Brexit: BaFin informs foreign banks
At the initiative of its President, Felix Hufeld, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) invited about 50 representatives from 25 foreign banks to a supervisory workshop in Frankfurt at the end of January to discuss specialist issues related to Brexit, the planned exit of the United Kingdom from the European Union.
In the weeks leading up to the workshop, many institutions had already contacted BaFin to find out about regulatory and supervisory issues in Germany. Brexit will cause a fundamental change in the legal framework for the banks.
A reliable basis for banks
"As committed Europeans, we do not see Brexit as a reason to celebrate", said Dr Peter Lutz, the head of department acting as deputy for Chief Executive Director of Banking Supervision Raimund Röseler. "But now we need to take a pragmatic approach and offer institutions the necessary supervisory clarity for their strategic decisions."
BaFin was doing this to give institutions wishing to move their business to Germany a reliable basis for their activities, but also to avoid any risks arising for the German financial sector, Lutz added. In this respect, he saw a special role for BaFin as the integrated German financial supervisor, since it monitors the whole of the financial market. "BaFin is also pleased to continue as a point of contact in the future".
Opportunities and conditions
Lutz explained that there were a variety of opportunities to conduct business in Germany, such as via a subsidiary or by setting up a branch pursuant to section 53 of the German Banking Act (Kreditwesengesetz – KWG). Branches have to satisfy the same supervisory requirements as subsidiaries, for instance with regard to solvency, liquidity and appropriateness of risk management. "We do expect foreign banks to actually come here. It's not enough to just mount a letterbox and establish a local sales team", explained Lutz.
However, he pointed out that the future of European passporting rights for UK banks was not yet known. If a "hard Brexit" were to occur, where the UK then left both the EU and the European Economic Area, this option would definitely no longer exist, according to Dr Lutz.
Wide range of issues
As well as covering risk management requirements, the event also focused on compliance requirements under the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), requirements for internal models, rules governing large exposures, provisions on recovery planning and various aspects of the authorisation procedure pursuant to the KWG and the Markets in Financial Instruments Directive II (MiFID II).
The representatives from the banks made full use of the opportunity to ask questions. Issues of particular interest included the authorisation procedure and the question of whether current contracts could simply be continued. The participants were also interested to know whether it was possible to apply for approval of internal models or prospectuses in parallel with the authorisation. The topic of outsourcing was also a concern for the representatives from the banks, as the institutions hoped to continue to use established services of group members in order to minimise operational risk and costs.