Financial Services SpeedRead - Germany: 14 May 2024 edition

Welcome to the fifth edition of the Germany specific Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.

Financial Markets

1. BaFin: Consultation: Draft of a General administrative Act on Investment Firm Remuneration Notifications

On 2 May 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published a draft of a General Administrative Act on Investment Firm Remuneration Notifications (Allgemeinverfügung zu Vergütungsanzeigen für Wertpapierinstitute) (General Administrative Act).

With the revision, BaFin is aligning with the following guidelines of the European Banking Authority (EBA):

• Guidelines on the benchmarking exercises on remuneration practices, the gender pay gap and approved higher ratios under Directive 2013/36/EU (EBA/GL/2022/06), which apply to large investment firms;

• Guidelines on the benchmarking exercises on remuneration practices and the gender pay gap under Directive (EU) 2019/2034 (EBA/GL/2022/07), which apply to medium-sized investment firms;

• Guidelines on the data collection exercises regarding high earners under Directive 2013/36/EU and under Directive (EU) 2019/2034 (EBA/GL/2022/08), which apply to large and medium-sized investment firms.

Small investment firms are not required to submit notifications according the draft of the General Administrative Act.

National supervisory authorities are required to collect the information mentioned in the EBA's guidelines from investment firms and submit it to the EBA by July 31, 2024. It is planned to incorporate the new requirements through the EBA guidelines into the German Investment Firms Act (Wertpapierinstitutsgesetz, WpIG) or in the Regulation on Notification and Submission of Documents under the WpIG (Wertpapierinstituts-Anzeigenverordnung, WpI-AnzV). However, as this process will extend beyond the reporting deadline set by the EBA, BaFin plans to issue the General Administrative Act for the transition period. 

The deadline to provide comments on the draft of the General Administrative Act is 23 May 2024.

2. BaFin: Announcement: Application of ESMA guidelines on Money Market Funds

On 18 April 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) announced that it applies the European Securities and Markets Authority's (ESMA) Guidelines on stress test scenarios under the Money Market Funds Regulation (MMF Regulation) (ESMA50-164-6583, Guidelines). 

The Guidelines were published on 6 March 2024 and aim to ensure common, uniform and consistent application of the provisions in Article 28 of the MMF Regulation. In particular, and as specified in Article 28(7) of the MMF Regulation, they establish common reference parameters of the stress test scenarios to be included in the stress tests taking into account the factors specified in Article 28(1) of the MMF Regulation, such as hypothetical movements of the interest rates and exchange rates or hypothetical levels of redemptions.

Banking and Prudential

3. Basel Committee on Banking Supervision: Consultation Paper: Guidelines for counterparty credit risk management

On 30 April 2024, the Basel Committee on Banking Supervision published a consultation on guidelines for counterparty credit risk management.

The proposed guidelines have been published following recent counterparty credit risk management failings. Relevantly, they place significance on key practices which are critical to resolving long-standing industry weaknesses in counterparty credit risk management, including:

• conducting comprehensive due diligence on an initial and ongoing basis; 

• developing a comprehensive credit risk mitigation strategy to manage counterparty exposures;

• measuring, controlling and limiting counterparty credit risk using a wide variety of complementary metrics; and

• building a strong counterparty credit risk governance framework. 

The deadline to provide comments on the guidelines is 28 August 2024.

4. BaFin: Publication: Revised Guidance Notice on external Bail-in Implementation

On 23 April 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published its proposed amendments to the Guidance Notice on external Bail-in Implementation (Merkblatt zur externen Bail-in-Implementierung) (Guidance Notice).

The Guidance Notice provides specific guidelines for the activities to be carried out by the involved parties, the exchange of information, communication channels, timeframes and format templates. It supports effective and efficient implementation of the bail-in resolution tool. 

