Dr Pötzsch, how did you find the first few months of the job?

It was an interesting and exciting time for me. I got to know and appreciate a large number of highly competent staff members who enjoy and are committed to what they do. Information is openly shared between Executive Board members, which is also something I greatly appreciate.

How is your new role different from your previous position at the FMSA?

The scope of my responsibilities is wider. At BaFin, I am not only responsible for resolution matters but also money laundering prevention, the authorisation requirement and enforcement relating to unauthorised business. The Executive Board covers an even wider range of topics, of course. We discuss a large number of aspects that concern the capital market as a whole – from the supervision of banks, stock exchanges and insurers to the supervision of securities and markets. This, of course, gives me a better overview than at the FMSA.

What do you find particularly interesting about the new position?

I believe in the concept of integrated financial supervision, which BaFin is based on. After all, capital markets are interconnected. Banks deal with insurers, which are involved in securities trading, which, in turn, is associated with banking – and banks can fail. This is why the Resolution Directorate is a natural addition to the Banking Supervision Directorate, and it makes a lot of sense that it has been part of BaFin since 1 January 2018.
BaFin's strength lies in the fact that it covers every aspect of the financial market in the context of integrated financial supervision. It has excellent connections worldwide and is a valuable point of contact for market participants and other supervisory authorities. In addition, BaFin is able to react to new developments quickly. This is primarily thanks to its staff, who act in the public interest as civil servants – in the truest sense of the word. This is also something I really appreciate about BaFin.

You spent many years in executive positions at the Federal Ministry of Finance. Has this experience been of benefit to you at BaFin?

Yes, in several respects. I know how authorities work and I am aware of the particularities that generally apply in the public sector. The ability to work under pressure is also important, especially if you are working in an area like mine. I am used to reaching difficult decisions very quickly.

Of course, it also helps if you have already gained experience managing many employees at once. As we all know, BaFin is a very large authority.

Not all of your staff deal with resolution matters, as you mentioned earlier.

Yes, that's right. We deal with every stage that an institution may go through during its life cycle on the capital market – from the establishment and authorisation to support for certain activities, such as money laundering prevention, or a bank’s demise. It’s an exciting and challenging field that offers a lot of variety. All three areas have their own appeal and challenges, and will certainly keep me busy.

Let's start at the very beginning. What challenges lie ahead for the Authorisation Requirement department?

This department acts as a gatekeeper to preserve the integrity of financial markets and ensure that only those that are reputable and have been authorised by BaFin are the ones conducting business.

We have to acknowledge that the market is constantly evolving. We are also examining whether new business models should be subject to the authorisation requirement or not – think of Bitcoin, for example. In addition, we are examining the extent to which cryptocurrency trading needs to be subject to further regulation, and what we can do in relation to the contrast between new business models on the one hand and legal classifications on the other. A transparent capital market with innovative companies that play by the rules is what makes both Germany's financial sector and the country as a whole attractive.

Have we already found some answers?

We have a clear idea of how cryptocurrencies are to be categorised: as financial instruments. In principle, this means that trading and marketing cryptocurrencies is comparable to trading and marketing shares, currencies and derivatives as far as the authorisation requirement is concerned.

In this respect, we have found answers to many important questions – but not all of them. New ones are also coming up all the time. As far as Brexit is concerned, we need to clarify the extent to which market participants from the United Kingdom will need BaFin's authorisation in order to continue conducting business in Germany. In doing so, we have to closely examine the activities of the market participants concerned. As a result of the transitional period that has been agreed, both BaFin and the institutions concerned now have a bit more time. We should take advantage of this to ensure that we are prepared for new circumstances.

The authorisation requirement is closely linked to enforcement relating to unauthorised business.

Yes, there are many dubious market participants on the capital market. In 2017, we had an additional 1,000 enforcement cases – and this figure is on the rise. In most cases, their incentive is to maximise the amount of money they can make outside the scope of the law.

It is important to take tough and decisive action to put an end to what they are doing. We've been successful and effective in this area – the OneCoin case is a well-known example.¹⁾

Decisive action also needs to be taken to prevent money laundering, which is another major issue. What is BaFin doing exactly to tackle this?

It is our job to ensure that the institutions and companies supervised by BaFin are taking all the necessary steps to avoid being abused for money laundering or terrorist financing purposes. They need to be organised accordingly and have suitable IT systems in place to promptly identify suspected cases of money laundering and follow up on this extensively. Suspicious transactions are not reported to us, but to the Financial Intelligence Unit (FIU), which is responsible for following up on such cases as part of the Central Customs Authority.

