Germany: financial regulations 2024

Today’s article aims to provide information about the 2024 updates in the financial regulations in Germany in different industries.

The financial landscape in Germany and Europe has experienced substantial transformations in recent years, with ongoing evolution in regulatory frameworks. These changes stem from various economic, pandemic, political, and technological influences. Following the 2008 financial crisis, global regulations for banks, investment firms, and financial markets have become stricter, emphasizing heightened capital, liquidity, and prudential requirements. This trend of regulatory tightening persists and is anticipated to continue. In Germany, financial regulation is notably shaped by European Union (EU) law, as the EU actively contributes to international regulatory standards through entities like the Basel Committee on Banking Supervision (BCBS), forming a significant portion of the global regulatory landscape.

The digitalization of banking and financial services has introduced new risks, prompting dynamic shifts in the regulatory framework. Recent months and years have seen a flurry of regulatory updates, with more anticipated. For instance, in June 2023, Regulation (EU) No. 2023/1114 (MiCAR) concerning Markets in Crypto-Assets became applicable EU-wide, with full enforcement scheduled from December 2024. MiCAR aims to harmonize crypto-asset services, including unified transparency, authorization, and disclosure requirements.

Additionally, in January 2025, Regulation (EU) No. 2022/2554 (DORA), the Digital Operational Resilience Act, will come into effect. DORA introduces requirements for financial entities to address cyber threats and strengthen digital operational resilience. It mandates measures such as ICT risk management, incident reporting, resilience testing, and information sharing, particularly concerning third-party ICT service providers. Furthermore, DORA outlines requirements for contractual arrangements between financial entities and third-party service providers, as well as oversight frameworks for critical ICT providers. The European Supervisory Authorities (ESAs) published initial technical standards under DORA in January 2024, with public consultations for further measures ongoing from December 2023. DORA is poised to play a pivotal role in the financial sector, particularly regarding outsourcing practices.

Financial market integrity

Following the Wirecard insolvency, attributed to extensive fraud, maintaining financial market integrity has become a focal point for the German government. Through the Act on Strengthening Financial Market Integrity (FISG), implemented in 2021 and partially in 2022, several German laws underwent revisions. Key amendments include imposing a more stringent liability regime on auditors, with increased liability caps. For instance, when auditing capital companies functioning as credit institutions but not oriented toward the capital market, liability caps for simple negligence are set at €4 million, while for gross negligence, it rises to €32 million. Liability for intentional wrongdoing remains unlimited.

Moreover, the FISG introduces a maximum 10-year term for audit mandates and significantly expands the supervisory duties and powers of BaFin, especially concerning the balance sheets of regulated entities. Institutions are now mandated to maintain registers documenting all outsourced functions, whether critical or non-critical. When outsourcing to third-country firms, institutions must ensure contractually that these firms appoint a local agent for process service. BaFin is explicitly authorized to issue directives directly to outsourcing firms to address any infringements. These stricter outsourcing provisions align with the EBA guidelines on outsourcing arrangements (EBA/GL/2019/02), which have since been integrated into BaFin's published administrative regulations.

References

Global Legal Group. (2024). Global Legal Insights - Banking Regulation 2024. Global Legal Group.

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