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BVI rejects transactions cost disclosures in German fund reforms

GERMANY - The finance ministry has proposed reforms to Germany's investment law in an effort to boost the competitiveness of the German asset management industry.

But it has immediately had its proposal to require investment funds to disclose their transaction costs and not just total costs, as is currently the case, rejected by the German fund industry association BVI.

"The transaction cost requirement harms German funds international competitiveness as no such requirement exists for funds in foreign lands," the BVI said in Frankfurt.

"It also does not improve transparency but leads to a perception that Germany-domiciled funds are more expensive than they really are."

The BVI also said the reforms were wrong to introduce a special "transaction cost fee" to be charged to investors who redeem shares worth €100,000 and more.

"This will also hurt the competitiveness of German funds, as this charge does not exist elsewhere in the EU," the association said.

Otherwise, BVI said it welcomed the reforms, which cover four areas: de-regulation, promotion of innovative products, regulation of open-ended real estate funds and improvement in corporate governance.

The unveiling of the reforms is the first step in Germany's transposition of the EU directive on investment funds.

One of the more crucial reforms in the area of de-regulation is a requirement that the regulator BaFin approve funds for sale within a maximum period of four weeks.

Another reform in this area abolishes investment restrictions for German institutional funds (Spezialfonds) - though these vehicles have to show that they have a "balanced mixture of risk".

Investment companies known as KAGs in Germany no longer have to have the legal structure of a bank, which insures their oversight by the BaFin.

Regarding the promotion of innovative products, the reforms create two new asset classes - infrastructure funds and special funds. The SICAV,  a fund vehicle with share capital extensively used in Luxembourg, will also be made available to German investors as a result of the reforms.

In the area of open-ended real estate funds, the reforms create two new classifications for the funds - "security-oriented" and "return-oriented".

Institutional investors in return-oriented funds will no longer be able to redeem their shares on a daily basis. Instead, the timing for the redemption will, among other things, depend on the size of the investment. This rule is to help providers of open-ended real estate funds maintain liquidity.

Finally, to improve corporate governance, the reforms require that one member of a supervisory board for an asset manager not be employed by that manager.

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