The Bundesbank has extensive knowledge of the financial sector, well-trained, qualified staff with expertise due to its business relationships with credit institutions, its local presence and general proximity to the market.141 Parliament therefore had good reasons for involving the Bundesbank through section 7 of the Banking Act in the banking supervision process.142 The Bundesbank is involved in basically all aspects of banking supervision and these include:143 The issuing of general
141 Deutsche Bundesbank, ‘The Deutsche Bundesbank's Involvement in Banking Supervision’ Monthly Report (September 2000) 34
142 ibid
143 ibid
rules such as principles and regulations; undertaking regular surveillance which excludes sovereign and isolated measures directed at institutions – as these are reserved for the Federal Financial Supervisory Authority; banking supervisory audits; ongoing monitoring of institutions; international cooperation in coordination of prudential matters and crisis management roles.
Functions performed through collaboration between the Federal Financial Supervisory Authority (FFSA) and the Deutsche Bundesbank comprise:
Ongoing monitoring of institutions by the Deutsche Bundesbank. This involves the evaluation of documents submitted by institutions; auditors' reports pursuant to section 26 KWG, annual financial statements, as well as performing and evaluating audits of banking operations in order to assess the adequacy of institutions' capital and risk management procedures and the appraisal of audit findings (Division 2, Section 7 of KWG). Ongoing monitoring of institutions are to be performed by the Bundesbank's regional offices.
Collaboration with the FFSA is involved in the monitoring performed by the Bundesbank as the Bundesbank is required to observe guidelines issued by the FFSA. The guidelines are also issued in agreement with the Deutsche Bundesbank. If no agreement can be reached within a certain period, the Federal Ministry of Finance issues guidelines in consultation with the Deutsche Bundesbank (section 7 ( 2 ) KWG.
The FFSA and the Deutsche Bundesbank are to communicate to each other any observations and findings deemed necessary for the performance of their duties ( Section 7 ( 3 ) KWG.
Against this background, the Bundesbank is required to provide the FFSA with information it obtains through the collection of statistics pursuant to section 18 of the Bundesbank Act (Gesetz ueber die Deutsche Bundesbank). Before ordering the collection of statistics, the Bundesbank is required to consult with the FFSA (section 18 sentence 5 of the Bundesbank Act) where necessary.
The FFSA and the Bundesbank may also permit each other access to their respective database in order to carry out their duties under the German Banking Act ( section 7 ( 4 ).
Where the FFSA obtains personal data from the Deutsche Bundesbank's database, every tenth time, the Bundesbank is required to log the time and details which allow the obtained data to be identified and the identity of the person obtaining the data.
The FFSA and the Bundesbank may also set up joint data files. When supervising
institutions which carry out banking business or provide financial services in another state of the European Economic Area, and when supervising institutions pursuant to the Banking Directive, the FFSA and so far as it is acting under the German Banking Act, the Bundesbank are required to cooperate with respective authorities of the state involved ( Division 2, Section 8 ( 3 ) KWG).
Institutions are required to submit monthly returns to the Deutsche Bundesbank immediately after the end of every month. The Bundesbank also passes on monthly returns with its comments to the FFSA and the FFSA may waive its right to receiving certain monthly returns (section 25 KWG).
Further evidence of close working relationship between the FFSA and the Deutsche Bundesbank can be seen under sections 26, 28, 29, 44, 44c of the German Banking Act.
Under section 2 ( 10 ), change in a financial services institution's circumstances should be reported to the FFSA without delay. The FFSA then forwards these reports to the Bundesbank. Other circumstances exist whereby an institution is required to report certain activities to the FFSA and the Bundesbank. These include: i) The acquisition of qualified participating interests in an institute (section 2b ( 1 ) KWG.; ( ii ) Where the holder of a qualified participating interest intends to increase the amount of the qualified participating interest in such a way that the thresholds of 20%, 33% or 50% of the voting rights or capital are reached or exceeded, or that the institution comes under his control.
