BaFin

BaFin President Felix Hufeld: "The new structure will make us more efficient and effective"

Date: 30.12.2015

BaFin is undergoing a restructuring (organisation chart, only available in german). The Administrative Council approved the restructuring plans a few days ago. From 1 January 2016, large parts of BaFin will be reorganised, partly as a result of new duties in areas such as consumer protection. BaFin President Felix Hufeld explains the key changes and talks about the advantages brought by the new organisational structure.

Mr Hufeld, why does BaFin need a new structure? Wasn't the old one good enough anymore?

Even an authority can benefit from taking a close look at its processes, areas of overlap and organisational structures now and again. In the case of BaFin, you have to remember that we have been through a phase of hectic growth in our functions. Many new issues have arisen in recent years which we have to address and deal with. So it was the right time to see if we were doing that in the best possible way.

In addition, there was a further motivation, which was that the legislature has given us a whole series of new tasks. Take collective consumer protection, for example: the Retail Investor Protection Act (Kleinanlegerschutzgesetz) has given BaFin wide-ranging new competencies, and of course that requires an organisational response. So there was a whole group of reasons for putting our structure under the spotlight.

And it was found that changes were necessary?

Yes, because the goal of any organisational structure must always be to avoid unnecessary areas of overlap and to focus on the main processes. We had some room for improvement in our structure in that area. There were organisational units whose tasks and size had expanded so much over the years that they were hard to manage. In the new structure, they will be able to carry out their duties in a more focused and hence more effective way. Apart from that, BaFin is an integrated financial supervisor which is responsible for all sectors of the financial market, including the issues of conduct regulation and prudential regulation. We found it important to achieve the best possible balance between the different aspects.

What are the key changes? You have just highlighted consumer protection.

Yes, that's right. There will be a new department which will focus exclusively on the issue of consumer protection. It will be located at both of BaFin’s sites, in Bonn and in Frankfurt. This department will come under the Securities Supervision directorate, but that certainly does not mean that it will only concentrate on investor protection. Protecting the interests of the insured and bank customers is an equally important part of its role. Consumer protection is therefore a good example of the implementation of the "EFA concept", which is an important feature of the new structure.

What does it mean?

EFA stands for "one for all" ("einer für alle"). Functions with a BaFin-wide role have been combined and assigned to the unit with which they have the most professional closeness. However, they will effectively be centres of competence which use their expertise to fulfil functions for the whole of BaFin. This horizontal interconnection will strengthen BaFin, as an integrated financial supervisor, in terms of its organisation as well.

Can you give us some other examples of where the EFA concept will have an effect?

Apart from consumer protection, another good example is anti-money laundering. This will be based in the Banking Supervision directorate since it has a large area of connection with that. After all, most cases affect banks. But not all of them do, so this unit will also have an overarching role. If there is suspicion of money laundering at a stock exchange or insurance undertaking, the money-laundering colleagues will deal with that as well.

The same goes for the department of quantitative risk modelling, which has been allocated to the directorate of Insurance Supervision, and also for the central legal department, which will receive additional functions and thus be sustainably strengthened. In the future, it will work not only on traditional basic issues but also on issues like administrative offence proceedings and sanctions.

Are there changes within the directorates as well?

Of course. These were primarily focused on representing new tasks as well as possible and minimising areas of overlap. In the Banking Supervision directorate, that naturally affects all the activities related to the new European banking supervisory system, the SSM. We already brought together the operational supervision over the significant institutions which are now subject to supervision by the European Central Bank (ECB) in one unit last year. In addition, we created a unit to deal with the harmonisation of supervisory standards. These ad hoc measures have made working together with the ECB much easier, so we are now going to transfer these units into a permanent structure, and they will become departments. They are really important to ensure the best possible quality and efficiency of cooperation with the ECB.

What about securities and insurance supervision?

In securities supervision, we have to handle a massive amount of new statutory provisions. To this end, apart from consumer protection, we are also strengthening prospectus supervision, in particular, which will also become its own department. This will bring the Securities Supervision directorate up to six departments, rather than the previous four. The other new tasks, such as product and distribution supervision, the monitoring of repo and securities transactions, and new reporting requirements, have been integrated into existing departments.

The Insurance Supervision directorate, on the other hand, already underwent a thorough restructuring a year and a half ago. The changes brought about then have proven themselves in practice so they will, for the most part, remain as they are.

Are there other changes?

There are many, many changes, in fact – too many to list them all in this interview! But I would like to briefly mention one new aspect which is particularly important to me: there will be a section for strategic development reporting directly to the President. This is intended to improve our ability to pick up on current issues promptly, respond to them and to provide fresh impetus – to set the agenda, you might say. I am really looking forward to this work. However, I would like to emphasise that it will just be about developing strategies which will then always be transferred to areas of standard responsibility within BaFin.

To give an example of this, one of the first issues which we will be addressing is fintech firms, which are mostly IT start-ups which are currently shaking up the financial sector. We need to agree on how we want to deal with this innovative market and find appropriate answers for the complex questions affecting this industry. Incidentally, fintech firms can affect all areas of the financial industry, so they are another clear case in which a strategic approach covering the whole of BaFin is necessary.

What does all this mean for the supervised companies? Will the new structure bring changes in contacts and processes?

Indeed, there will be a lot of changes for supervised companies, but mainly due to the many new statutory requirements rather than due to our new structure. These requirements will affect all sectors, whether in the form of major reforms like Solvency II, numerous far-reaching changes in securities supervision or the further development of banking supervision in the European context. Of course, as I already mentioned, we need an organisational response to these. There will be individual cases where the contact persons will change, but it will not be across the board.

Staff are needed for new functions and new departments. Will BaFin get additional posts?

Well, the point of the whole exercise was to improve the efficiency of our processes. And in this we were successful: we will be able to carry out the restructuring without creating new posts, despite the variety of new functions. Of course, there are higher requirements; the involvement in financial regulation and ongoing supervision continue to place very high demands on BaFin employees. Nevertheless, we specifically looked for potential for efficiency, and we found it. In this way, BaFin, too, is making a contribution to the responsible use of resources.

How did you manage to get an overview of the necessary measures to achieve this?

There were basically two stages. First there was a comprehensive, bottom-up approach. We conducted workshops in which all BaFin employees could contribute their suggestions, proposals and areas needing improvement. In the second stage, we looked at these in the Executive Board and discussed them intensively, because of course, there are a lot of issues to be considered in this context. This process, which took into account both perspectives, enabled us to make the necessary decisions based on the best possible information. The Administrative Council has now approved the results.

How satisfied are you personally with the results?

I am confident that we have achieved good results. We will become more efficient and effective without completely reinventing ourselves. However, the crucial part now is the implementation. The new structure will now have to prove itself in practice and I am sure we will notice details here and there which need to be adjusted. It is important that every organisation – whether it is a company or an authority – engages in self-critical scrutiny periodically.

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