Topic BaFin Principles governing the exercise of legal and technical supervision of BaFin by the Federal Ministry of Finance
This translation is furnished for information purposes only. The original German text is binding in all respects.
I. Legal foundations
The following principles constitute provisions for the exercise of legal and technical supervision by the Ministry of Finance (“the Ministry”) and cooperation in the international arena. The principles establish a list – which is not exhaustive – of BaFin’s duties to provide the Ministry with information. The duties to provide information are the basis on which the legal and technical supervision is exercised.
BaFin is a legally independent institution governed by public law. As part of the federal administration, under section 2 of the Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG) it is subject to the legal and technical supervision by the Ministry, which bears the political responsibility for BaFin’s activities. The subject of the legal and technical supervision is the legality and fitness for purpose of BaFin’s administrative actions.
BaFin exercises banking, insurance and securities supervision in accordance with the relevant supervisory legislation in order to ensure the proper functioning, stability and integrity of the German financial system and thus creates confidence for all market participants. It seeks to prevent unlawful activities in the financial field and enforces rules of conduct in order to ensure confidence in the financial markets. It performs its functions independently, without prejudice to the scrutiny of the legality and fitness for purpose of BaFin’s actions within the framework of the Ministry’s supervision. Insofar as is necessary, the Ministry applies the supervisory instruments available to it.
II. Duties and responsibilities under the Act Establishing the Federal Financial Supervisory Authority (FinDAG)
In addition to legal and technical supervision (see Part IV below), the FinDAG assigns the following duties and responsibilities to the Ministry:
- issuing and amending BaFin’s articles of association (section 5 (3));
- approving BaFin’s rules of procedure and any amendments thereto (section 6 (2));
- seconding the Chairman, his Deputy and one further member of the Administrative Council (section 7 (3));
- appointing the members of the Administrative Council (section 7 (5));
- appointing the members of the Advisory Board (section 8 (2));
- appointing the members of the Consumer Advisory Council (section 8a (2));
- exercising the functions and responsibilities of the supreme official authority for the President and Chief Executive Directors (section 9 (3) and (4));
- giving final approval to the discharge of the Executive Board after the end of the financial year (section 12 (3));
- considering the findings of audits by the Federal Court of Audit (Bundesrechnungshof) (section 12 (5));
- issuing a Regulation on the Imposition of Fees and Allocation of Costs (section 14 (2), section 16).
The Ministry and BaFin prepare the meetings of the Administrative Council and carry out the post-meeting work. The secretariat work (including taking and circulating the minutes) is performed by BaFin.
- Budget and rendering of accounts
BaFin submits the documents for its budget and the annual statements of account together with accompanying audit reports to the Ministry in good time for checking before they are sent to the members of the Administrative Council.
- Advisory Board, Consumer Advisory Council and other BaFin advisory bodies
BaFin provides the Advisory Board and Consumer Advisory Council secretariats and notifies the Ministry in good time of all significant Advisory Board and Consumer Advisory Council matters; in particular it notifies the Ministry in advance of the subjects to be discussed at meetings. The Ministry is invited to meetings. In the case of the other advisory bodies (Insurance Advisory Council, Securities Council, Takeover Advisory Council) BaFin notifies the Ministry in advance of the subjects to be discussed at the meetings.
III. BaFin’s duties to provide information
In exercising its legal and technical supervision, the Ministry relies on information that is in the public domain and also on sources of knowledge available to BaFin. The Ministry may at any time require BaFin to report on the knowledge available to it or its actions and ask to submit documents. The existing legal provisions regarding the obligation of confidentiality shall be observed.
BaFin submits to the Ministry reports on internal organisation matters, significant events occurring in the exercise of financial services supervision and important topics in connection with activities at the international level.
- The Ministry is informed promptly of internal decisions regarding BaFin’s organisation and personnel. BaFin reports on any other agreements – including any that are made publicly known – at an early stage. These include, for example, announcements relating to its objectives or mission statement.
- BaFin reports regularly to the Ministry, and separately in special circumstances, on supervisory measures intended and already introduced that are of material importance in the exercise of supervision under the relevant financial services supervision laws. As a matter of general principle, material importance covers noteworthy events occurring at systemically important institutions and noteworthy developments on the major financial markets. In addition to the foregoing, extreme events occurring at smaller institutions or on local markets may in individual cases also be of material importance. On the basis of these reports the Ministry gains an impression of the application and enforcement of the provisions of supervisory law.
- BaFin reports regularly to the Ministry on contacts with foreign supervisory authorities and promptly on the conclusion of cooperation agreements with foreign supervisory authorities (Memoranda of Understanding). In cases of particular foreign policy importance BaFin informs the Ministry at an early stage in advance.
- BaFin reports on its advisory activities in connection with the development and support of supervisory systems outside Germany (section 4 (1) sentence 2 FinDAG).
- BaFin notifies the Ministry promptly, if necessary by submitting agenda papers and minutes, of the topics discussed in and results of meetings of the relevant European supervisory bodies (in particular ESMA, EBA, EIOPA and ESRB) and other international groups on which BaFin is represented. In the case of subjects that are of particular importance with regard to German interests, BaFin regularly provides information on the discussion processes and developments at the European and international level. If any problems emerge in connection with these subjects, BaFin notifies the Ministry without delay.
