Germany Introduces Financial Regulation Updates to Strengthen Market Trust

Introduction

Germany’s parliament has passed the Financial Market Integrity Strengthening Act (FISG), aiming to enhance financial statement control for businesses and boost trust in the country’s financial market. The law came into effect in July, with some provisions allowing for transitional arrangements.

Key Updates

The key updates are expected to have a significant impact on corporate governance, enforcement proceedings, and audit practices.

New Developments in Corporate Governance

• Executive board and supervisory board members will be affected by the changes aimed at strengthening corporate governance.
  • Public-interest entities (capital-market-oriented businesses, banks, and insurance companies) must establish an audit committee with at least two financial experts. Committee members have a direct right to information from the business entity’s central departments responsible for tasks related to the audit committee.
  • Listed businesses are required to set up adequate internal control and risk management systems to reinforce corporate governance.
  • The supervisory board or audit committee is mandated to monitor the quality of audits.

Audit Area Updates

• Reduction of the maximum mandate for auditing all public-interest entities to ten years, with extension options removed for capital-market-oriented businesses.
• A new auditor must be appointed if the same auditor has been notified by BaFin (Federal Financial Supervisory Authority) for eleven consecutive financial years in credit and financial services institutions and insurance companies not deemed public-interest entities. BaFin may request the appointment of another auditor in such cases.
• The internal rotation period for responsible audit partners auditing public-interest entities is reduced from seven to five years.
• Auditors can no longer provide tax consulting and assessment services in public-interest entities, while APAS (German Auditors’ Supervisory Authority) will no longer permit auditors to exceed 70% professional fee caps for consulting services.

New Developments in Enforcement Proceedings

The two-step enforcement proceedings have been transformed into one-step proceedings, with BaFin taking responsibility.