Activity Bans under § 36 KWG as a Person-Related Supervisory Measure
Activity bans against managing directors of credit institutions are becoming increasingly important in banking supervisory practice. § 36 Kreditwesengesetz (KWG, German Banking Act) gives the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, Federal Financial Supervisory Authority), under certain conditions, the option not only to demand the removal of a managing director, but also, in particularly serious cases, to prohibit that person from continuing to act in that capacity.
The central question is whether an activity ban under § 36 Abs. 1 Satz 1 KWG (Section 36(1) sentence 1 of the German Banking Act) or § 36 Abs. 2 Satz 3 KWG (Section 36(2) sentence 3 of the German Banking Act) may be imposed for a fixed term from the outset, or whether, according to the statutory concept, it must in principle be issued for an indefinite period. Closely connected with this is the question of whether such a ban can also be ordered against former managing directors and how any subsequent readmission to management activity is to be classified procedurally.
BaFin published on 11 February 2026 a measure that had already been issued on 9 July 2025 against a managing director of a credit institution. The activity ban was imposed for five years. BaFin cited persistent deficiencies in the institution’s business organisation and the managing director’s lack of professional competence as the reasons. The notice has been final and binding since 13 August 2025.
Legal Bases for Activity Bans under § 36 KWG
Activity ban under § 36 Abs. 1 Satz 1 KWG
§ 36 Abs. 1 Satz 1 KWG allows BaFin, in certain cases, to prohibit a responsible managing director from carrying out their activity at institutions or undertakings in the legal form of a legal person. The provision is linked to categories of cases in which, in principle, revocation of the licence to conduct banking business or provide financial services may also be considered.
This particularly concerns scenarios in which, after the licence has been granted, it emerges that a managing director is not reliable or lacks the necessary professional competence. The provision therefore constitutes a person-related power of intervention. It is not directed primarily against the institution, but against the person of the managing director.
Activity ban under § 36 Abs. 2 Satz 3 KWG
A further legal basis is contained in § 36 Abs. 2 Satz 3 KWG. Under this provision, BaFin may order an activity ban if a managing director has violated certain supervisory requirements or orders of the supervisory authority and continues their conduct intentionally or recklessly despite having been warned.
The provision forms part of a graduated system of supervisory responses. Initially, less intrusive measures may be considered, such as notices, objections or a formal warning. Only if these measures are insufficient may removal or, as the most severe measure, an activity ban follow.
Limitation to the national supervisory sphere
This analysis concerns activity bans under § 36 KWG against managing directors of CRR credit institutions within the remit of national supervision. Where significant credit institutions are subject directly to the supervision of the European Central Bank, autonomous powers under EU law apply, in particular under Art. 16 Abs. 2 Buchst. m of the SSM-Verordnung (SSM Regulation). These powers are not the focus here.
No Time Limit in the Wording of the Statute
No express temporal limitation
§ 36 Abs. 1 Satz 1 KWG and § 36 Abs. 2 Satz 3 KWG contain no express temporal limitation of the activity ban. The wording of the statute does not refer to a temporary prohibition and also does not specify any maximum duration.
This absence of a rule on time limits is not readily to be understood as an unintended regulatory gap. Rather, the structure of the KWG suggests that, for activity bans under § 36 KWG, the legislature specifically did not intend to provide for an ex ante fixed time limit.
Comparison with § 36a KWG
This becomes particularly clear when compared with § 36a KWG (Section 36a of the German Banking Act). There, the statute expressly provides that future activity as a managing director may, under certain conditions, be prohibited “temporarily” for a period of up to two years. In addition, § 36a KWG differentiates between time-limited bans and permanent bans in the case of repeated serious breaches.
This express provision shows that the legislature is aware of the possibility of fixed-term activity bans. If it did not include any time limit in § 36 Abs. 1 Satz 1 KWG and § 36 Abs. 2 Satz 3 KWG, this points to a deliberate divergent rule.
Legislative History and Statutory Concept
Origins in banking supervisory law
The banking supervisory roots reach back to the Reichsgesetz über das Kreditwesen (Reich Banking Act) of 1934. That statute was enacted in response to the banking crisis of 1931. At that time, however, the focus was not yet on an activity ban directed immediately against a person. Rather, the continuation of business operations could be prohibited if managing directors did not possess the required reliability.
