Financial Crime World

GERMANY: Financial Institutions Face Strengthened Compliance Regime

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Overview of the Financial Market Integrity Strengthening Act (FISG)

The FISG was passed by Germany’s Parliament on May 20, 2021, with the aim of improving financial statement control and enhancing trust in the German financial market. The law took effect in July 2021, with some provisions featuring transitional arrangements.

Corporate Governance Overhaul

Key Updates

  • Audit Committee Requirements: Public-interest entities (such as banks and insurance companies) are now required to establish an audit committee comprising at least two financial experts:
    • One expert with expertise in accounting.
    • One expert with expertise in auditing.
  • Business Control Systems: Listed companies must establish business control systems to reinforce corporate governance. These systems will be formalized specifically for each entity.
  • Supervisory Board Responsibilities: The supervisory board or audit committee is now explicitly tasked with monitoring the quality of audits.

Audit Reforms

Key Updates

  • Maximum Auditor Tenure: The maximum tenure for auditors of public-interest business entities has been reduced from 12 to 10 years, with no extension options available.
  • Responsible Audit Partner Rotation: Responsible audit partners must now rotate every five years when auditing public-interest businesses (down from seven years previously).
  • Tax Consulting and Assessment Services: Auditors will no longer provide tax consulting and assessment services to public-interest business entities.
  • APAS Professional Fee Caps: The APAS can no longer permit auditors to exceed 70% professional fee caps for consulting services in a given financial year.

Enforcement Proceedings

Key Updates

  • Merged Enforcement Proceedings: The two-step enforcement proceedings have been merged into one-step proceedings, with BaFin responsible for overseeing these processes.

As Germany’s financial institutions adapt to the new compliance regime, it is essential for stakeholders to stay informed about the key changes and requirements.