BaFin - The Federal Financial Supervisory Authority

What Is BaFiN?

BaFin is Germany’s financial regulator and is responsible for ensuring the stability and integrity of the German financial system.

The Federal Financial Services Authority (BaFin) was established in 2002 to serve as the primary regulator of Germany’s financial markets and institutions. Known as Bundesanstalt für Finanzdienstleistungsaufsicht in Germany, BaFin was created by the Financial Services and Integration Act 2002, effectively merging three existing Federal agencies: the Banking Supervisory Office, the Supervisory Office for Securities Trading, and the Insurance Supervisory Office. Today, BaFin integrates the regulatory functions of those agencies with authority over Germany’s banks, financial services companies, insurance companies, stock exchanges, and other obligated institutions. An important part of BaFin’s role as regulator is to identify and eliminate financial crime – a function which includes promoting anti-money laundering in Germany, and counter terrorist financing.

An independent institution, the Federal Financial Services Authority reports directly to the German Federal Ministry of Finance and is led by a board of four executive directors and its president, currently Mark Branson. BaFin is one of the largest supervisory authorities in the EU: it maintains two headquarter locations in Bonn and Frankfurt and is funded by levies on the financial institutions that it supervises.

What does BaFin do?

BaFin’s main focus is the supervision and regulation of financial institutions in Germany in order to maintain the stability and safety of the wider financial system. In this capacity, it conducts a range of supervisory practices under the authority of legislation including the German Civil Code, the Banking Act, the Insurance Supervision Law, and the Securities Trading Act. BaFin’s duties and responsibilities include:

• Licensing new banks and financial institutions for operation in Germany.
• Performing ongoing supervisory functions to ensure compliance with BaFin rules and regulations.
• Collecting financial statements and reports from financial institutions, and evaluating that information in coordination with Deutsche Bundesbank. 
• Auditing and reviewing banks and financial institutions to assess their compliance performance.

Enforcement: BaFin has the power to initiate legal action against financial institutions that are in violation of its rules and regulations. Where it finds wrongdoing, BaFin may impose financial penalties, remove personnel from their positions in banks, or appoint external supervisors to take over management. Although it has the authority to impose punishments, BaFin often works with offending institutions to resolve the issues discreetly.

AML/CFT policy requirements in Germany

Germany is a member state of the global Financial Action Task Force and so, as a regional and global leader in CFT and AML, BaFin works to implement the policies set out in the FATF’s 40 Recommendations. Since 2003, BaFin has integrated all AML/CFT responsibilities into its Department for the Prevention of Money Laundering which supervises financial institutions under the authority of Section 50 of the Money Laundering Act – known in Germany as the Geldwäschegesetz (GwG). To comply with BaFin’s AML/CFT rules, banks and financial institutions must:

• Develop a risk-based AML/CFT program.
• Implement KYC and other customer due diligence measures.
• Screen new and existing customers for adverse media and international sanctions.
• Screen for politically exposed persons (PEPs).
• Appoint an AML officer to oversee the internal AML/CFT program.            

International Role: As the financial regulator for one of the world’s most influential economic powers, BaFin is tasked with representing Germany on the global stage. BaFin participates in a number of international bodies, including the FATF and the Basel Committee on Banking Supervision (BCBS), in order to help develop and shape global AML/CFT standards.