GERMANY - The German regulator Bafin has issued a consultation paper on changes to the regulations governing custodian banks and asset managers, including KAGs.

Bafin said the changes are necessary because paragraphs in the investment law InvG relating to custody banks are "unclear in places". 

"Bafin is now suggesting detailed guidelines regarding the content and timing of checks by the custodian bank, on deals which it needs to agree to," explained a spokeswoman for Bafin.

Market participants have until 8 February 2010 to give their views on the proposed changes.

Contracts between a custodian bank and a KAG will for the first time be fully regulated. These agreements can currently take various forms.

"There are also detailed models for checking investment caps," the spokeswoman added.

Bafin has proposed two custody models from which the contractual parties can chose: either using a system run by the KAG and checked by the custodian, or another where the custodian runs a system itself and the KAG regularly transfers data on current investment levels.

In both cases, investment caps will have to be checked daily when stock markets are open.

This could lead to a substantial increase in the workload of those custodians which do not already have appropriate systems in place.

"The technical and organisational implementation of the detailed guidelines would be the major change for custodian banks arising from these new regulations," Bafin concluded.

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