In October 2016, the Financial Action Task Force (FATF; see info box) issued guidance on the money laundering law requirements for correspondent banking services. BaFin was represented in the FATF working group that prepared the guidance in cooperation with the Financial Stability Board (FSB).

In particular, the paper specifies which forms of correspondent banking are viewed as more and which as less risk-inherent. The aim is to increase institutions' understanding of supervisory measures.

The guidance is part of an initiative managed by several international organisations to investigate and take actions to address the decline in correspondent banking services observed for several years. The FSB had already developed a comprehensive action plan on this issue in November 2015.

A decline in correspondent banking relationships may result in a situation where individual regions in the world are excluded from the global payments network. This would jeopardise efforts to ensure the most comprehensive possible financial inclusion for all of the world's population.

BaFin published a translated version of the guidance on its website.

Additional staff for anti-money laundering supervision

Since 2016, BaFin's department for the prevention of money laundering has been strengthened by a new specialist division in Frankfurt am Main. BaFin thus laid a key foundation in 2016 to carry out more and more of its own audits going forward, including at credit institutions. At the end of 2016, BaFin's control bodies approved a further increase in human resources at the department for the prevention of money laundering in 2017 aimed at further enhancing BaFin's capabilities in money laundering prevention. These measures are based on the recommendations of the Financial Action Task Force and its guidance on good supervisory practices for the effective monitoring of anti-money laundering and combating terrorist financing. They also comply with the risk-based supervision (RBS) requirements of the Fourth EU Anti-Money Laundering Directive ¹.

Money laundering prevention at banks

BaFin carried out special audits and accompanied audits on 30 occasions in 2016. At some banks, the auditors noted that suspicious transaction reports were not always issued without undue delay, as specified in the German Money Laundering Act (Geldwäschegesetz). BaFin can punish such violations with an administrative fine.²

At larger credit institutions that have operations in Switzerland, BaFin's focus concerning the audit of the financial statements for 2016 was on the group-wide implementation of anti-money laundering (AML) requirements. The auditors are tasked with examining the extent to which banks comply with these requirements with respect to the specific legal system in Switzerland.

Money laundering prevention at insurers

BaFin carried out five on-site inspections at life insurers in 2016. It emerged that the AML officers at some undertakings had not included all departments in their precautionary measures. In one case, an AML officer was unaware that the undertaking had petty cash funds. At another insurance undertaking, the mortgage department was not audited. In addition, several undertakings repeatedly failed to ensure sufficient or even any documentation of source of funds reviews on incoming payments, including of large sums. The reason for deficiencies in prevention is often that insufficient time and human resources are available to AML officers, who are subject to increasing demands due to growing legal requirements and new knowledge gained from supervisory practice. Therefore, BaFin frequently considers it necessary for insurance undertakings to ensure a corresponding increase in staff levels. The undertakings are notified of such expanded requirements as part of the audit.

Enhanced anti-money laundering supervision at leasing and factoring institutions

Leasing and factoring institutions – the so-called Group V institutions – are subject to the requirements of the Money Laundering Act in addition to their duties under the Banking Act (Kreditwesengesetz). In 2016, BaFin stepped up its monitoring of activities to prevent money laundering, terrorist financing and other punishable offences at Group V and other financial services institutions. Specifically, this means that the internal money laundering prevention measures at a number of institutions were audited in more detail through systematic sampling. BaFin identified considerable deficiencies in some cases, both in implementing the statutory requirements and in the informational value of audit reports for annual financial statements. As a consequence, BaFin requested further information and assessments from the auditors. The most frequent deficiencies were insufficient documentation and incomplete risk analyses, which must be updated on an annual basis.

Account information access procedures in accordance with section 24c of the Banking Act

Section 24c (1) of the Banking Act requires credit institutions, asset management companies and payment institutions to maintain a file recording certain account master data. The data include, for example, the account number, the name and date of birth of the account holders and authorised users as well as the date of opening and closure. BaFin may access individual items of data from this file where necessary to perform its supervisory duties. Upon request, BaFin also provides information from the account information access file to the authorities listed in section 24c (3) of the Banking Act (see Table 6).

Table 6 Account information access procedures in accordance with section 24c of the Banking Act

Account information access procedures in accordance with section 24c of the Banking Act

* As at 31 December 2016 ** As at 31 December 2015 Source: BaFin

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