- Ad hoc reports
BaFin notifies the Ministry without delay if it becomes aware of possible threats to systemically important credit institutions, financial services institutions, investment funds or insurance undertakings under its supervision, of impending disruptions on regulated stock exchanges and securities markets or other financial difficulties looming in the financial services field. In the case of events that cannot be regarded as threats but are nevertheless of public interest, BaFin notifies the Ministry of the latest information known to it if this is of importance for the activity of the Ministry.
- Federal Court of Audit and other audit bodies
BaFin informs the Ministry without delay of audits by and requests for information from the Federal Court of Audit (Bundesrechnungshof) before the audits begin. Once an audit has been completed, the Ministry is notified of the results in summary form. The same applies for audits commissioned or conducted by other bodies.
Technical discussions and meetings on selected topics
In addition to the written reports, meetings take place on a flexible cycle between the Ministry and BaFin to exchange additional information on selected topics. Depending on the main focus of the topic, the technical discussions may also be held as workshops. The group membership on both sides may change depending on the subject area, the contentiousness of the subject and staff availability. The topics for these technical discussions include:
- developments at systemically important undertakings under BaFin’s supervision that may lead to a crisis;
- serious supervisory measures against the undertakings under BaFin’s supervision;
- serious market supervision measures;
- significant topics and developments relating to combating money laundering and combating other forms of financial crime;
- significant topics in the supervision of financial conglomerates;
- significant topics from the cross-sectoral departments;
- significant developments in the financial services field;*o other events of clear public interest;
- other topics put on the agenda by the Ministry or BaFin.
Exchange of specialised knowledge
BaFin informs the Ministry of the findings of its investigations into financial market topics that are of fundamental interest to the Ministry. These include in particular:
- investigations into the development of the financial markets;
- investigations into financial stability;
- assessments on the use of new financial instruments;
- general notes on supervisory strategies;
- statistical/econometric analyses;
- general notes on significant legal issues.
IV. Exercising of legal and technical supervision
- Issue of Regulations and other important General Decrees
Regulations issued on the basis of the relevant supervisory legislation that BaFin is authorised to issue are submitted to the Ministry in advance for its information. If they are fairly extensive texts or the contents are largely of a technical nature, BaFin provides an explanation of the major points in a summary. In the case of the preparation of new Regulations or amendments and supplements to existing Regulations by BaFin, the Ministry is notified of the measures planned at an early stage. Drafts that BaFin sends out to the financial industry for its opinion are submitted to the Ministry in advance. The Ministry is invited to the consultations with the financial industry and to other important discussions on the drafts. BaFin promptly sends the Ministry minutes summarising the results of the consultations and discussions. For Circulars and General Decrees that are comparable to Regulations with regard to their substantive provisions and impact, the same procedures apply mutatis mutandis.
- Circulars on individual regulatory issues
The Ministry is informed before publication of any other BaFin announcements and notices which with regard to their regulatory content and their impact on the institutions and undertakings under supervision are not on a par with Regulations. If the Ministry expresses no objections within five business days of receipt of the text of the announcement/notice, consent can be assumed to have been given.
- Changes of administrative practice
If BaFin intends to change its administrative practice in the application of particularly significant supervisory rules, it notifies the Ministry of this and informs it of the reasons for and impact of the planned action. If the competent department of the Ministry expresses no objections within 10 business days of receipt of the text of the announcement/notice, consent can be assumed to have been given.
- Issue of Regulations and other important General Decrees
- Complaints about the conduct of BaFin employees
The Ministry decides on complaints about the conduct of employees (Dienstaufsichtsbeschwerde) levelled against the President and Chief Executive Directors of BaFin and complaints about the conduct of the institution. On the other hand, complaints about the conduct of employees levelled at other employees of BaFin are decided by the President of BaFin.
- The issue of administrative decisions falling within the remit of the Federal Ministry of Finance
Administrative decisions that concern the organisation, rules of conduct or other provisions applying in the federal financial administration generally apply to BaFin, with due regard to BaFin’s capacity to employ public officials (Dienstherrenfähigkeit).
BaFin’s public relations work
- Annual report
So that the Ministry may be made aware of the contents of the annual report at an early stage, the report is submitted to the Ministry in good time before BaFin’s annual press conference at which BaFin presents the report to the public. Passages in the annual report that are of political import are cleared with the Ministry before it goes to print.
- Press briefings, interviews, other publications
The Ministry is informed of interviews and, if available, texts of speeches by the President and Chief Executive Directors of BaFin on topics of financial market policy relevance before they appear or before they are reported on in the press, if time allows. Statements on political matters, especially in the parliamentary arena, that concern the Federal Government’s legislative jurisdiction are cleared with the Ministry.
- Annual report
- Testifying in court
The Ministry decides whether to grant approval for the President and Chief Executive Directors of BaFin to testify. The Ministry is informed of approvals that the President of BaFin gives or refuses for the employees of his authority.
- Queries from the parliamentary arena
The Ministry is responsible for answering queries from the parliamentary arena on ongoing legislative projects or general financial market policy issues. If BaFin receives such queries, it passes these on to the Ministry. BaFin notifies the member of the Bundestag submitting the query that it cannot issue statements on ongoing legislative procedures.
BaFin answers queries on the application and interpretation of existing supervisory rules. BaFin submits the correspondence to the Ministry. In all cases BaFin submits to the Ministry copies of its written replies.