Germany's Kleinanlegerschutzgesetz: some exceptions for fintechs

Alireza Siadat

12 October 2015

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