The role of the German Federal Financial Supervisory Authority – the Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin” for short) – is to ensure the proper functioning, stability, and integrity of Germany’s financial system. To this end, the BaFin consolidates responsibility for overseeing banks and financial services providers, insurers, and securities trading from its offices in Bonn and Frankfurt. It is tasked with, on the one hand, ensuring that banks, financial services providers, and insurers remain solvent, and, on the other hand, facilitating fair and transparent capital market conditions.
In order to meet these demands, the BaFin has as a public institution extensive powers of investigation and intervention as well as authority to oversee, monitor, and issue orders. Violating statutory regulations may give rise to heavy fines or even custodial sentences. As an international commercial law firm, we at MTR Rechtsanwälte are well acquainted with the requirements and obligations that banks, insurers, financial services providers, and issuing houses need to fulfil. We provide capital market participants with comprehensive advice to avoid legal disputes with the BaFin.
Oversight of Securities Trading
The legal bases for the oversight of securities trading are the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG), the German Securities Prospectus Act (Wertpapierprospektgesetz, WpPG), and the German Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz, VerkProspG). The BaFin’s core responsibilities in overseeing securities trading include combating insider trading and market manipulation, and reviewing the release of ad hoc announcements, notices relating to directors´ dealings, and important voting rights reports. The supervisory authority is also responsible for overseeing investment companies and approving issuing prospectuses for securities and investment products. Anyone publicly offering investment products typically needs to present an issuing prospectus to the BaFin for approval. This involves checking whether the prospectus meets the minimum legal requirements and is inherently contradictory. However, it does not include an assessment of the accuracy of the prospectus’s content.
The legal framework for banking oversight is established by the German Banking Act (Kreditwesengesetz, KWG) and the German Payment Services Oversight Act (Zahlungsdiensteaufsichtsgesetz, ZAG). The aim is to counteract abuse in the banking sector und prevent negative developments. The intensity of the oversight that banks are subject to depends primarily on the nature and scope of their dealings. Particular attention is paid to whether banks have access to sufficient equity capital, maintain liquidity reserves, and have put in place appropriate risk control mechanisms.
The BaFin also issues banking and financial services licenses. The relevant licensing requirements frequently apply to businesses outside the financial sector as well. Businesses must, for instance, be careful when refinancing not to engage in lending or deposit activities that require a license.
- Implementation of licensing procedures
- Representation in legal disputes with the BaFin
- Preparation of issuing prospectuses
- Support in the context of approval and authorization procedures
- Advising on and monitoring reporting obligations