Compliance Study_complet - pwc

© PricewaterhouseCoopers - Protecting the brand, May 2005 71
Germany
Germany’s financial services regulators merged into a single entity during 2002, forming the Federal Financial Supervisory
Authority (BaFin). BaFin is responsible for the supervision of financial institutions, including insurance undertakings and
pension funds, and the regulation of securities trading and the investment business (investment companies). The supervision
of financial services institutions is dual faceted, split between solvency and market supervision.
Financial services institutions
Market supervision
Looking at the financial services industry in Germany the term “compliance” is closely linked to all issues regarding the
securities sector and investor protection. The basis for supervision, and the groundwork for investor protection, is provided by
the rules of business conduct for investment services enterprises set out in the Securities Trading Act (WpHG).
A further fundamental component of market supervision is supervision in accordance with the Safe Custody Act
(DepotG). For financial services institutions, whose regular business is the provision of investment services (investment firms),
the compliance function has been a part of the regulatory regime since 1994 when certain rules for staff transactions came
into force. The role was further developed in the Securities Trading Act (WpHG) and corresponding supervisory guidelines
covering organisational requirements and rules of conduct. Since 2002, BaFin also monitors securities analysis provided by
investment firms. In October 2004 Germany transposed the European Directive on insider dealing and market manipulation
(Market Abuse Directive) establishing organisational duties and rules of conduct for all kinds of financial analysts creating and
distributing investment recommendations.
Compliance function structures, and compliance processes, are governed by the BaFin guideline on organisational
duties pursuant to Sec 33 WpHG. These include, for example, obligations for companies to maintain the necessary level of
resources for the compliance function, and obligations for addressing conflicts of interests. The compliance function should fit
to the nature and structure of the investment firm’s business(es). Detailed minimum requirements are stipulated. The
compliance function should be a standalone department. Irrespective of the functions of the compliance office, the overall
responsibility for compliance remains with the management.
BaFin monitors compliance with the rules of business conduct and the Safe Custody Act. External auditors undertake
annual audits of financial institutions, checking compliance. BaFin evaluates the resulting audit reports.
Beyond the securities sector, there are only few specific requirements relating to compliance, but more extensive
requirements relating to internal control.
Legal base:
Securities Trading Act (WpHG - 1994) as amended
October 2004.
Banking Act (KWG) as amended April 2004.
Investment Act (InvG) as amended October 2004.
Insurance Supervision Act (VAG) as amended July
2004.
Money Laundering Act (GwG) as amended August
2002.
Solvency supervision
The groundwork for internal control and compliance (in a broader sense) is provided by sec. 25a of the Banking Act (KWG)
supplemented by several BaFin guidelines. The three major ones i) Minimum requirements for the Trading Activities of Credit
Institutions (MaH, 1995), ii) Minimum requirements for the credit business of credit institutions (MAK, 2002) and iii) Minimum