The current power to prohibit a managing director from carrying out their activity essentially goes back to the Kreditwesengesetz of 1961. Even then, the Bundesaufsichtsamt für das Kreditwesen (Federal Banking Supervisory Office) could, instead of withdrawing the licence, demand the removal of managing directors and, in the case of credit institutions in the legal form of a legal person, also prohibit those managing directors from carrying out their activity.
The legislative materials at that time contained no statement on the duration of this activity ban.
Subsequent extensions without rules on time limits
Nor was any express time limit included in later amendments to the KWG. § 36 Abs. 2 KWG was extended by the Gesetz zur Umsetzung europäischer Richtlinien zur Harmonisierung bank- und wertpapieraufsichtsrechtlicher Vorschriften (Act Implementing European Directives on the Harmonisation of Banking and Securities Supervisory Provisions). This clarified that an activity ban is also possible in cases of continued violations despite a warning.
This amendment likewise contained no indication that an activity ban under § 36 KWG could only be imposed for a fixed term. Rather, the provision was aligned with the structure of § 36 Abs. 1 KWG.
Later legislation confirms deliberate differentiation
More recent legislation confirms that the legislature can distinguish between fixed-term and permanent activity bans. In implementing European requirements relating to financial markets law, a further subsection was inserted into § 36 KWG enabling activity bans against responsible managing directors of a central securities depository.
Although European law expressly distinguishes in certain cases between temporary and permanent bans, the German legislature did not opt for a general rule on time limits within the framework of § 36 KWG. It follows that temporal flexibility is intended to be achieved not through a rigid substantive time limit, but through subsequent corrections under administrative procedure law.
Systematic Classification of the Activity Ban
Escalation levels in the KWG
The KWG provides for a graduated set of instruments for banking supervision. The measures range from less intrusive responses to the complete exclusion of a person from management activity.
Typical levels are:
- informal notices or objections concerning the management,
- formal warnings under § 36 Abs. 2 Satz 1 and Satz 2 KWG (Section 36(2) sentences 1 and 2 of the German Banking Act),
- demands addressed to the institution for removal,
- activity ban as a particularly intrusive measure.
The activity ban stands at the end of this chain of responses. It is limited to cases in which milder measures are insufficient to achieve the supervisory protective purpose.
Distinction from removal
Removal concerns the specific mandate at a particular institution. The activity ban goes beyond this. It may have cross-institutional effect and prevents a person from again acting in a comparable function at another institution.
It is precisely this cross-institutional effect that shows that § 36 KWG is not aimed only at the orderly management of a single institution. Rather, the provision serves person-related market prevention.
Comparison with prohibition of trade or business activity
Trade law, too, recognises in § 35 Gewerbeordnung (GewO, German Trade Regulation Act) a far-reaching measure where the further exercise of a trade or business must be prohibited in order to protect the general public or employees. The prohibition of trade or business activity is likewise structured as an administrative act intended to have lasting effect.
However, § 35 Abs. 6 GewO (Section 35(6) of the German Trade Regulation Act) contains an express procedure for reinstatement. After one year has elapsed, and earlier in exceptional cases, reinstatement of the right to exercise the trade or business may be applied for if the relevant requirements are met.
§ 36 KWG contains no corresponding special provision. This is explained by the different protected interests under banking supervisory law. While general trade law primarily protects classic public-safety interests and honest commercial dealings, the KWG serves the stability and functioning of the financial system and, indirectly, investor protection.
Comparison with § 70 StGB
The criminal-law professional disqualification under § 70 Strafgesetzbuch (StGB, German Criminal Code) also offers a point of comparison. As a rule, § 70 StGB provides for a time-limited professional disqualification; a permanent professional disqualification is possible only under special conditions.
However, this structure cannot be transferred to banking supervisory law. The criminal-law professional disqualification is linked to wrongdoing established under criminal law and to the risk of further serious criminal offences. By contrast, the activity ban under § 36 KWG is not a criminal-law sanctioning instrument. It serves the preventive averting of risks to the financial system.
Purpose of the Indefinite Duration
Protection of financial market stability
The activity bans under § 36 KWG serve the public interest in the integrity, functioning and stability of the financial market. They are intended to prevent a person whose reliability or professional competence is called into question to a significant degree from again managing a supervised institution and thereby triggering systemic risks.
