COVID-19: German Regulator BaFin uses “Full supervisory flexibility”

By Dr. Michael Juenemann, Timo Foerster

04-2020

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) set up an emergency Website informing financial institutions, regulated entities and the public on all measures taken in response to COVID-19.[1]  

BaFin announced via press release that it plans on making full use of its supervisory flexibility to allow swift and effective responses of the financial sector that are in accordance with necessary regulation. The following measures were explicitly announced/performed:

  • BaFin clarifies that for the issuance of a loan exceeding EUR 750.000 or 10% of the institution’s liable capital the analysis of the last available annual financial statement is sufficient for the assessment of creditworthiness. If the statement from 2019 is not yet available, the financial statement for 2018 will suffice. Under the German Banking Act (Kreditwesengesetz – KWG[2]) the analysis of the borrowers financial situation, particularly through annual accounts, is required. 
  • BaFin will, for the time being, not pursue breaches of Minimum Requirements for Risk Management (MaRisk) for transactions outside official business premises. This includes for example securities services provided from the home office. However, this is subject to the condition that any documentation or information gaps are suitably closed, and the customers are informed accordingly[3].  Under MaRisk, any transaction outside of official business premises must follow strict internal guidelines including the full disclosure of entitled personnel, the purpose, scope and recording of the transaction.
  • BaFin advises to refrain from buybacks of shares and to carefully assess the necessity of dividend payments, profits and bonuses.
  • BaFin advises to apply the transition rules to the IFRS 9 accounting standard. A "through the cycle" perspective should be adopted for COVID-19-related payment delays, which also takes into account government measures to mitigate the economic consequences.

Short Selling: Member States severely affected by COVID-19 will take protective measures to restrict short selling (as bets on falling indices). Many European Regulators (such as Spanish CNMV, Italian CONSOB, French AMF, Greek HCMC, Belgian FSMA and Austrian FMA) have done so. BaFin clarifies in this respect that short sales on certain EU indices[4] are still possible as long as a defined threshold value has not been reached. [5]  Further steps need to be taken in strict accordance with EU-law[6] to avoid conflicting rules in member states which potentially may cause unequal treatment or economic (dis) advantage based on location.

[1] https://www.bafin.de/DE/Aufsicht/CoronaVirus/CoronaVirus_node.html; english version 

https://www.bafin.de/EN/Aufsicht/CoronaVirus/CoronaVirus_node_en.html.

[2] § 18 KWG.

[3] https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Meldung/2020/meldung_2020_03_12_corona_virus3_BA_Risikomanagement.html

[4] Euro STOXX 50®, STOXX® Europe 600, MSCI Europe, MSCI EMU

[5] https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Meldung/2020_Corona_andereBehoerden/meldung_2020_03_19_corona_virus3_Leerverkaufsverbote.html

[6] E.g. Regulation (EU) No. 236/2012 dated 14 March 2012 on short selling and aspects of credit default swaps.