German Financial Regulators Tighten Grip on Senior Managers
In an effort to prevent financial mismanagement and ensure accountability, Germany’s financial regulators have introduced a new set of rules aimed at strengthening oversight of senior managers at financial institutions.
New Responsibilities for Managing Directors
According to the new regulations, managing directors are required to:
- Establish business strategies
- Monitor risks
- Implement risk management systems
- Provide regular updates to the supervisory board
These measures aim to hold individual senior managers accountable for their institution’s activities. Under the new regime, senior managers can be held criminally or administratively liable if they commit a crime or offense while serving as the factual leader of the institution.
Customer Classification and Standards of Care
The regulations also require financial institutions to classify customers correctly and apply different standards of care depending on the sophistication of the customer. This ensures that customers receive tailored services and protections based on their individual needs.
Private Rights of Action
In cases where regulated entities violate national financial services authority rules and regulations, the new regulations provide for private rights of action. This allows individuals to seek legal remedy if they have been harmed by a financial institution’s actions.
Consultation Process Introduced
The German government has introduced a consultation process for adopting new laws and regulations affecting the financial industry. This allows industry groups and market participants to comment on proposed changes before they are implemented, ensuring that their voices are heard and concerns addressed.
Cross-Border Issues Addressed
Germany has also addressed cross-border issues through the introduction of passporting arrangements under MiFID II and CRD IV. These arrangements allow EU-based entities to offer services in other member states without needing to obtain separate licenses. However, German authorities take a strict view on the provision of licensable activities in Germany and may require non-German firms to obtain a license if they are actively targeting the German market.
International Standards
International standards have played a significant role in shaping Germany’s financial regulatory framework. The country has implemented EU directives and delegated directives into national law, and interpretations from ESMA and EBA are reflected in BaFin’s guidance notes and circulars.
Strengthening Accountability and Transparency
The new regulations aim to strengthen accountability and transparency in Germany’s financial industry, ensuring that senior managers are held responsible for their actions and that customers are protected from harm. By introducing these measures, Germany is taking a significant step towards creating a more stable and reliable financial system.