Corporate & Securities Law

By Jim Hamilton

Code of Conduct Adopted for German Investment Companies

The German Federal Financial Supervisory Authority (BaFin) has approved a Code of Conduct for investement companies. A main principle of the code is that all German investment companies must act in the sole interest of investors and the integrity of the markets. Similarly, investment companies must follow the principles of fair market conduct and equal treatment of investors when executing transactions for the funds The code was formulated and adopted by the Bundesverband Investment and Asset Management Association (BVI), which represents the interests of the German investment fund industry.

The fund must also ensure the equal treatment of investors at all levels of the management of assets, particularly portfolio management. Distinctions can be made between different classes of shares within the meaning of German investment law. Investment companies must manage shareholder assets regardless of the interests of third parties, such as custodians.

The investment company must provide for the redemption of shares, except for special funds with only one shareholder. Investment companies must also ensure that complaints and requests for information are processed quickly and correctly; and document any action taken.

Investment companies must avoid conflicts of interest by adopting procedures that identify circumstances that can give rise to conflicts of interest. The code identifies a number of potential conflicts of interest, including incentive schemes for company employees, grants to company employees, and employee transactions. Other possible conflicts of interest include transactions between company managed investment funds and individual portfolios and IPO allocations.

Investment companies must avoid excessive transaction costs that would impair investor assets, such as by churning and excessively high turnover. The companies should inform investors of measures taken and procedures implemented to avoid the unreasonable impairment of investor interests.

The investment strategy for each fund must be taken into account. The transaction activity of investment funds must always be determined by the investment aim of the assets invested.

Full post as published by Jim Hamilton's World of Securities Regulation on February 15, 2010 (boomark / email).