German Financial Regulators Hold Senior Managers Accountable for Institution’s Activities
Berlin - The management boards of financial services firms in Germany are responsible for establishing a business strategy, monitoring risks, and implementing risk strategies. According to a recent report, senior managers can be held individually accountable for their institution’s activities.
Accountability of Senior Managers
Senior managers can face criminal or administrative sanctions if they commit a crime or offence themselves or if they fail to prevent such an act from happening despite having the power to do so. In addition, they may be liable for breaches of personal legal obligations and could potentially face civil claims for compensation of damages by their company.
Private Rights of Action
- Private rights of action typically do not apply to violations of national financial services authority rules and regulations in Germany.
- However, in exceptional cases where regulatory laws also serve to protect individual rights, individuals may be able to assert a claim against the regulated institution.
Standard of Care for Customers
German law does not differentiate between wholesale and retail clients when it comes to the standard of care required from financial services providers. Regulated entities must apply due care when interacting with any counterparty, and there are different treatment options for:
- Professional clients
- Eligible counterparties
- Retail clients
Rule Making
- Laws affecting the financial services industry in Germany typically undergo a consultation process before being adopted by the German parliament or regulatory authorities.
- Industry groups and market participants may comment on proposed rules during this process, which plays an important role in shaping the final guidance.
Cross-Border Issues
German financial regulators take a strict approach to cross-border issues, requiring non-German firms targeting the German market to obtain a licence. However, there are exemptions for:
- Servicing existing client relationships
- Situations where services have been requested by a German client
- EU-based entities benefiting from passporting arrangements under MiFID II and CRD IV
International Standards
Germany implements international standards, such as Directives and Delegated Directives, into national law through the same process as EU acts. The country’s regulatory authorities also consider interpretations of provisions and guidance notes from European agencies like:
- ESMA (European Securities and Markets Authority)
- EBA (European Banking Authority)
when updating their own guidelines.
Conclusion
German financial regulators hold senior managers accountable for their institution’s activities, and there are strict requirements for financial services providers to follow. The consultation process plays a crucial role in shaping the rules that govern the industry, and Germany implements international standards into national law to ensure consistency with EU regulations.