The role of the Federal Supervisory Authority in financial …€¦ · SCConFin IPISC Standing Committee on Consumer Protection and Financial Innovation Investor Protection and Intermediaries

The Role of the Federal Financial Supervisory Authority (BaFin) in Financial Consumer Protection

Ursula Gerold BaFin, International Consumer Protection

Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)

Index

I. Introduction: Background and Organisational

Structure

II. BaFin‘s Role in European and International

Financial Consumer Protection (FCP)

III. The Consumer Protection Department: Structure

and Tasks

IV. Selected Examples for Supervision and

Enforcement in Retail Financial Services in Practice

The Role of BaFin in

Financial Consumer Protection, Warsaw October 11, 2017 2

BaFin is the integrated supervisory authority for Germany's financial market.

As an integrated financial supervisor BaFin supervises securities trading and various financial institutions such as

credit and financial services institutions (together with Deutsche Bundesbank and the European Central Bank (SSM)),

insurance undertakings,

pension funds,

payment institutions,

asset management companies and

deposit-guarantee schemes.

BaFin's objective is to ensure the proper functioning, stability and

integrity of the German financial system.

3 The Role of BaFin in Financial Consumer Protection, Warsaw

October 11, 2017

I. Introduction 1. In a Nutshell – BaFin’s Core Tasks

Prokon was a firm investing in wind farm projects

It raised 1.4 billion euros by selling profit-participation certificates

offered high interest payments - through advertising on prime-time German television and

mass mailings

approximately 75000 participation rights owners, mainly retail investors

with profit-participation certificates, the investor also participates in losses; unlike shares,

the securities do not give holders any say in the company

Consumer groups accused Prokon of attracting investors with promises of potential returns

of at least 6 percent a year without giving sufficient warning of the risks

Prokon filed for insolvency in January 2014 after a growing number of stakeholders

asked for their money back following media reports about the business


October 11, 2017

I. Introduction 2. The political accelerator: PROKON

Retail Investor Protection Act (“Kleinanlegerschutzgesetz”)

entered into force on 10 July 2015

introduced explicit overarching consumer protection

mandate in BaFin’s founding act (Act Establishing the Federal

Financial Supervisory Authority – FinDAG):

Section 4 FinDAG – Functions and cooperation

(1a) 1The Supervisory Authority is also responsible,

within the scope of its legal mandate, for protecting

the collective interests of consumers. […]


October 11, 2017

I. Introduction 3. Retail Investor Protection Act

“Collective consumer protection”

BaFin protects consumers as a whole and therefore does not

assist individual customers of financial services providers

two exceptions:

• Arbitration Board for consumer disputes in relation to

provisions pursuant to the German Investment Code

(Kapitalanlagegesetzbuch – KAGB)

• disputes in relation to the Basis bank account under the

German Payment Accounts Act (Zahlungskontengesetz –

ZKG)2


October 11, 2017

I. Introduction 5. Collective Consumer Protection

General organizational overhaul as of 1 January 2016 reflecting

i.a. BaFin’s new mandate for collective consumer protection

Theses changes include:

1. Establishment of a dedicated Division for International

Consumer Protection

2. Establishment of a new Consumer Protection Department


October 11, 2017

I. Introduction 5. Changes in BaFin’s Organisational Structure

Organisational Unit Strategy and Risk

Group K Communications

President’s Office

Department IFR International Policy, Financial Stability

and Regulation

Division IFR 5 Insurance and

Pension Funds Supervision

Division IFR 3 Financial Stability –

National; Risk Analysis

Division IFR 2 Financial Stability –

International

Presidential Directorate

Internal Audit Office

Division IFR 6 Banking Supervision

Division IFR 7 Consumer Protection

Division K 2 Internal

Communications and Internet

Division K 1 Press Relations

Division K 3 Public Relations and

Speeches

Division SR 1 Strategy Development

8

Division SR 2 Strategic Management

Offices in BN Offices in FFM Offices both in BN and FFM

Division IFR 1 Technical

Cooperation and Bilateral Affairs

I. Introduction 5. BaFin’s Organisational Structure

The Role of BaFin in Financial Consumer Protection, Warsaw October 11, 2017

Index


Structure




and Tasks



The Role of BaFin in Financial Consumer Protection, Warsaw

October 11, 2017 9


October 11, 2017

Division IFR 7:

represents BaFin in European and International

working groups that deal with FCP issues

has cross-sectoral competency (banking, insurance

and securities area)

develops BaFin positions on FCP issues

works on core issues related to international FCP

II. BaFin’s Role in European and International FCP 1. Main Tasks of IFR 7

11

Macro-prudential supervision

European Systemic Risk Board (ESRB)

