Investor Onboarding in Germany: Pitfalls and Solutions

As a former fund formation lawyer, I know onboarding investors in Germany can be challenging due to wet-ink requirements for documents and in-person identity verifications as the legislator’s gold standard from an AML perspective.

Additionally, registering LPs in the commercial register requires extensive paperwork and notarized power of attorneys, often causing delays and bottlenecks. 

The onboarding process also varies by jurisdiction.

According to the Distribution of Investor Funds in Germany report by Simmons & Simmons, the German Federal Financial Supervisory Authority (BaFin) performs more detailed reviews when compared to other EU jurisdictions. 

The table included in this article is for informational purposes only and does not represent professional advice. While efforts have been made to ensure accuracy, it may not reflect the most recent data or developments. Readers should conduct their own verification before relying solely on the information provided.

Table Data Sources: kyc.io, BaFin’s Interpretation and Application Guidance, and CSSF Digital KYC Guidelines. 

As you can see, Germany's regulatory requirements for investor onboarding are notably more stringent and detailed, demanding thorough knowledge and meticulous adherence to ensure compliance.

The framework is largely shaped by:

• The German Federal Financial Supervisory Authority (BaFin) 
• European Union's regulatory directives, such as MiFID II and GDPR. 

As a result, GPs and LPs face additional processes to comply with national and supranational regulations.

I keep hearing the same complaints when talking to clients as well. 

Ertan Can, Founder of Multiple Capital, mentioned,

The biggest difference between Germany and Luxembourg is that you don"t have to register your LPs in the commercial register (Handelsregister). In Germany, this registration process is a real pain, requiring paper documents, power of attorneys, and often resulting in delays due to small mistakes.

Ertan Can

Founder of Multiple Capital

I’ve seen firsthand how digital means could improve the investor onboarding process in Germany. 

Although the idea of going digital isn’t new, its adoption in Germany has been slow, partly because finding a digital onboarding platform that meets all your fund’s needs is challenging.

That's why we created Vestlane.

My Co-founders and I experienced these pains ourselves and wanted to develop a platform that simplifies the onboarding process without compromising on compliance. 

Germany’s Requirements for Investor Onboarding

In Germany, investor onboarding requires enhanced due diligence for politically exposed persons (PEPs). This involves not just standard KYC checks but also extensive background checks and continuous monitoring.

Germany also classifies investors:

• Professional investors include banks, insurance companies, and individuals with significant financial knowledge and assets.
• Semi-professional  investors, while potentially wealthy and knowledgeable, do not meet the criteria for professional status. 

These classifications affect their ability to invest in certain funds. Germany allows some flexibility for high-net-worth individuals (HNWI) to invest in high-risk ventures, provided they understand and accept the risks involved.

Other countries have different approaches.

For example, France does not recognize semi-professional investors and is potentially excluding a large group of potential investors. In the UK, regulations are quite strict, requiring specific certifications even from non-professional investors.

In terms of what’s needed for investor onboarding in Germany for individual investors, the primary documents you need to collect are:

• Proof of Identity: In-person identification, certified copies of passports, or national ID cards for individual investors.
• Proof of Address: ID card, Utility bills, bank statements, or official government correspondence no older than three months.
• Source of Capital: In case of enhanced due diligence, detailed information about the origin of the money being invested, including bank statements, tax returns, and proof of income.
• Anti-Money Laundering (AML): Declarations confirming the legitimate business activities of the investors and the legitimacy of the funds as well as compliance with AML regulations.

Additionally, if you’re onboarding an entity investor, you would also require:  

• Proof of Incorporation: Original register excerpts or certified copies to prove the existence of the legal entity or company. This includes incorporation certificates, shareholder registers, and detailed information about the beneficial owners. You may also be asked for founding documents like articles of incorporation/association.
• Source of Capital: For enhanced due diligence cases, detailed information about the origin of the money being invested, including bank statements, tax returns, and proof of income, is needed.
• Anti-Money Laundering (AML): Declarations confirming the legitimate business activities of the investors and the legitimacy of the funds, as well as compliance with AML regulations. This typically includes UBO register excerpts and further proof for AML-related verifications.

Getting help with this time-consuming process is necessary, as manually managing these tasks can divert your focus from more strategic activities.

This is where an investor onboarding and relationship management platform like Vestlane plays a key role by automating and streamlining the entire onboarding and fund subscription process. 

Traditional vs. Digital Onboarding of Fund Investors 

Germany is gradually embracing digital solutions for investor onboarding, although paper-based processes are still dominant.