With the revision, BaFin is aligning with the European Banking Authority's (EBA) Guidelines to resolution authorities on publication of the write-down and conversion and bail-in exchange mechanic (EBA/GL/2023/01). The proposed amendments cover:

• all mandatory disclosures required by the EBA;

• a unified concept for the write-down and conversion of percentage and piece-rated structured debt instruments.

The draft of the Guidance Notice represents the fourth amendment to the Guidance Notice, the original version dates back to 13 April 2021.

The deadline to provide comments on the draft of the Guidance Notice is 24 May 2024.

Fund Management

No new entries.

Senior Managers and Governance

No new entries.

Financial Crime

5. European Parliament: Legislation: Anti-Money Laundering Package adopted

On 24 April 2024, the European Parliament adopted three legislative instruments, which collectively aim to deliver a stronger and more consistent set of AML/CTF rules at the EU level (together, the Anti-Money Laundering Package).

The Anti-Money Laundering Package proposes to establish a robust and future-proof enforcement system, which will in turn contribute to improved detection of money laundering and terrorism financing across the EU. It consists of:

• Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA) Regulation: a regulation establishing AMLA, which will act as a decentralised EU agency to coordinate national authorities to ensure the correct and consistent application of the Anti-Money Laundering Package; 

• EU Single Rulebook Regulation: a regulation relating to the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. It contains directly applicable AML/CTF rules, including a revised EU list of entities subject to AML/CTF rules; and

• AML/CTF Directive: the sixth AML/CTF directive, which replaces existing Directive (EU) 2015/849, contains rules requiring national transposition, including rules in relation to national supervisors and Financial Intelligence Units in Member States.

The Anti-Money Laundering Package still needs to be formally adopted by the European Council before publication in the EU's Official Journal.

6. BaFin: Publication: Circular on high-risk countries

On 22 April 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published the Circular 04/2024 (GW) on high-risk countries having strategic deficiencies in their anti-money laundering and counter-terrorist finance systems that pose material risks to the international financial system (Circular).

The Circular reflects, amongst others, the following outcomes of the Financial Action Task Force (FATF) Plenary that took place between 21 and 23 February 2024:

• Kenya and Namibia have been added to the list of jurisdictions subject to increased monitoring; 

• Barbados, Gibraltar, Uganda, and the United Arab Emirates are no longer subject to the FATF's increased monitoring process and, therefore, have been removed from the list of jurisdictions under increased monitoring.

With effect from 22 April 2024 the Circular replaced the previous Circular 12/2023/ (GW) of 11 December 2023.

7. BFM: Consultation: Draft bill for Money Laundering Video Identification Regulation

On 18 April 2024, the German Federal Ministry of Finance (Bundesfinanzministerium, BFM) published a draft bill for the Money Laundering Video Identification Regulation (Geldwäschevideoidentifizierungsverordnung, GwVideoIdentV).

The GwVideoIdentV is intended to regulate the video identification procedure (so-called VideoIdent procedure), an already established procedure that is suitable for identification under money laundering law (e.g. when opening an account). The German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) formulated and published the requirements for the use of a video identifications procedure in the Circular RS 3/2017 (GW) dated 10 April 2017. The requirements of the Circular RS 3/2017 (GW) have now been incorporated into the draft of the GwVideoIdentV, taking into account current security-specific findings.

Furthermore, the draft of the GwVideoIdentV includes the following:

• extending the possibility of using the procedure to all obliged entities under the German Anti-Money Laundering Act (Geldwäschegesetz), including the non-financial sector;

• creating the possibility for the use of (partially) automated procedures;

• an experimental clause for fully automated procedures.

These amendments should allow identity verifications to be conducted more cost-effectively in the future.

Retail Services

No new entries.

Digital Finance and Fintech

No new entries.

Payments

8. EBA: Opinion: New types of payment fraud and proposed measures to mitigate underlying risks and protect consumer from resultant losses

On 29 April 2024, the EBA published an opinion detailing its assessment of payment fraud data for 2022. The opinion sets out how this data has enabled the EBA to identify new types and patterns of payment fraud, while also outlining how it proposes to mitigate consumer losses relating to such fraud. 

