Germanys BaFin Fines Vanguard Group €290K

Germanys BaFin Fines Vanguard Group €290K

The fine came as a way of tightening compliance on voting rights notifications when reporting thresholds.

Bafin, a Germanys financial regulator which is responsible for ensuring the stability and integrity of the German financial system, announced on November 22 that it imposed an administrative fine amounting to 290,000 euros on The Vanguard Group, Inc, a major US investment management company. The fine against the investment firm relates to delayed voting rights notifications. The Vanguard Group failed to submit voting rights notifications within the prescribed period, and therefore breached section 130(1) of the German Act on breaches of administrative regulations in conjunction with section 33(1) sentence 1 of the German Securities Trading Act.

Bafin requires firms to disclose voting rights changes within 4 days after learning about them. Most of these actions are then reported publicly on Bafins database. The disclosure issues have come into focus recently because many firms are reported to fail disclosing on their public records with regards to shareholding voting rights matters.

In the case of The Vanguard Group, the regulator stated that the reporting issues associated with the firms failure to do further due diligence or notify compliance.

Shareholding Headache

The fine imposed against the Vanguard Group sends a vital message to companies about the need to be diligent about voting rights notifications.

Major shareholders are obligated to submit major shareholding notifications concerning changes to their holdings in companies whose shares are admitted to trading on a regulated market (stock market such as Stockholm Nasdaq, NGM Main Regulated, among others). The obligations to submit a major shareholding notification arise when a change results in the proportion of all shares or voting rights in a company reaching or passing, upwards, or downwards, certain set thresholds.

The purpose of such regulations aims to provide a good level of transparency concerning the ownership structure of listed companies, thus increasing public confidence in the securities market. The thresholds are 5, 10, 15, 20, 25, 30, 50, 66 (2/3) and 90 percent of the voting rights or number of shares in a company. When such thresholds have been reached or passed, the natural or legal person whose holding has changed must inform the company and the regulator.

Knowledge concerning changes about major holdings of voting rights with regards to companies with shares admitted to trading on an organized market increases the transparency of the capital market and assists investors in making their investment decisions. Therefore, natural and legal persons are obligated to notify BAFin and the listed company in question about the percentage of their holdings of voting rights as soon as these increase above, fall below or reach certain thresholds on the company because of disposal or acquisitions of shares or financial instruments or because of other reasons. Any listed company such as Vanguard is obligated to publish its notifications relating to a total voting right.