Traditional investor onboarding involves manually collecting documents and populating Excel spreadsheets, which is time-consuming and prone to errors.

Of course, it’s not always easy for funds to switch to automated investor onboarding because they may be uncertain about it or doubt how much of a difference it will really make.

This is where Vestlane stands out from other fund and investor management platforms. 

We created Vestlane after experiencing the long wait times for document collection and verification firsthand.

As a compliance-led platform, we are always working to improve fund operations for investors, GPs, fund admins, and external service providers.

We build trust with funds by personally reaching out and engaging with fund managers. These one-on-one conversations allow me to understand their specific needs and demonstrate how our platform can address their challenges. This personal approach has been key to forming strong, trusting relationships with our clients.

Using Vestlane for Investor Onboarding in Germany 

Currently, more than 220 funds, including Headline, HV Capital, Worldfund, and AENU, use Vestlane for investor onboarding and KYC/AML checks. 

Our customer support team is composed of individuals with legal and finance backgrounds, ensuring they have the expertise needed to assist with any issues or questions that arise.

For instance, if you have a query about compliance with specific KYC/AML regulations, our team can provide detailed guidance and support.

If you’re onboarding a new investor, the information collection requires less effort. There are options for prefilled information, so investors don’t have to enter the same data multiple times. Then, the documents are automatically checked and verified for KYC/AML. 

Plus, once an investor is on the platform and, say, they submit a change of address two years later, this information can be updated for everyone involved, including other funds they are working with. This reduces extra work for funds, keeps them compliant, and allows them to focus on other operations.

Steps for Investor Onboarding with Vestlane

1. Book a Demo Call and Set Up Your Account: Start by booking a demo call with us. We’ll discuss your fund and discuss how we can help with investor onboarding in Germany as well as continuous compliance. 

Next, we’ll guide you through setting up your Vestlane account. This includes configuring your onboarding requirements and compliance checks to ensure everything meets your fund's needs.

2. Invite Investors: Send digital invitations to your investors.

These invitations provide secure access to the platform, where they can begin the onboarding process. You can manage or delegate the process of sending invitations and tailor them to meet your specific needs.

3. Receive and Verify Documentation: Investors upload the necessary documents directly through Vestlane, including identification documents, proof of address, and any other required paperwork.

We automatically verify the uploaded documents, performing KYC and AML checks to ensure all regulatory requirements are met efficiently.

4. Complete Onboarding: Once all checks are completed and documents are verified, investors are fully onboarded. 

The Advantages of Using Vestlane for Investor Onboarding 

1. Speed Up Onboarding with Prefilling: You can use the prefilling function with trade and company register data lookup (e.g., Northdata) to automatically populate required fields with accurate information. This feature saves time and reduces errors.

2. Digital Investor Verification: Replace traditional ID/passport notarization with electronic identity verification. We use VideoIdent and AutoIdent, or manual verifications, as fallbacks to ensure accurate documentation. This digital verification is compliant and reduces the hassle of physical notarization.

3. Automated Verification: Automate KYC and AML checks, ensuring all regulatory requirements are met efficiently. This automation enhances accuracy and reduces risks by ensuring compliance with pre-built investor classifications.

4. eSignature for Quick Signing: Integrate with safe eSignature services for fast document completion and signing. Your signed subscription documents will comply with eIDAS and ZertES standards, ensuring a quick and secure signing process.

5. Monitor Subscriptions and Send Reminders: Easily track LP subscriptions and keep documents up-to-date. Follow up on outstanding documents, send reminders, and offer help when needed to facilitate faster closings.

Vestlane offers a collaborative platform with: 

• Over 6,000 LPs already onboarded
• A 5-minute subscription process that allows investors to reuse data they’ve already uploaded. 

We’re also proactive about regulatory changes. 

For example, when the minimum investment threshold dropped from €125,000 to €100,000, we immediately informed our clients and offered to update their questionnaire workflows. Many clients hadn’t heard from their lawyers yet, so they appreciated our quick communication. 

Being part of our network means staying updated and getting help when needed, making life easier for funds, law firms, and other stakeholders involved in the fund operations.

Vestlane streamlines the onboarding process and ensures compliance, transparency, and efficiency. By using our platform, you can reduce administrative burdens, save time, and provide a better experience for increasingly tech-savvy investors who expect a streamlined process.

If you’d like to learn more about Vestlane and how we can help with onboarding investors in Germany, feel free to book a demo with us. 

**The content shared here is for general informational purposes only and should not be considered as legal advice. It may not reflect the most current information. Links to third-party websites are provided solely for your convenience.