BaFin President calls for burden on smaller institutions to be reduced
For BaFin President Felix Hufeld, the plans of the European Commission to reduce the regulatory burden on smaller institutions do not go far enough. "We need a nuanced approach", he urged in his speech at the authority's annual press conference in Frankfurt am Main on 9 May.
To avoid "cliff effects", as few additional thresholds should be put in place as possible; instead, criteria which had already been introduced – such as that of systemic importance – should be built on, Hufeld said. The BaFin President rejects a rigid system of categories, explaining, "We have to be able to move banks from one segment to another if we believe it is necessary on grounds of risk".
Hufeld warned of cybercrime in his speech: "Financial service providers, to which people entrust their money and their most private material data, are among the most popular targets of cyber attacks". With regard to the IT security of banks, the President said that BaFin still saw significant room for improvement. Those thinking they were playing it safe by just tinkering with their IT systems here and there were making a dangerous mistake, he said. But insurers and other players on the financial market also had a lot of data and a lot of old IT, he added. Companies and supervisors had to see to it that they were up to the challenges of cybercrime, emphasised Hufeld.
Elisabeth Roegele, Chief Executive Director of Securities Supervision, reported great progress in consumer protection. On the eve of the press conference, BaFin had made use of its product intervention option for the first time, she noted. It had restricted the marketing, distribution and sale of financial contracts for differences (CFDs). Contracts with an additional payments obligation may no longer be offered to retail clients from 10 August. Roegele compared investing in CFDs with an additional payments obligation to a game of chance – with the decisive difference in this case that investors can not only lose the invested capital but parts of their other assets as well. In fact, depending on the leverage, the client could lose everything they own. "This is a risk which those of us who protect consumers cannot accept", commented Roegele.
The persistently low level of interest rates was also a subject at the press conference. It is weighing ever more heavily on the results of the around 1,500 credit institutions directly supervised by BaFin, said Raimund Röseler, Chief Executive Director of Banking Supervision. The supervisory authority therefore needed to gain a full picture of the severity of the situation from a stress test, which was started in April. "Since we are not obtaining all the information we need for that from the standard reporting system, we have to get it another way", explained Röseler, adding that BaFin was careful to burden institutions as little as possible.
As far as the situation of life insurers in the low interest environment is concerned, Dr Frank Grund reiterated BaFin's essential finding that the sector would not encounter problems which would threaten its survival in the short or medium term. The Chief Executive Director of Insurance and Pension Funds Supervision also currently expects all life insurers to comply with the solvency ratio under Solvency II this time round. This was good news, said Grund, but he warned against misinterpreting the figures, which insurers will publish on 22 May. The ratios were not suitable to compile a ranking, since viewed in isolation the information they provide is limited, he explained.
Béatrice Freiwald, Chief Executive Director of Internal Administration and Legal Affairs, talked about how much a basic payment account may be allowed to cost. She said that although credit institutions were not allowed to demand prices which are so high as to effectively prevent access to the accounts, an upper limit had deliberately not been laid down in law. The charge had to be appropriate. "If it is not, we can instruct a bank to adjust its charging model accordingly", explained Freiwald. If a consumer had a right to open a basic payment account, BaFin could enforce their claims in individual cases. "At this point, therefore – and only in such situations – we intervene directly to change an individual contractual relationship", highlighted Freiwald. BaFin had so far caused basic payment accounts to be opened in this way in about 110 cases. It had only needed to issue formal orders 17 times; in the other cases, the institutions had already reacted after the hearing.
BaFin also presented its 2016 annual report on 9 May (currently only available in German).