Micro-prudential supervision

Joint Committee

(National) Supervisory Authorities

warnings and recommendations to the Member States

micro-prudential information

warnings and recommendations


e.g. BaFin

II. BaFin’s Role in European FCP 2. European System of Financial Supervision (ESFS)


October 11, 2017

SCConFin

Standing Committee on

Consumer Protection

and Financial Innovation

IPISC

Investor Protection and Intermediaries

Standing Committee

CCPFI

Committee on Consumer

Protection and Financial Innovation

FISC

Financial Innovation Standing

Committee

II. BaFin’s Role in European FCP 4. ESA’s Consumer Protection Committees

13

Joint Committee

EBA, ESMA, EIOPA (Currently chaired by: EBA)

SC CPFI Subcommittee on

Consumer Protection and

Financial Innovation

Subgroup on Packaged Retail and

Insurance-based Investment Products

(PRIIPs)

Subgroup on cross border supervision of

retail financial services-

Subgroup on "Big Data"

JCFC

Financial Conglomerates

AMLC

Anti-Money Laundering Committee

RSC

Risk Sub-Committee


II. BaFin’s Role in European FCP 5. Joint Committee (of the ESAs)

IAIS – International

Association of Insurance

Supervisors

„Market Conduct Working Group“

IOSCO – International

Organization of Securities

Commissions

„Committee on Regulation of Market Intermediaries (C 3)“

„Committee on Retail Investors (C 8)”


October 11, 2017

II. BaFin’s Role in International FCP 6. International Standard-Setting Bodies

Index


Structure




and Tasks




October 11, 2017 15

Department WA 5

Prospectuses, Supervision of Research

Analysts

Department WA 2 Market

Surveillance, Market

Infrastructure

Department WA 3

Financial Services Institutions,

Organisational Requirements

Department WA 4

Investment Supervision

Department VBS Consumer Protection

Supervision of Compliance with Rules of Conduct, Investor Protection Private & Foreign Banks - Division VBS 5

Competence Centre for Consumer Protection relating to Insurance, Complaints - Division VBS 4

Competence Centre for Consumer Protection relating to Banks, Complaints - Division VBS 3

Consumer Trend Analysis and Consumer Education - Division VBS 2

Policy Issues, Consumer Protection Forum and Consumer Advisory Council - Division VBS 1

Securities Supervision/Asset Management

Department WA 1

Policy Issues, Transparency, Administrative

Offence Proceedings

Supervision of Compliance with Rules of Conduct, Investor Protection Savings Banks & Cooperative Banks - Division VBS 6

Supervision of Violations of Consumer Protection Law, Product Intervention - Division VBS 7

16

(…) consists of 7

division

(…) consists of 7

division

(…) consists of 6

division

(…) consists of 7

division

(…) consists of 6

division

Offices in BN Offices in FFM

III. The Consumer Protection Department 3. Structure


BaFin supervises compliance with rules of conduct at banks,

savings banks and cooperative banks in accordance with the

German Securities Trading Act (Wertpapierhandelsgesetz -

WpHG)

BaFin can issue orders to institutions and other companies that

are subject to supervision in order to prevent or remedy

irregularities it has found (e.g. in the examination of a

complaint)

as part of its investor protection mandate, BaFin also seeks to

prevent unauthorised financial business


October 11, 2017

III. The Consumer Protection Department 5. The Elements of Consumer Protection

BaFin methodically gathers, analyses and evaluates

qualitative and quantitative information about market

activities from internal sources (e.g. consumer complaints) and

external sources and performs risk-orientated

investigations in order to identify developments which could

result in risks or irregularities

BaFin can restrict or fully prohibit certain sales practices and

the sale of products in serious cases – specifically, if investor

protection or the functioning or integrity of the financial

markets is jeopardised (“product intervention”)


October 11, 2017


BaFin endeavours to ensure that the range of financial

products, insurance products and financial services on offer is

transparent and comprehensible

BaFin provides general consumer education about the

different types of financial products, insurance products and

financial services as well as the risks associated with them.

protection of individual interests lies within the remit of

ombudsman services, dispute resolution entities, consumer

organisations and civil justice


October 11, 2017


The consumer protection department serves as a point of

contact for different organisation and other third parties, e.g.:

Financial market watchdogs of consumer organisations

(Marktwächter Finanzen)

Office for the Prevention of Unfair Competition

(Wettbewerbszentrale)

Consumer Protection Forum (Verbrauchschutzforum)

BaFin’s Consumer Advisory Council (Verbraucherbeirat)

the different Ombudmen (banking, insurance, intermediaries)

20



Index


Structure




and Tasks




October 11, 2017 21

1. Employee and Complaints Register (Mitarbeiter-

und Beschwerderegister)

2. Market Monitoring

3. Product Intervention

4. Supervision of Product Information


October 11, 2017

IV. Selected Examples for Supervision and Enforcement in Retail Financial Services

The Employee and Complaints Register (Mitarbeiter- und

Beschwerderegister) was introduced in 2012 and is

maintained by BaFin.

