Regulation of Financial Services in Germany
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Overview
Germany has a comprehensive framework of laws and regulations governing the financial services industry. This article provides an overview of the key aspects of financial regulation in Germany, including enforcement, consequences for non-compliance, private rights of action, standard of care, cross-border issues, and international standard setting.
1. Enforcement and Compliance
Who is responsible for enforcing regulations and laws governing the financial services industry?
The Financial Supervisory Authority (BaFin) is responsible for enforcing regulations and laws governing the financial services industry in Germany.
Consequences for Non-Compliance
What are the consequences for senior management if they fail to comply with regulatory requirements?
- Senior managers may face administrative sanctions.
- They may be subject to prosecution.
- Their company may incur civil claims for compensation of damages.
Private Rights of Action
Do private rights of action apply to violations of national financial services authority rules and regulations?
Generally, no. However, in exceptional cases where a regulatory law provision also serves to protect individual rights, an individual may assert a claim against the regulated institution.
Standard of Care
What is the standard of care that applies to each type of financial services firm and authorized person when dealing with retail customers?
- Regulated entities must apply due care when interacting with any counterparty.
- Specific rules under MiFID II provide for different treatment of:
- Professional clients
- Eligible counterparties
- Retail clients
Does the standard of care differ based on the sophistication of the customer or counterparty?
Yes, the standard of care may differ based on the sophistication of the customer or counterparty.
Adoption of Rules
How are rules that affect the financial services industry adopted? Is there a consultation process?
Laws affecting the financial services industry are usually subject to a consultation process. Regulatory decrees published by BaFin also typically initiate a consultation process before adoption.
Cross-Border Issues
How do national financial services authorities approach cross-border issues?
- BaFin takes a strict view on the provision of licensable activities in Germany and to clients based in Germany.
- There are exemptions for servicing existing client relationships or reverse solicitation.
- Non-German entities with an EU or EAA registered seat may benefit from passporting arrangements under MiFID II.
International Standard Setting
What role does international standard setting play in the rules and standards implemented in your jurisdiction?
International standards, such as Directives or Delegated Directives, are implemented into national German law following a consultation process. Interpretations of provisions by ESMA or EBA are reflected and considered by BaFin and the regulatory industry.