An automatic end to the ban after expiry of a previously determined period could impair this purpose. There would be a risk that a person could resume activity even though the substantive reasons for the activity ban still persist.
Not merely a sanction for past conduct
The activity ban is not primarily aimed at punishment. Although it is linked to past conduct or to established personal deficiencies, it pursues a forward-looking purpose. The decisive factor is the avoidance of future risks.
A fixed term when the notice is issued would assume that unsuitability or unreliability automatically ceases after a certain period has expired. As a rule, there can be no reliable basis for such an assumption at the time the notice is issued.
Constitutional Limits
Interference with Art. 12 Abs. 1 GG
A cross-institutional activity ban substantially interferes with occupational freedom under Art. 12 Abs. 1 Grundgesetz (GG, German Basic Law). It does not merely concern individual modalities of professional practice, but may bar access altogether to activity as a managing director of a supervised institution.
In doctrinal terms, this is a subjective rule on admission to an occupation, because the measure is linked to personal characteristics of the person concerned, in particular reliability and professional competence. Such interferences are permissible only if they are justified by important public-interest concerns and are proportionate.
Proportionality of the statutory design
The stability and functioning of the financial system constitute a particularly important public good. An indefinite activity ban may therefore be constitutionally permissible if the statutory requirements are interpreted narrowly and the measure is used in the individual case only as a last resort.
The absence of a rigid time limit does not mean that the ban must necessarily have lifelong effect. What is decisive is that general administrative procedure law permits subsequent corrections. If it is later demonstrable that the reasons for the activity ban have ceased to exist, revocation with effect for the future may be considered.
No replacement by the fit-and-proper procedure
It could be argued against the necessity of an indefinite activity ban that BaFin examines reliability and professional competence in any event whenever a managing director is newly appointed. However, this event-driven suitability assessment procedure serves a different function.
The suitability assessment upon a new appointment relates to the specific institution and the specific appointment event. The activity ban under § 36 KWG, by contrast, has a continuing, person-related market-prevention function. Its effect is that the established suitability deficiencies do not have to be fully reassessed from scratch with every future appointment; instead, the person concerned must demonstrate a material change in circumstances.
Subsequent Rehabilitation and Revocation
Reopening of proceedings
A later change in the factual circumstances may be asserted under administrative procedure law. In particular, an application for reopening of the proceedings under § 51 Abs. 1 Nr. 1 Verwaltungsverfahrensgesetz (VwVfG, German Administrative Procedure Act) may be considered if the factual situation has subsequently changed materially in favour of the person concerned.
This is not a matter of withdrawing an administrative act that was unlawful from the outset. If the activity ban was lawfully issued, revocation with effect for the future under § 49 Abs. 1 VwVfG (Section 49(1) of the German Administrative Procedure Act) is instead possible.
Burden on the person concerned to come forward
After the conclusion of the administrative proceedings, the supervisory authority is not obliged, without any occasion and on a permanent basis, to monitor the personal and professional development of the person concerned. Such ongoing monitoring is neither inherent in administrative procedure law nor readily unobjectionable from a data protection perspective.
It is therefore for the person concerned to assert, with substantiation, a material subsequent change in the factual situation. Only such an application triggers a renewed duty of review on the part of BaFin.
Reduction of discretion to a duty where the risk situation has ceased
If the renewed review shows that the reasons for the activity ban no longer exist, the authority’s discretion may narrow into a duty to revoke. This is because maintaining an activity ban would from that point on be disproportionate if there is no longer a viable risk prognosis.
The indefinite duration therefore does not mean that a return to management activity would be excluded in all circumstances. Rather, it means that the way back is not through the automatic expiry of a period, but through a substantive reassessment of the risk situation.
Activity Bans against Former Managing Directors
No requirement of a current corporate office
An activity ban under § 36 KWG does not necessarily require that the person concerned is still a managing director at the time the notice is issued. Resignation from office or other departure does not eliminate the supervisory regulatory interest.
The measure is directed, on a person-related basis, against the risk that a person classified as unsuitable or unreliable will again assume management activity at another institution. If the proceedings were disposed of by leaving office, the preventive effect of the provision could be undermined.
