future adoption of the supervision standard of WpHG to financial asset brokers requires several adjustments of current platform processes and their contractual documentation.

Below, you will find an overview of the necessary adjustments (the list solely applies to crowdinvesting-platforms whose activities are limited to the pure brokerage of financial assets (Anlagevermittlung) – please note that if platforms also provide investment advice (Anlageberatung) additional adjustments are required which are not included in the list below):

  • Amount of Insurance re Professional Indemnity Insurance: The maximum limit of the amount of insurance applicable to the professional indemnity insurance of financial asset brokers is being increased from EUR 1.130.000 Euro to EUR 1.276.000 for each insured event and from EUR 1.700.000 to EUR 1.919.000 for all insured events occurring during one year (sec. 9 (2) FinVermV-new). Platform’s professional indemnity policies need to be adjusted accordingly with effect from 1st of August 2020.

  • Conflicts of Interest / Remuneration policy / Documentation Duties: With sec. 11a FinVermV-new a new provision specifically concerning prevention, management and disclosure of conflicts of interest has been incorporated. Under current law, there is already an obligation to inform clients about potential conflicts of interest due to sec. 13 (5) FinVermV. According to sec. 11a (1) FinVermV-new platforms are now additionally obliged to avoid conflicts of interest. There may be cases in which organisational or administrative arrangements made by platforms to prevent conflicts of interest from adversely affecting their clients’ interests are not sufficient to ensure, with reasonable confidence, that risks of damage to clients’ interests will be prevented. In such cases platforms shall clearly disclose to the client the general nature and/or sources of conflicts of interest and the steps taken to mitigate those risks before undertaking business on the client’s behalf. Additionally, sec. 11a (3) FinVermV-new contains a prohibition for financial asset brokers to remunerate or assess the performance of their staff in a way that conflicts with its duty to act in the best interests of its clients. In particular, remuneration or sales targets shall not be based „exclusively or predominantly on quantitative economic criteria“, but shall consider „appropriate qualitative criteria“. Further, fixed and variable elements of remuneration shall be balanced. Correspondingly, financial asset brokers shall in future keep record of proper implementation of the aforementioned measures re prohibition/disclosure of conflicts according to sec. 22 (2) no. 1 lit. b) through d) FinVermV-new.

  • (Annual) Information on Costs and Associated Charges: Information obligations towards clients, especially those regarding cost and associated charges of financial assets, will be more stringent from 1st of August 2020 on. Currently platforms are obliged to inform clients before the conclusion of the transaction according to sec.13 (1) sentence 1 FinVermV-new (“Ex-ante-Information”). In addition to that, in the future periodic, at least annual, ex-post disclosure of the costs actually incurred should also be provided where the platforms have or have had an ongoing relationship with the client during the year, sec. 13 (5) sentence 1 FinVermV-new (“Ex-post-Information”).
  • The Ex-ante-Information should differentiate between (i) costs and associated charges relating to the brokerage of financial assets (i.e. all costs and associated charges clients are charged with by the platforms or third parties for the provision of brokerage services and/or related services) and (ii) costs of the financial asset being negotiated by the broker (i.e. all costs and associated charges associated with the manufacturing and managing of the financial assets). Sec. 13 (3) and (4) FinVermV-new contain specific guidelines on the form in which the aforementioned costs need to be disclosed. In addition to the obligation to differentiate between the different types of costs, in the future the aggregated costs and charges shall be totalled and expressed both as a cash amount and as a percentage (sec. 13 (3) sentence 1 FinVermV-new in connection with. art. 50 (2) sentence 2 and Annex II of the Commission delegated regulation (EU) 2017/565 (CDelReg); for the purposes of comparability, cost components which values are zero should explicitly be shown as a “zero” (cf. page 90, Answer 20 of ESMA Q&A on MiFID II and MiFIR investor protection and intermediaries topics). Ex-ante-Information about the costs related to the financial asset or ancillary service can be provided based on an assumed investment amount (cf. recital 78 CDelReg (EU) 2017/565). Thus, platforms will still be able to provide clients standardized Ex-ante-Information on costs.
  • The new obligation to provide clients periodically – at least annually – with an Ex-Post-Information on costs only exists if there is or has been an ongoing client relationship between platform and client during the current calendar year. If this is the case, platforms should ensure that once a year the client receives an overview of the total costs and charges incurred in the previous year, based on their personal circumstances and actually incurred costs. These costs and charges shall be totalled and expressed both as a cash amount and as a percentage and shall be provided on a personalised basis. Thus, it may be advisable to provide clients with the Ex-Post-Information via email or to drop of the information in a qualified electronic mailbox; when doing so it may be feasible to choose a uniform date when all clients receive such information (i.e. per the end of the calendar year).

  • Customer Target Group: In the future, it must be specified, whether the financial asset is aiming at retail clients or professional clients (sec. 13 (2) no. 1 lit. c) FinVermV-new). Annex II of directive 2014/65/EU (MIFID II) contains the criteria to be met by clients in order to qualify as professional clients in the aforementioned sense.

  • Tax Information: The new FinVermV does no longer hold an obligation for brokers to inform clients about the possibility that taxes might arise from transactions connected with the financial asset (currently resulting from sec. 13 (3) no. 2 FinVermV). As FinVermV-new neither contains any other obligations for financial asset brokers to inform clients about tax aspects, the contractual documentation used from 1st of August 2020 on does no longer have to contain such tax information.

  • Consideration and Alignment with Target Market: Pursuant to the new sec. 16 (3b) FinVermV-new, platforms are from 1st of August 2020 on obligated to obtain all relevant information concerning the identified target market of the issuer (category of clients the financial asset is meant for) and to compare such information with the respective client (sec. 80 (9) WPHG).

  • Taping: All phone calls and electronic communication channels must be recorded provided that issues of investment advice (Anlageberatung) and/or financial asset brokerage (Anlagevermittlung) are being addressed.

  • Retention Obligation / Retention Period: The financial asset broker’s obligation to store documents and records on a durable medium is on the one hand extended to records of phone calls and electronic communication pursuant to sec. 23 FinVermV-neu (in case that there is a retention obligation). On the other hand, the previous retention period of five years has been extended to ten years.


Most of the new legal requirements can be implemented without any major effort by adjusting the current contractual documentation. The ESMA Q&A includes further information and examples regarding the legal compliance of the cost information which can be used by platforms. An advantage hereby is that there will remain plenty of time for the platforms to adjust to the new legal requirements until 1st of August.

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