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Stand:updated on 23.11.2022 Securities supervision

The objective of securities supervision is to guarantee the transparency and integrity of the financial market and ensure investor protection. Other responsibilities of securities supervision include monitoring financial market infrastructures, financial services institutions and asset management companies together with their investment funds.

Securities supervision in Germany …

Securities supervision in Germany is governed by both European regulations and national laws. The main laws and regulations are the German Securities Trading Act (WertpapierhandelsgesetzWpHG), the EU Market Abuse Regulation (MAR), the EU Markets in Financial Instruments Regulation (MiFIR), the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und ÜbernahmegesetzWpÜG), the EU Prospectus Regulation, the German Securities Prospectus Act (WertpapierprospektgesetzWpPG), the German Capital Investment Act (VermögensanlagengesetzVermAnlG) and the German Investment Code (KapitalanlagegesetzbuchKAGB). Other relevant legal provisions can be found in numerous other European regulations which are directly applicable.

The key responsibilities of BaFin’s Securities Supervision/Asset Management Sector are to prevent insider dealing and market manipulation, monitor publications of ad-hoc disclosures, managers´ transactions reports and notifications of major holdings of voting rights, supervise company takeovers and enforce financial reporting. Other responsibilities include supervising the solvency of financial services institutions, monitoring asset management companies together with their investment funds, approving prospectuses for securities and capital investments and granting permission for the publication of securities and capital investment information sheets. Another important area of responsibility is that of collective consumer protection, a supervisory objective enshrined in the German Retail Investor Protection Act (KleinanlegerschutzgesetzKlAnlSchG).

… as distinct from stock exchange supervision

The Exchange Supervisory Offices of the federal states are responsible for stock exchange supervision. They oversee the orderly conduct of trading at the respective stock exchanges in accordance with the provisions of the German Stock Exchange Act (BörsengesetzBörsG). A primary responsibility is that of monitoring price determination in cooperation with the trading surveillance offices. Other responsibilities include supervising a stock exchange’s multilateral trading facility (regulated unofficial market) or organised trading facility. BaFin is responsible for monitoring the multilateral or organised trading facilities if these are operated by credit institutions or financial services institutions and not by stock exchanges. BaFin co-operates with the stock exchange supervisory authorities in fulfilling the functions of stock exchange regulator at the international level.

Preventing insider dealing

Insiders are persons who, in the course of their work or by any other means, acquire knowledge of price sensitive circumstances, which have not been made public (inside information). These might be, for instance, an upcoming capital increase or acquisition of major holdings. Insider dealing is prohibited. Persons using inside information when acquiring or selling securities for their own account or that of anyone else render themselves liable to prosecution, irrespective of how they acquired the inside information. It is also prohibited to unlawfully disclose inside information or to induce other persons to buy or sell a financial instrument on the basis of inside information. To monitor compliance with this prohibition on insider dealing, employees from BaFin’s Securities Supervision Sector routinely analyse trading activities using the data on all transactions in financial instruments that credit institutions and financial services institutions are required to report. In addition, BaFin monitors all ad hoc notifications of listed companies and follows up on information provided by third parties. This information could stem from investors, but also from other authorities or the press. In a first step, BaFin compares the price and turnover movements with the information available on this financial instrument. If the results of this comparison give grounds to suspect insider dealing, BaFin launches an official investigation in order to establish the identity of the initiator of the suspicious transactions, etc. If the suspicion is confirmed, BaFin reports an offence to the competent public prosecutor's office. Insider dealing or the unlawful disclosure of inside information is punishable by imprisonment of up to five years or a fine. Any attempt to engage in insider dealing is also a punishable offence. BaFin may itself prosecute an offence committed through negligence as an administrative offence.

Statutory disclosure requirements such as the publication of ad hoc disclosures, managers´ transactions reports and the notification of major holdings of voting rights serve to prevent insider dealing from being carried out in the first place. After all, information that has become known to the public can no longer be used for insider dealing.

Ad hoc disclosures

Investors can only make sound investment decisions and avoid being disadvantaged by persons with inside information if listed companies notify all market participants quickly and comprehensively of any inside information. These companies are therefore obliged to publish as soon as possible – i.e. ad hoc – new facts directly concerning them but not known to the public if this information would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments (Article 17 in conjunction with Article 7 of the EU Market Abuse Regulation (MAR)). In order to publish these disclosures, technical means must be used to ensure that the information is communicated to as wide a public as possible, free of charge and simultaneously throughout the EU, and that it is sent to various media for effective dissemination to the public. The companies must also send the publications to the company register for storage and must post the publications on their websites for a period of five years. BaFin intervenes if a company fails to disclose inside information covered by the ad hoc disclosure requirement or if it publishes such information late, incorrectly or incompletely. In the case of issuers exercising the statutory option to delay public disclosure of information, BaFin also checks whether they have been granted exemption from the ad hoc disclosure requirement in the proper manner.