Person-related market prevention
The activity ban is intended to prevent identified risks from continuing through a move to another institution. The risk is therefore not linked solely to the specific corporate office at a particular institution, but to the person and their continuing suitability or reliability.
A clarifying statutory provision would certainly be conceivable. However, it follows from the purpose of § 36 KWG that former managing directors may in principle be covered if the statutory requirements are met.
Current Administrative Practice and Case Law
Published BaFin measures
BaFin published a further measure on 13 October 2026. According to that publication, it had already prohibited a former managing director of a credit institution, on 16 July 2025, from acting as a managing director of CRR credit institutions. According to the published information, the ban was based on a lack of professional competence, unreliability and persistent deficiencies in the business organisation.
In addition, on 3 July 2026 BaFin issued a warning to a former managing director of a financial services institution due to deficiencies in anti-money laundering prevention. This warning was issued on the basis of § 36 Abs. 2 Satz 1 KWG and has been final and binding since 9 August 2026.
These events show that person-related supervisory measures continue to be of practical relevance. At the same time, each publication must be carefully distinguished according to whether it concerns final and binding measures, provisional court decisions or main proceedings that are still pending.
Proceedings before the Verwaltungsgericht Frankfurt am Main
On 17 September 2026, the Verwaltungsgericht Frankfurt am Main (Administrative Court of Frankfurt am Main) rejected two urgent applications by former managing directors of a cooperative credit institution under the case reference 7 L 3353/26. The demands for removal and the activity prohibitions therefore remained provisionally enforceable. According to the available information, a decision in the main proceedings is still pending.
BaFin’s demand for removal addressed to the institution’s supervisory board was issued at the end of June 2026, and the activity prohibitions at the beginning of July 2026. On this point, the court did not follow the authority’s assumption that the former managing directors had recklessly continued violations for which warnings had already been issued in 2024. The provisional court decision therefore does not replace a final clarification in the main proceedings.
Previously, on 28 August 2026, the 7th Chamber of the Verwaltungsgericht Frankfurt am Main dismissed two actions brought by former managing directors against BaFin warnings. These proceedings were conducted under the case references 7 K 2946/25.F and 7 K 2948/25.F.
Further accompanying supervisory measures
In the context referred to, BaFin additionally appointed a special representative at the affected credit institution, thereby replacing the bank’s management. According to media reports, the former management board members addressed a letter to the shareholders opposing the impression of a bank in economic jeopardy. To the extent proceedings have not yet been finally concluded, the procedural presumption of innocence applies; administrative and judicial assessments must be classified according to their respective procedural status.
No Ongoing Monitoring Duty on BaFin
After the conclusion of administrative proceedings, there is no general duty on BaFin to continuously monitor, without any occasion, the further development of a person affected by an activity ban. The authority’s duty to investigate relates to the respective administrative proceedings and, as a rule, ends when those proceedings are concluded.
An unlimited independent duty of subsequent investigation is not inherent in the applicable law. It would also raise significant questions with regard to personality rights and data protection.
It is therefore consistent with the system of administrative procedure law that a later change in the factual circumstances must be asserted by the person concerned. Only then is BaFin required to examine again whether the requirements for maintaining the activity ban still exist.
Conclusion on the Indefinite Duration under § 36 KWG
Activity bans under § 36 Abs. 1 Satz 1 KWG and § 36 Abs. 2 Satz 3 KWG are, according to the wording, structure, legislative history and purpose of the provision, in principle designed to be indefinite. These provisions do not provide for a fixed term when the measure is issued. Proportionality is safeguarded not by an automatic expiry of a time limit, but by the strict requirements for issuance and the possibility of subsequent revocation if the factual situation changes.
Such an activity ban may also cover former managing directors. What is decisive is not the current corporate office, but the continuing person-related risk to the supervised market. After conclusion of the proceedings, the person concerned bears the procedural burden of asserting a later material change in the factual situation.
For credit institutions, managing directors, supervisory bodies and investors, activity bans under § 36 KWG touch on central issues of supervisory law, corporate body responsibility and the authorities’ powers of intervention. MTR Legal Rechtsanwälte advises clients on complex issues in connection with banking supervisory measures and their classification under public law. Further information can be found at Legal advice in public law.
