With effect from 1 January 2022, BaFin is solely responsible for examining the financial statements of publicly traded companies. The formerly two-stage process – with the German Financial Reporting Enforcement Panel (FREP), a private-law entity, responsible for stage 1 and BaFin for stage 2 – has migrated to a single-stage process following the implementation of the FISG. Ad hoc examinations and random sampling examinations are now performed solely by BaFin and not in the first instance by a private-law entity.

In addition, the FISG has invested BaFin with more comprehensive powers with respect to investigations and supervisory measures.

From an organisational perspective, the head of BaFin’s new directorate for financial reporting enforcement, which was established on 1 September 2021, reports directly to the Chief Executive Director of Securities Supervision.

Most of the former FREP’s staff have transferred to BaFin, meaning that BaFin now has more auditors. Additional staff members have also joined BaFin following external recruitment.

Enforcement procedure

The enforcement procedure examines whether annual or consolidated financial statements and the associated (group) management reports have been prepared in a legally correct manner. Since the German Transparency Directive Implementing Act (Transparenzrichtlinie-Umsetzungsgesetz – TUG) entered into force in 2007, BaFin has also examined the condensed financial statements and associated interim management reports contained in half-yearly financial reports, but only where there are concrete reasons to do so.

The German Act Implementing the Transparency Directive Amending Directive (Gesetz zur Umsetzung der EU-Transparenzrichtlinie-Änderungsrichtlinie) further extended the scope of the examinations, allowing BaFin to conduct ad hoc examinations of (consolidated) reports on payments to governments.

Since the entry into force of the FISG, BaFin can now also conduct ad hoc examinations of financial statements and reports not only for the last financial year but also for the two financial years before that.

Examinations are conducted based on the home Member State principle: the financial statements prepared by issuers of securities admitted to trading on an organised market whose home Member State is the Federal Republic of Germany are subject to monitoring in accordance with Part 16 Subpart 1 of the WpHG. An exception applies to companies whose securities admitted to trading on an organised market are units and shares in open-ended investment funds. Equally, companies whose securities have not been admitted to trading on an organised market do not fall within the scope of the procedure. Regulated unofficial markets (Freiverkehr) at German stock exchanges are not classified as organised markets.

With effect from 1 January 2022, BaFin is able to take action directly by performing random sampling examinations and in those cases in which there are concrete indications of a breach of the accounting requirements. Initial random sampling examinations are built on the procedure previously used by the FREP. This procedure is then systematically extended in light of the economic risks involved in each case. In addition, in the case of credit and financial services institutions, insurance undertakings, asset management companies and externally managed investment companies BaFin can order examinations even if it is already conducting or has already conducted an examination on the same subject.

BaFin has sovereign powers in relation to the examinations. This means, for example, that it can order a compulsory examination of a company’s financial reporting. The additional powers conferred on it by the FISG include extended rights to obtain information as well as search and seizure rights. For example, it has the right to obtain information from anybody in the case of concrete indications of a breach of the accounting requirements, plus the ability to summon obliged parties such as the senior managers responsible for the companies examined. Where there are concrete indications of a significant breach of accounting requirements, it can order searches and the seizure of assets.

BaFin is authorised to publish examination orders and key steps in the procedure, among other things, in order to make enforcement more transparent. It discloses any errors found during examinations alongside the significant parts of the reasons for this. In addition, it can demand that financial statements be prepared again or that errors be corrected in the next set of statements.

What is more, BaFin now has additional means of exchanging information at its disposal, for example with the Auditor Oversight Body (Abschlussprüferaufsichtsstelle).

BaFin publishes the areas of emphasis for its examinations for the following year on its website so as to ensure stakeholders are informed of them in good time. In its areas of emphasis, BaFin follows those set by ESMA.

Companies subject to enforcement

The following list encompasses companies whose securities were admitted to trading on an organised market und whose home Member State according to section 2 (13) of the WpHG was Germany on the reference date 1 July 2023. The information on the identified companies on the list refers to reports of the German stock exchanges pursuant to section 17d (2) of the FinDAG as well as on information of foreign stock exchanges about local listings. The next update of the list will take place on the reference date 1 July 2024 and will be available on BaFin’s website during the fourth quarter 2024.

Announcements of measures of financial reporting enforcement