Managers' transactions

For cases in which persons discharging managerial responsibilities within an issuer deal in financial instruments issued by the issuer itself (e.g. shares or bonds), investors must be made aware of such own account transactions, known as managers’ transactions. Article 19 of the EU Market Abuse Regulation (MAR) requires members of the management or supervisory bodies of an issuer, as well as any other persons with regular access to inside information and at the same time with power to take important managerial decisions, to notify both the issuer and the competent authority (BaFin) of transactions conducted on their own account relating to shares or debt instruments of the issuer which are traded on the financial markets or financial instruments linked thereto (e.g. derivatives) within three business days. The notification requirement also applies to spouses, registered civil partners, dependent children and other relatives living with them in the same household for at least one year. The same applies to legal persons, trusts (such as foundations) or partnerships closely associated with persons discharging managerial responsibilities. The issuer is responsible for ensuring that transactions subject to the notification requirement are published by media suitable for disseminating the information throughout the European Union within two working days after the issuer receives a notification to this effect from the person discharging managerial responsibilities or a person closely associated with them. In addition, the issuer is required to forward the published information to the company register for storage. BaFin provides a database of all reported managers’ transactions on its website.

Market manipulation

The objective of investigating market manipulation is to preserve market integrity and foster investor confidence. Under Article 15 of the EU Market Abuse Regulation (MAR), market manipulation and the attempt to engage in market manipulation are prohibited. Details of this prohibition are set out in Article 12 of the MAR. It is forbidden to enter into a transaction, place an order to trade or engage in any other behaviour which gives false or misleading signals as to the supply of, demand for, or price of, a financial instrument – for example, by means of unfair trading practices such as wash trades or pre-arranged trades. This prohibition does not apply to a practice that has been established as accepted market practice. BaFin establishes which practices are accepted market practices in the German market.

The prohibition also applies to other deceptive acts which are likely to affect the price of a financial instrument, for example when a person buys shares with the intention of making a recommendation to buy them in order to sell them again after the price has risen in response to this recommendation, a practice known as scalping.

Finally, it is forbidden to disseminate information, for example through the media, which gives false or misleading signals as to the supply of, demand for, or price of, a financial instrument and which is likely to affect the stock exchange or market price of a financial instrument.

Deliberate acts which actually affect the price of a financial instrument in the manner described above are classified as criminal offences punishable by a term of imprisonment of up to five years or a fine. Attempts at market manipulation are also punishable offences. If an offence does not affect the price of a financial instrument or was committed negligently, BaFin may prosecute such an offence as an administrative offence.

Major holdings of voting rights

Knowledge of the shareholder structure of a listed company and of changes in major holdings of voting rights also serves to ensure transparency and provides a useful criterion for investment decisions. Natural and legal persons are therefore obliged to notify BaFin and the listed company of the percentage of their voting rights attaching to shares belonging to that party as soon as these shares, as a result of purchase, sale or for any other reason, reach, exceed or fall below any of the thresholds of 3, 5, 10, 15, 20, 25, 30, 50 or 75 per cent. Since 20 January 2007, it has not only been necessary to notify the percentages in voting rights but also holdings in financial instruments that give the holder the right to acquire shares. The notification threshold for these instruments is 5 per cent. Voting rights notifications must be made without undue delay, and at the latest within four trading days (section 33 of the German Securities Trading Act (WertpapierhandelsgesetzWpHG).

The company must send the notification without undue delay, at the latest within three trading days, to selected media for dissemination throughout the European Union, and immediately afterwards to the company register for storage.

BaFin's website provides investors with a list of published notifications.

Securities prospectuses

In the case of securities that are to be offered to the public or admitted to trading on a regulated market, a securities prospectus that has been approved by BaFin must be published (Article 3 of the EU Prospectus Regulation). The prospectus must provide investors with all the key information about the security and its issuer so that an investment decision can be made on the basis of this information. BaFin examines the completeness, consistency and comprehensibility of the prospectuses but does not check if the contents themselves are substantively correct. The prospectus requires prior approval from BaFin before it may be published. Investors can consult a database to search for prospectuses filed with BaFin (since 1 July 2005). On this database, BaFin also provides access to the approved prospectuses themselves, in each case for a period of 10 years (please note that this retention period only applies to prospectuses approved after 21 July 2019). Investors can use a prospectus as the basis for asserting liability claims against the company that has assumed responsibility for the content of the prospectus. However, the courts, and not BaFin, are responsible for asserting any such claims.

