Dr König, critics accuse BaFin time and again of not doing enough to protect consumers. Is that justified?

No, it isn’t. Consumer protection always was and always will be an important issue for all areas of supervision at BaFin. There are some formal distinctions, though, that have to be made: the German Insurance Supervision Act makes explicit reference to the objective of protecting policyholders. The German Banking Act essentially takes the approach of solvency supervision, one of the most effective tools of consumer protection. Securities supervision, for its part, looks to ensure that the rules governing securities trading are adhered to.

Then why the criticism?

It usually comes down to a misunderstanding about what our mandate is. That’s why I once again wish to clarify one thing: we do not have the task of ensuring the individual protection of consumers. For that the German financial system now has in place a well-established and extensive network of ombudsman institutions and consumer interest organisations. The courts then have jurisdiction for any conflicts that cannot be resolved at that level. By contrast, our task is to preserve the totality of all consumers from harm.

What exactly does this mean? How does BaFin protect the interests of, for example, bank customers?

First of all let me say something about the most powerful weapon of consumer protection of all: solvency supervision. BaFin sees to it that the banks remain solvent. But in the event that extreme cases do occur, it can close non-viable banks in order to secure remaining assets. Another thing we do, for example, is to check whether the institutions, when giving investment advice, keep proper investment advice minutes and provide their clients with the same promptly. That is an absolutely essential component of investor protection. Already back in 2010 we conducted a thoroughgoing and extensive review of the market. Wherever shortcomings were identified we got the institutions concerned to remedy them.

Another example is the new Employee and Complaints Register in which BaFin records information on investment advisers and client complaints concerning these advisers. That allows BaFin to be more risk-oriented, specific and faster in its response to shortcomings. Banking and securities supervisors work closely together on these tasks. And of course we are always on the lookout for unauthorised insider dealing, market manipulation and public offerings of securities without an approved prospectus. Here we always encounter black sheep that we then remove from circulation to protect investors.

And what does BaFin do for policyholders?

That’s a very broad field as well. Here too, of course, the first thing to be mentioned is solvency supervision. We moreover look at, for example, how insurers deal with consumer complaints, we will take a harder look at claims settlement, and we regulate certain transactions. For example, in 2010 we already responded to the increasing importance of capitalisation products and single-premium policies. By way of collective decree and circular we issued regulations and provided guidelines to preserve the interests of both existing policyholders and new customers.

Can it be generally be said that there is a fair balance between the interests of the community of the insured and those of individual policy holders?

Balance within the community is the basic concept of the insurance business: it is from the premiums of all policyholders that all insurance benefits are financed. The supervisory authority has to make sure that the interests of the insured community as a whole are preserved and that insurers are able to perform their contracts at all times.

That’s why it is so important to adjust the legal provisions governing participation of policyholders in valuation reserves of fixed-income securities. The way things are now is that, precisely in times of falling interest rates, life insurers have to pay out extremely high amounts to outgoing customers – that’s a paradox and economically irresponsible. Policyholders whose insurance contracts expire only later are the ones that lose out. At the beginning of November, the Bundestag had actually decided to amend the Insurance Supervision Act along these lines as part of the SEPA Accompanying Act. In the end, though, the Bundestag and the Bundesrat decided to postpone the issue for now and to first conduct a fundamental review of the framework of supervisory legislation. I hope that a solution will soon be found that reasonably reflects the interests of all policyholders.

How does BaFin know where shortcomings exist in the system?

We use various sources. We of course gain valuable information from inspections and audits of undertakings. Apart from that, we receive notifications from consumers directly: each year BaFin processes over 20,000 complaints and 23,000 calls. Most recently we have been able to detect violations of legislation in force thanks to the new Complaints Register. But it is always possible to do more.

What, specifically, do you have in mind here?

There are several ways of going about this. In future we want to have a stronger dialogue with the ombudsman institutions. In that way we can obtain valuable ideas and suggestions. Likewise, we can look forward to constructively critical dialogues with representatives from consumer interest organisations that we will be sitting down with at the same table on the Consumer Consultative Panel to be established pursuant to the Act Establishing the Federal Financial Supervisory Authority (FinDAG ). Lastly, there has to be an optimum pooling of expertise – both within BaFin and its interaction with other institutions and bodies. We are also taking a very direct approach to certain issues.

Can you give an example?

We need even more transparency with financial products. That holds true just as much for insurance supervision as it does for securities supervision. That is why BaFin in the near future will focus its efforts to a greater extent on product information provided by insurers. It certainly has to be even more comprehensible and concise, but here I would like to make one thing clear: the aim in this cannot be for BaFin to authorise the products themselves, as was the case under insurance supervision up to 1994. Rather, we have to ensure as a general principle that the undertakings do not lose sight of consumer protection.

The European supervisory authorities have an explicit mandate for consumer protection. What does that mean for BaFin?

In the perception of the general public it is sometimes overlooked just how much we do for consumers through solvency supervision. The ESAs are now taking up their mandate and have launched various activities. We are involved in that. That underscores how important consumer protection is to us.

But one thing must never be forgotten in all that: consumers, too, have their share of responsibility. Many consumers go to more trouble choosing a mobile phone than informing themselves of a financial product that might end up following them for the rest of their lives. I would like to see consumers spend more time evaluating and choosing financial products. If someone doesn't understand something, then they should (and indeed must) get to the bottom of the matter – or simply choose another product.