Undertakings which provide investment services are required

to enter their investment advisers, sales officers and

compliance officers into the Register before the person

starts its service.

These persons must satisfy certain minimum requirements

with regard to knowledge and reliability.

BaFin receives reports whenever retail clients complain

about investment advice they have received.

23


IV. Examples for Supervision/Enforcement 1. Employee and Complaints Register

As at 30 June 2016 more than 152,000 employees, including almost

145,000 investment advisers, were registered

From the start of the register in November 2012 until end of June 2016 almost

25,000 complaints have been reported

BaFin regularly evaluates the complaints entered into the register as

complaints may serve as an indicator of irregularities

The knowledge gained from the Register (together with other operational

supervision activities) may result in formal warnings and proceedings for the

imposition of administrative fines.

The Register has proved to be a useful supervisory tool and has become a

corner stone of BaFin's risk-based supervision

It also has preventive effects


October 11, 2017

IV. Examples for Supervision/Enforcement 1. Employee and Complaints Register


25

social Media Daily assessement

From pubblic sources output / product

ad-hoc FCP news

News Daily assessement

Publications Desktop research

reporting obligations

Monthly assessement

BaFin internal sources

Complaints Monthly assessement

FCP telephone for consumers

Assessment of entries Ad-hoc

Surveys Assessment

new sources

Trade fair visits Internal reporting

FCP news

Repository

Repository

M&T Bericht

Report markets

and trends

BaFins monthly journal

BaFin homepage

Repository M&T

Bericht Building up market knowledge

Early warning system

IV. Examples for Supervision/Enforcement 2. Market Monitoring

Report markets and

trends

Report markets and

trends

Report markets and

trends

a) The CLN case (Credit Linked Note)

In 2016 BaFin intended to prohibit the marketing, distribution

and sale of credit-linked notes (CLN) to retail clients

BaFin’s significant investor protection concerns in relation to

CLN are based particularly on

the high degree of complexity of the products

the risk that a conflict of interest is inherent in the product structure

the (German) product name is misleading

Industry reacted by means of self-commitment for the issue

and distribution of credit-linked notes

BaFin temporarily suspended its planned ban and is currently

re-assessing the market situation


October 11, 2017

IV. Examples for Supervision/Enforcement 3. Product Intervention

b) The CFDs case (Contracts For Differences)

CfDs sold to retail customer often contained additional

payment obligations

CFDs are short term leveraged contracts characterised by a high

risk of loss

Market studies revealed that CFDs providers specifically target

retail client whereas the vast majority of them loose money

Consumer collective interests outweigh commercial interests

In May 2017 BaFin has restricted the marketing, distribution

and sale of CFDs to retail clients insofar as they may give rise

to an additional payments obligation


October 11, 2017

IV. Examples for Supervision/Enforcement 3. Product Intervention

PEPP KID (EU)?


28

PRIIPS KID (EU)

UCITs KIID (EU)

ViB PiB VVG InfoV (Solvency II)

AltZertG PiB

WpHG PiB

Aim: Investment (+)Insurance Retirement

KID for shares ?

IV. Examples for Supervision/Enforcement 5. Supervision of Product Information

IPID Insurance non-life (based IDD)

Starting in 2108: BaFin‘ as competent authority for the PRIIPs Regulation

Powers for intervention and sanctions where a PRIIP manufacturer

Fails to provide clients with a KID

is not compliant with legally binding KID requirements

Risk based PRIIPS KID supervision combating malpractice

No pre-notification for PRIIPs KID planned

Close co-operation with NCAS within EU/EEA

Convergence of administrative practices in the EU in order to prevent market hurdles

The Role of BaFin in Financial Consumer Protection, Warsaw October 11, 2017 29

IV. Examples for Supervision/Enforcement 5. Supervision of Product Information

Thank you very much for your

attention!

Questions?

The Role of BaFin in Financial Consumer Protection,

Warsaw October 11, 2017

Documents

The role of the Federal Supervisory Authority in financial …€¦ · SCConFin IPISC Standing Committee on Consumer Protection and Financial Innovation Investor Protection and Intermediaries