Germany: The Scope of German Federal Financial Supervisory Authority (BaFin)

15/06/2010

The description of the BaFin used above is the official description that the BaFin uses in press releases.

Reformation of the Supervisory Authorities

The BaFin (German Federal Financial Supervisory Authority) and the “Bundesbank” are up to date sharing the supervision of banks and other financial institutions. Insurance companies are to date supervised by BaFin only. The “Bundesbank” is in charge of the supervision of operational banking business and covers the duties and responsibilities of a Federal Reserve Bank.

The government wants to concentrate the supervision of banks and insurances at the German “Bundesbank”. With these plans of restructuring, the BaFin would be losing importance or even be merged into the “Bundesbank”.

These plans are a great deal of discussion. The “Bundesbank” is ordinary independent of the government, and would with the reformation be the Supervisory Authority for all financial sectors.

The details of reformation have not been discussed and decided upon. The process of the reformation has been moving slowly. Meanwhile, the governing parties had announced to wait with pursuing these plans. They did not seem to be able to reach an agreement.

However, recently the press revealed, that the governing parties hope to find acceptance of an opposition party. The opposition party (that they hope to convince) had called for amendments in the regulation of Supervisory Authorities. In conclusion, it cannot be said when the reformation is going to take place and how the organization will be designed.

Undertaking Insurance: Relevant Laws and Provisions to Comply with

The BaFin (German Federal Financial Supervisory Authority) informed in February 2010 about the General Good Requirements in Germany. In this document the BaFin listed all the Acts, Laws and Regulations that need to be taken into consideration when entering or acting within the insurance market.

New Minimum Requirements for Risk Management (MaRisk)

The BaFin (German Federal Financial Supervisory Authority) has released the circular and annotations of the Minimum Requirements for Risk Management in English.

The New Minimum Requirements are broader than the previous version. The focus of the revision affects broader supervisory requirements concerning stress testing, liquidity risk, and risk concentration. The actual version has been published August 14, 2009.

BaFin Investigates New Single Premium Life Insurance

Insurance companies gained a lot of clients with the release of a new attractive product. They offer a new type of single premium policy with the advantage of a short duration at a high interest rate, and easy termination with only minor penalties. Generally speaking, the insurance companies have the right to offer this type of product. However, the BaFin (German Federal Financial Supervisory Authority) is observing this development. The BaFin now observes the entire insurance market, but focuses especially on the products/companies where the insurance company pays out very high interest rates (compared to the market); higher than the insurance company can place money. The presumption is that in order to satisfy the needs of the new clients with a high fixed interest rate, the heights of benefits (derived from profit distribution) of the regular life insurance suffers. The risk is an arbitrage on interest rates; which would
have an impact on the community of insured.

Another cause of concern could also be that this product with single premium has (at least for some insurance companies) become the biggest segment of growth. The BaFin has requested all insurance companies offering life insurance to reveal detailed information about that segment of single premiums policies. Special interest for the Authorities could be the termination rate and risk expectation of those single premiums.