Financial Crime World

German Banking Compliance Regulations: A Historical Overview and Current State

The German Banking Act, first enacted in 1934 as the German Reich Banking Act, serves as the foundation for the supervision of credit institutions and financial services providers in Germany. This legislative framework continues to be essential in the context of the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM).

The origins and primary goal of the German Banking Act

  • The German Reich Banking Act marked the inception of modern banking supervision in Germany.
  • Its primary goal is to ensure the safety and stability of the German banking and financial services sector.
  • It introduced a general authorization requirement and regulations regarding capital, liquidity, and lending business.
  • Established the Federal Banking Supervisory Office in Berlin, the precursor to the Federal Financial Supervisory Authority (BaFin).

Key amendments over the decades

1998: Implementation of the Investment Services and Capital Adequacy Directives

  • Significant overhaul of the German banking supervision law.
  • Regulations like Principle I, Large Exposures and Loans, Reports Regulation, and Monthly Returns Regulation were revised or replaced.
  • Extended BaFin and the German Federal Bank’s regulatory scope to the entire financial services sector.

2006: Response to the Basel II Framework revision

  • Expansion of capital requirements, trading book provisions, organizational duties, and cooperation mechanisms between European supervisory authorities.
  • Introduction of a new concept – the CRR credit institution.

Adaptations to the Basel III framework (as of now)

  • Adoption of the Capital Requirements Regulation (CRR) and Capital Requirements Directive IV (CRD IV).
  • The legislative intervention introduced a new concept – the CRR credit institution.

Conclusion

Throughout its complex history, the German Banking Act has shaped and safeguarded the German and European financial services landscape by continuously adapting to the evolving regulatory climate and ever-growing financial sector needs.