Prospectuses for capital investments (“Vermögensanlagen”)

For offerings of specific types of shareholdings to the public (e.g. holdings in partnerships, shares in limited liability companies, shares in civil law partnerships and, in certain cases, holdings in foreign companies of other legal forms), a prospectus for capital investments must be published under section 6 of the German Capital Investment Act (VermögensanlagengesetzVermAnlG). The prospectus obligation also applies to registered bonds. BaFin examines whether the prospectus is complete and only grants approval for publication if it contains all the information required under the VermAnlG and the Capital Investment Sales Prospectus Regulation (Vermögensanlagen-VerkaufsprospektverordnungVermVerkProspV). BaFin does not check if statements made in the prospectus are substantively correct. Here, too, the prospectus constitutes the key basis for liability in cases where essential information required for the investment decision is missing from the prospectus or that information provided does not correspond with the facts. Once again, investors can consult a database to search for prospectuses filed with BaFin.

Rules of conduct and organisational requirements

The rules of conduct and organisational requirements which investment services enterprises must observe in their dealings with their clients are of particular importance for ensuring investor protection and the proper functioning of financial markets (section 63 et seq. of the German Securities Trading Act (WertpapierhandelsgesetzWpHG). BaFin verifies whether these provisions are being observed by having annual controls or ad hoc inspections carried out. The rules of conduct require, for example, that companies inform their clients of a securities transaction’s most important aspects before carrying out the transaction. This information must be compatible with the needs of the investor and show the characteristics of and the risks associated with the financial instruments in question. The rules are based on the principle that the more speculative and risky the proposed transaction and the more inexperienced the investor, the more detailed the information the client must receive. The investment services enterprises must provide their services with due diligence, expertise and conscientiousness in accordance with the interests of their clients. In the event of conflicts of interest, the interests of the client must take precedence over those of the investment services enterprise. The investment services enterprises may not make any investment recommendations if these are not in the interests of the client or primarily serve their own interests – for example, in order to steer the price of a security or derivative in a particular direction. Cold calling (i.e. unsolicited telephone calls made to clients with whom a business relationship involving investment and ancillary services does not already exist) is also prohibited and constitutes a deficiency. The organisational requirements include setting up adequate internal controls and an organisational structure designed to prevent conflicts of interest. One of the basic prerequisites for this is maintaining appropriate arrangements to separate the different business functions – i.e. the separation of trading, settlement and control.

Company takeovers

Since 2002, BaFin has been monitoring takeovers of companies domiciled in Germany whose shares are admitted to trading on an organised market. There are three offer procedures. In the case of standard offers to acquire shares, offerors intend to either purchase shares without obtaining control of the company or increase an already existing controlling interest. No minimum price is prescribed in this case, and partial offers are also permitted. Anyone holding at least 30 per cent of the voting rights in the target company is deemed to control that company. In the case of takeover bids, offerors want to acquire as many shares in the target company as required to reach or exceed the control threshold. They can make their bids conditional upon the attainment of a success threshold, but must offer minimum prices based on the weighted average stock exchange price of the previous three months and any previous purchases. Offerors must make a mandatory bid to all other shareholders when they acquire control of the company for the first time. Minimum price rules also apply in these cases. BaFin makes the minimum prices available on written request.

Furthermore, BaFin monitors delisting acquisition offers in accordance with section 39 (2) of the German Stock Exchange Act (BörsengesetzBörsG) in the case of companies applying to the board of management of the stock exchange for the revocation of their admission to trade on an organised market.

BaFin’s Securities Supervision Sector monitors the takeover procedures. It examines the offer documents to ensure that they are complete and do not evidently contravene the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und ÜbernahmegesetzWpÜG) or, in the case of a delisting acquisition offer, section 39 (3) of the BörsG, and may prohibit an offer. It also decides on applications for exemption in accordance with the WpÜG.

Enforcement of financial reporting

Since 2005, the financial reporting of issuers whose home country is the Federal Republic of Germany and whose securities are admitted to trading on an organised market has been subject to additional external control. Such enforcement of financial reporting may be conducted on an ad hoc basis (if there is specific evidence of an infringement of accounting requirements) or a random sampling basis.