Is money laundering a widespread problem in Germany?

The international interconnectedness of financial markets and open borders within the EU make it relatively easy for dishonest market participants to provide or obtain significant funding easily if nothing is done about it. This is why we need to tackle criminal activity accordingly, particularly in the area of terrorist financing – because terrorism and money laundering do not stop at national borders.

Is there a growing threat?

The number of suspected money laundering cases that are reported is increasing from year to year. The risk situation in Germany is currently being assessed for the first time as part of an extensive national risk assessment which BaFin is actively involved in. As a result of technological developments in recent years, such as fintech or cryptocurrencies, we may also be faced with completely new challenges that we will need to address.

What is at the top of the agenda in the area of money laundering prevention?

Our guidelines for the interpretation and application (only available in German) of the new German Money Laundering Act (Geldwäschegesetz – GwG - only available in German) are a key topic at the moment. These will remain open for consultation until May and will help clarify many open questions. Some parts leave room for interpretation, and the institutions concerned rightly want to know what our position is.

Another key topic is the national risk assessment I mentioned earlier, which the Federal Ministry of Finance is conducting with our assistance. In this context, we are examining whether the current risk situation for money laundering and terrorist financing should lead to supervisory and/or regulatory action to improve the safeguards we have in place. We expect to have the results next year.

I would also like to mention the FATF evaluation due in 2020. In this context, we are required to report to the Financial Action Task Force that the prevention of and enforcement response to money laundering activities in Germany meet international standard. In doing so, we have to demonstrate to the evaluation team what we are doing, the areas we are operating in and the measures we are taking. Countries with weaknesses in this regard are put on the FATF's black list or grey list.

Is there reason for concern in Germany?

No, I am firmly convinced that we will succeed in proving this.

This brings us to the third major topic that you have been familiar with for a while now as a result of your work at the FMSA. What are the main challenges facing the Resolution Directorate?

Our objective is to be able to resolve banks without jeopardising financial stability or using taxpayers' money. To achieve this, we need to ensure that the institutions concerned are well-prepared. This is the purpose of the resolution plans we draft for every bank. Resolution plans are not to be regarded as the final step to be taken; rather, resolution planning is a work in progress, an iterative process with banks.

But we also need to make sure that we are able to take action accordingly in the event of a crisis. Being prepared for a resolution scenario is extremely important – because everything has to be done very quickly if the worst comes to the worst.

What are you doing to be prepared?

We are making significant progress in the area of resolution planning, practising on the basis of stress scenarios and engaging in an ongoing exchange with our European counterpart, the Single Resolution Board (SRB). The structures we have put in place take this into account. We have three units: the first one deals with resolution planning while the second deals with matters relating to resolution policy, legal affairs, committees and bank levies. The third unit is specifically responsible for crisis management and resolution tools.

What are resolution tools?

Resolution tools are the measures that we can take in the event of a resolution. For instance, the bail-in of shareholders and creditors is an important tool. But it is also possible to sell a bank or to separate assets and transfer them to a bridge institution. We can use multiple tools at once, but we don't have to. We have room for manoeuvre here.

How does a resolution come about?

We take action as soon as banking supervisors notice that an institution is failing or likely to fail. In close collaboration with the SRB in Brussels, we then have to determine whether it is in the public interest to take resolution measures – i.e. whether the continuity of the institution's critical functions needs to be ensured or whether the stability of financial markets is at risk. If this is the case, the resolution regime under the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz – SAG - only available in German) or the SRM Regulation²⁾ applies. Otherwise, BaFin's banking supervisors take over and can impose a moratorium or submit a request to open insolvency proceedings – as was recently the case with Dero Bank.

This particular example shows how quickly we need to act. We not only have to work very closely with banking supervisors but we also need to be able to make use of communication and decision-making channels within the SRM very quickly. Our experience has shown that this works really well.

BaFin is set to host a resolution conference this autumn. What aspects will you look at? Who is your target audience?

We plan to target a wide audience and examine many aspects that are likely to be of interest to a larger group than just those dealing with resolution matters for the most part – because this is an issue that will increasingly concern many banks. We know for sure that another financial market crisis will occur – what we don't know is when. It is a fallacy to believe that every bank will be able to survive such a crisis. We therefore need to be prepared should crisis situations rapidly get worse – this also includes ensuring the resolvability of banks, particularly large ones.

That does sound like a lot of work. What do you do to switch off from your job?

Finding time for private activities is probably the biggest challenge that my job brings. I love music, especially jazz. I enjoy going to concerts, and I also perform myself. Frankfurt is a great place for that.

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