The German legislature ratified the final draft of the Kleinanlegerschutzgesetz, Germany's new investor-protection law, on 9 July. Most of the new provisions became effective the next day. Alireza Siadat, an eminent financial services lawyer at PwC Legal in Germany, outlines the details.

Not all of the new Act came into force in July; exceptions apply on the provisions of Art 13(1) and (2), which will come into effect on 1 January 2016 and 3 January 2017 respectively. The law introduces the following major changes.

• Specification and extension of the obligation to publish a prospectus.
• Extension of the information of personnel relations of the initiators.
• An obligation to provide specific information also after the public offering ends.
• A ban on advertisement for public places (e.g. public transport, public posters and flyers).
• Establishment of a 'product governance' process.
• Additional powers for Germany's all-in-one financial regulator, the BaFin (the Bundesanstalt für Finanzdienstleistungsaufsicht or Federal Financial Services Authority).

However, some important exceptions apply to specific FinTechs or financial technology companies.

1. Exceptions for Crowdfunding/Crowdinvesting

For Crowdinvesting projects up to €2½ million a prospectus is not needed, as long as the equities are offered through an Internet market place and each investor (investment companies excluded) is only investing up to €1,000 (or up to €10,000 once the investor proves that he owns assets of more than €100,000). However, the provider is obliged to provide each investor with a "Key Information Document" (Vermögensanlagen-Informationsblatt).

2. Exceptions for “social projects”

Also for the investment in so-called social projects (projects for the common good of the society) the prospectus exception as described for crowdinvesting projects applies here as well. There is also no provision for a certified annual report for the issuer. Having this said, there are strict requirements for "social projects" such as a cap for loan interest, no inducements allowed etc.

3. Exceptions for non-profit organisations and religious communities

No prospectus (as mentioned for Crowdinvesting and “Social Projects”) is needed for projects with non-profit organizations and religious communities. There is also no requirement for a “Key Information Document,” nor of a certified annual report. No accounting standards need apply for projects up to an investment sum of €250,000.

4. Other BaFin powers

Every shareholder loan and investment will require a prospectus approved by BaFin, if it is economically equal to any similar investment that requires a prospectus. This prospectus will be valid only for 12 months maximum and will have to be updated afterwards, with BaFin approving the update. Every investment should have a minimum duration of 24 months and a cancellation period of at least 12 months.

* Ali Siadat can be reached on +49 69 9585-6330 or at alireza.siadat@de.pwc.com