Of particular relevance, the data analysed by the EBA revealed that instant payments feature higher fraud rates than traditional credit transfers, as well as that customers bear a disproportionately large part of fraud losses where they arise in the context of credit transfers. It was also noted in the opinion that, while the mandatory application of Strong Customer Authentication had been successful in preventing fraud, new techniques had allowed fraudsters to engage in fraud of a more complex nature.

Based on its conclusions, the EBA has determined that, in addition to the measures outlined in the forthcoming Third Payment Services Directive, the Payment Services Regulation and recently adopted Instant Payments Regulation, further security measures are needed to address the risks related to fraud and protect consumers. This includes reinforced security requirements for payment service providers which are aimed at further strengthening the procedure for the authentication of transactions.

9. BaFin: Publication: Circular on the transmission of operation and security-relevant risks in payment transactions

On 26 April 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published a circular on the transmission of operation and security-relevant risks in accordance with Section 53(3) of the Germany Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG) (Circular). 

In the Circular, BaFin sets outs that payment service providers (PSPs) must report an up-to-date and comprehensive assessment once a year:

• operational and security-related risks in connection with the payment services PSPs provide;

• regarding the appropriateness of the risk minimisation, measures and control mechanism that the PSPs have taken to manage these risks.

PSPs should use for this purposes the form provided by BaFin. The reporting deadline is 31 December of each year and the report has to be submitted within two months of the deadline to the e-mail address 53zag@bafin.de.

The first report for the reference date of 31 December 2024 must be submitted at the latest by 28 February 2025.

ESG

No new entries.

Other

10. BFM: Publication: Draft of the ninth regulation amending the Regulation on Contributions to the EdW

On 26 April 2024, the German Federal Ministry of Finance (Bundesfinanzministerium, BFM) published a draft of the ninth Regulation amending the Regulation on Contributions to the Investment Protection Scheme of Securities Trading Companies (Entschädigungseinrichtung der Wertpapierhandelsunternehmen, EdW) (Regulation). 

The EdW is a Federal Government Special Fund established in accordance with Section 6(1) of the Deposit Guarantee and Investor Compensation Act (Anlegerentschädigungsgesetz, AnlEntG), which is the German implementation of Directive 97/9/EC on investor compensation schemes. The institutions assigned to the EdW are investment firms, credit institutions other than CRR credit institutions and external fund managers. 

In the draft of the Regulation, the BFM proposes a reduction by 50 percent of the percental contributions rates to the EdW. The amendments intend to adjust the provisions to ensure that the EdW has sufficient funds available for future compensation cases, while at the same time avoiding unnecessary burdens for the institutions subject to contributions.

The Regulation shall enter into force on 1 July 2024.

11. BaFin: Consultation: Draft Guidance Notice on the electronic Transmission of Entries made in the Register of Assets

On 16 April 2024, the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) published a draft Guidance Notice on the electronic Transmission of Entries made in the Register of Assets according to Section 126(2) Act on the Supervision of Insurance Undertakings (Versicherungsaufsichtsgesetz, VAG) (Guidance Notice) for consultation.

According to Section 126(1) VAG, insurance undertakings are required to enter the holdings of the security assets individually in an asset register. Three months after the end of each financial year, insurance undertakings must transmit those entries to BaFin (Section 126(2) VAG). The entries can also be transmitted electronically. With the draft of the Guidance Notice, BaFin aims to standardise the electronic transmission of such entries. The draft of the Guidance Notice defines, amongst others, the scope and time of application and the format of the transmissions.

The deadline to provide comments on the draft of Guidance Notice is 14 May 2024.

The Guidance Notice will apply for the first time to the transmissions of the financial year 2024, which must be submitted in 2025.