With effect from 1 January 2022, BaFin is solely responsible for examining the financial statements of publicly traded companies. The formerly two-stage process – with the German Financial Reporting Enforcement Panel (FREP), a private-law entity, responsible for stage 1 and BaFin for stage 2 – has migrated to a single-stage process following the implementation of the FISG. Ad hoc examinations and random sampling examinations are now performed solely by BaFin and not in the first instance by a private-law entity.

BaFin is authorised to publish examination orders and key steps in the procedure, among other things, in order to make enforcement more transparent. It discloses any errors found during examinations alongside the significant parts of the reasons for this.

Monitoring periodic financial reporting

Since 2007, BaFin has been responsible for monitoring compliance with the notification and publication requirements concerning the financial reporting of domestic issuers if no such requirements are specified in the German Commercial Code (HandelsgesetzbuchHGB). For example, domestic issuers domiciled in the Federal Republic of Germany are obliged to disclose their annual financial statements in accordance with the provisions of the HGB. The Federal Office of Justice (Bundesamt für JustizBfJ) is responsible for monitoring compliance with this obligation.

The periodic financial reports provided by the issuers help investors to make a sound judgement of the issuers’ financial position and results of operations on the basis of reliable information.

As part of their annual and semi-annual financial reporting, issuers must meet the following requirements:

  • publish an announcement, stating the date and the website on which the financial reports are publicly accessible, to be forwarded to the media for Europe-wide dissemination;
  • notify BaFin of the publication of the announcement;
  • make the financial reports publicly available on the internet;
  • forward the announcement and the financial reports themselves to the company register for storage.

Investment strategy recommendations and investment recommendations

Investment decisions are frequently made based on investment strategy recommendations and investment recommendations, also known as financial analyses. In order to strengthen investor confidence, those producing and disseminating investment strategy recommendations and investment recommendations are required to exercise due care and meet high standards of neutrality and integrity. Such recommendations must therefore be appropriately prepared and presented. Potential conflicts of interest must be disclosed. Companies which produce or disseminate investment strategy recommendations or investment recommendations must be organised in such a way that conflicts of interest are kept to a minimum (section 85 (1) of the German Securities Trading Act (WertpapierhandelsgesetzWpHG)). BaFin monitors compliance with these competency, transparency and organisational requirements. All natural and legal persons who, through the exercise of a profession or as part of their business activities, are responsible for producing or disseminating investment strategy recommendations and investment recommendations must notify BaFin without undue delay (section 86 (1) of the WpHG). The form for making such notifications can be found on BaFin’s website. Exemptions from this notification requirement exist, e.g. for journalists subject to comparable self-regulation as well as for investment services enterprises, asset management companies and investment companies as these are already subject to BaFin’s supervision in accordance with other provisions.

Supervision of asset management companies

Asset management companies are supervised by BaFin’s Asset Management Sector. In accordance with the provisions of the German Investment Code (KapitalanlagegesetzbuchKAGB), BaFin supervises the asset management companies and the investment funds they offer.

Investment funds within the meaning of the KAGB include open-ended and closed-ended investment funds. While open-ended investment funds usually invest in financial instruments (exception: open-ended real estate funds), closed-ended investment funds usually invest in physical assets.

In order to obtain authorisation, German asset management companies must, depending on their structure, have initial capital of at least 300,000 euros or 125,000 euros. They must also have an appropriate organisation and their senior management must be fit and proper (solvency supervision). The market conduct of German asset management companies is also subject to supervision under the KAGB (market supervision).

In the case of investment funds launched in Germany, BaFin also carries out product supervision and, for example, approves the fund rules of retail funds. German asset management companies must additionally observe a number of statutory investment provisions. Furthermore, BaFin examines the notification of the intention to commence marketing of German and foreign investment funds intended for distribution in Germany to ensure that they comply with the provisions of the KAGB. If the conditions are not or no longer met, BaFin may prohibit the distribution.

Solvency supervision of financial services institutions

Financial services institutions – just as credit institutions – have to observe a number of rules when they are being established and when they are carrying on their business. Any party wishing to provide financial services in Germany requires written authorisation from BaFin (sections 32 and 33 KWG) and is subject to ongoing supervision, e.g. in respect of its capital adequacy and organisational structure. Financial services institutions which engage in foreign currency dealing, money transmission services, non-EEA deposit broking and credit card business are mainly supervised from a money-laundering perspective. They are subject to solvency supervision only to a limited extent. Solvency supervision of financial services institutions is carried out in accordance with criteria similar to those applied to the solvency supervision of credit institutions.