7.3.9 Confidentiality
Employees of the FFSA and anyone commissioned under section 4 ( 2 ) of the Act on integrated financial services ( Gesetz zur Errichtung der Bundesanstalt fuer Finanzdienstleistungsaufsicht ), supervisors appointed under section 46 ( 1 ) sentence 2 number 4, liquidators appointed under section 37 sentence 2 and section 38 ( 2 ) sentences 2 and 4 and employees of the Deutsche Bundesbank, insofar as they are involved in implementing the German Banking Act are under obligation not to disclose or use without authority, information and facts which have come to their observation during the course of their duties and which should be kept secret in the interests of the institution or a third party ( especially business and trade secrets ) - not even after they have left such employment or their activities have ended ( section 9 KWG ). The same applies to other persons who learn of such facts or information as a result of official reports.
Such facts are deemed not to be disclosed or of use without authorisation if they are passed:
To public prosecutors' offices or courts having jurisdiction in criminal cases and administrative fine cases;
To agencies which as a result of a parliamentary act or public mandate, are entrusted with supervision of institutions and other stated enterprises and to persons commissioned by such agencies;
To agencies dealing with an institution's liquidation or the commencement of insolvency proceedings over its assets;
To persons in charge of statutory audits of accounts of institutions or financial enterprises and to agencies supervising such persons;
To a deposit guarantee scheme or an investor compensation scheme;
To stock markets or financial futures exchanges or To central banks
Insofar as these agencies require the information for the performance of their functions. In the case of a foreign agency, the agency is to be made aware that it may use information solely for the purpose for which it has been passed on to it.
Submission of Annual Accounts, Management Report and Auditor’s Reports
In addition to an institution being required to submit its approved annual accounts, approved management report to the FFSA and the Deutsche Bundesbank without delay, pursuant to Division 5a, section 26 of the KWG, the auditor is also required to submit his report on the auditing of the annual accounts (auditor’s report), to the FFSA and the Bundesbank without delay upon completion of the audit.
In relation to credit institutions belonging to a credit cooperative audit association or audited by the audit office of a savings bank and giro association, the auditor submits the audit report only upon request by the FFSA ( KWG 26 ( 1 ). Audit reports on supplementary audit carried out in association with a guarantee scheme and audits on group accounts are to be submitted by the auditor to the FFSA and the Bundesbank without delay upon completion of the audit ( Section 26 (
2, 3) KWG).
Auditors Appointed in Special Cases
Institutions are to inform the FFSA and the Bundesbank of their appointed auditors immediately after the appointment has taken place. Within one month of receiving this information, the FFSA may order the appointment of another auditor if this is necessary in order to attain the aim of the audit (section 28(1)). The court of registration having jurisdiction of the institution shall then appoint an auditor upon request of the FFSA (section 28 (2)) subject to certain conditions under this section of the Act.
Special Duties of the Auditor
In addition to auditing the annual or interim accounts of a financial institution, the auditor is also required to examine its financial circumstances (section 29(1)). Compliance with reporting requirements, obligations under the Money Laundering Act, section 128 of the Companies Act on disclosure requirements and section 135 of the Companies Act are to be included in the auditor's report - with some items being reported separately in the report (section 29 ss1,2 KWG).
If during the course of his audit the auditor discovers information which may lead to the audit being qualified or lead to the certificate of audit being withheld, jeopardise the existence of the institution or seriously disrupt its progress or which indicates that managers have seriously disregarded the law or the Articles of Association or the partnership agreement, he is to report this immediately to the FFSA and the Deutsche Bundesbank (section 29 (3 )). Upon request from the FFSA or the Bundesbank, he shall provide them the auditor's report and communicate any other facts obtained during the course of the audit which may suggest that the institution's business affairs have not been conducted properly. Provided he reported in good faith, the auditor would not be held accountable for accuracy of facts relating the information provided.