Collective consumer protection

Collective consumer protection has always been one of BaFin’s responsibilities. The German Retail Investors Protection Act (KleinanlegerschutzgesetzKlAnlSchG) of July 2015 placed collective consumer protection for the first time within the scope of BaFin’s legal mandate (section 4 (1a) of the Act Establishing the Federal Financial Supervisory Authority (Gesetz über die Bundesanstalt für FinanzdienstleistungsaufsichtFinDAG)).

Collective consumer protection means that BaFin is obliged to protect the collective interests of consumers as a whole and to exercise its powers only in the public interest. However, consumers have no legal right to demand that BaFin takes action on their part. BaFin may, for example, issue orders to prevent or rectify deficiencies related to consumer protection if a general clarification is deemed necessary in the interests of consumer protection. In serious cases, BaFin may even restrict or impose a complete prohibition on the distribution of products or certain distribution practices, for example, in the event of major investor protection concerns or risks for the orderly functioning and integrity of financial or commodity markets.

History of securities supervision

The origins of securities supervision in Germany date back to the Second Financial Market Promotion Act, which was passed on 26 July 1994. This law resulted in a fundamental reform of the German supervisory system for securities markets. Its objective was to ensure the proper functioning and thus the international competitiveness of the German financial market. One of the key elements of the reform was the establishment of the Federal Securities Supervisory Office (Bundesaufsichtsamt für den WertpapierhandelBAWe) in Frankfurt am Main, which commenced work on 1 January 1995. This was the first time that a federal authority was assigned responsibilities for supervising Germany's securities markets.

The responsibilities of the new securities supervisory office were laid down in the German Securities Trading Act (WertpapierhandelsgesetzWpHG) most of which, as a key element of the Second Financial Market Promotion Act, entered into force on 1 January 1995. Under this act, BAWe was made responsible for ensuring the integrity and transparency of the German capital market. This was to be achieved by combating and preventing insider dealing, monitoring the ad hoc disclosures of listed companies, the observance of disclosure requirements for changes in major holdings of voting rights held in listed companies, and monitoring compliance with the rules of conduct applicable to investment services enterprises – all in pursuit of the goal of improving investor protection.

Almost all provisions of the WpHG are based on European Directives. The law has been amended on multiple occasions since its introduction and revised to reflect developments on securities markets.

Continuous additions and extensions have been made to the responsibilities of securities supervision. For example, with the introduction of the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und ÜbernahmegesetzWpÜG) in January 2002, securities supervision was for the first time assigned responsibility for monitoring company takeovers.

Since BaFin’s establishment in May 2002, the responsibility for securities supervision has been assigned to BaFin’s Securities Supervision/Asset Management Sector, with the former investment supervision department of the Federal Banking Supervisory Authority (Bundesaufsichtamt für das KreditwesenBAKred) being allocated to securities supervision on account of the thematic connection. Moreover, BaFin’s Securities Supervision/Asset Management Sector was also assigned the responsibility for monitoring the authorisation of financial services institutions and for their solvency supervision. Further responsibility allocations were made as a result of new statutory provisions, such as the supervisory activities specified under the German Capital Investment Act (VermögensanlagengesetzVermAnlG), the German Securities Prospectus Act (WertpapierprospektgesetzWpPG) and the German Financial Reporting Enforcement Act (Bilanzkontrollgesetz). With the introduction of the German Retail Investor Protection Act (KleinanlegerschutzgesetzKlAnlSchG), collective consumer protection was added to the responsibilities and is exercised by the Consumer Protection Directorate of BaFin’s Securities Supervision/Asset Management Sector since 1 January 2016. Due to multiple changes brought about by the First and Second Financial Markets Amendment Act (1. und 2. Finanzmarktnovellierungsgesetz1. FiMaNoG und 2. FiMaNoG), BaFin’s Securities Supervision/Asset Management Division was also assigned responsibility for monitoring compliance with a large number of European regulations which either supplement or replace the provisions of the WpHG. Examples are the EU Market Abuse Regulation (MAR) or the EU Markets in Financial Instruments Regulation (MiFIR).

Please note

You can find more information on BaFin’s activities in the area of securities supervision by clicking on Stock exchanges & markets, Asset management companies & investment funds or Prospectuses.

Advice, warnings and other useful information for consumers can be found under Consumers on BaFin’s website. There you can also find information on the various ways to submit a complaint.

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