BaFin celebrated a small anniversary in May 2017. Fifteen years previously it had emerged as an integrated supervisory authority formed from the three federal supervisory offices for banking, insurance and securities trading. It had become clear that supervision split over several authorities was no longer appropriate for the times.

That the German legislature is still convinced by the integrated supervision model was made clear when it took the decisions to further strengthen collective consumer protection at BaFin in 2016 and make it the national resolution authority as well at the start of 2018.

And so BaFin is "integrated" in a number of ways: it unifies supervision across all sectors of the financial market, links micro-prudential and macro-prudential supervision, supervises compliance with rules of conduct (which includes collective consumer protection) and, as already mentioned, is also the national resolution authority. Aside from the clear cost savings – resulting from combined administrative and IT resources and shared centres of competence, for instance – this integration offers other significant advantages:

Cross-sectoral supervision

Parent company in one sector, subsidiary in another, cross-sectoral marketing cooperation, guarantees and so forth – the sectors of the financial market are interconnected in countless ways. An integrated supervisory authority can recognise risks and interdependencies and assess their consequences for the different sectors more quickly than a sector-specific supervisory authority. When the sectors are combined in a single authority, they can share information directly, agree on a course of action, and act quickly.

What is more, phenomena on the financial market increasingly affect more than one sector. To name just a few prominent examples, the low interest-rate environment, digitalisation, money laundering and Brexit all demonstrate the need for a holistic approach to supervision.

Cross-sectoral supervision also has the advantage that it can establish a uniform interpretation of laws and regulations and apply discretionary scope in a comparable way. Where possible and appropriate, BaFin can define uniform standards and develop consistent administrative practice. The Supervisory Requirements for IT in Financial Institutions (Bankaufsichtlichen Anforderungen an die IT – BAIT) is a current example of this. In these requirements, published in 2017, BaFin sets out in detail its expectations of banks as regards IT security. BaFin plans to release the equivalent document for insurance undertakings – the VAIT – in 2018. It almost goes without saying that the requirements for IT that a supervisory authority sets for banks and insurers need to be of a comparable level.

Not only the interpretation and enforcement, but also supervisory law itself needs to be designed in a consistent way when it deals with the same risks – this is important in order to curtail supervisory arbitrage and competitive distortions, among other things. BaFin has these issues on its radar when it participates in the European and global committees for the regulation of the financial market.

Micro-prudential and macro-prudential supervision

While micro-prudential supervision is concerned with individual companies and the sectors these operate in, the goal of macro-prudential supervision is to secure the stability of the financial system as a whole. BaFin has a well-equipped micro-prudential toolbox, but also has macro-prudential instruments at its disposal, such as the countercyclical capital buffer. Knowledge from micro- and macro-prudential supervision must be transferred and combined without hindrance in order that the supervisors are able to recognise systemic risks at an early stage. This is easier to achieve under one roof, particularly because the boundaries between micro- and macro-prudential supervision are fluid. Micro-prudential tools can have macro-prudential effects – particularly when they are applied across the board. Of particular importance here is the cooperation between the German Federal Ministry of Finance, the Deutsche Bundesbank and BaFin on the German Financial Stability Committee.

Prudential supervision vs. conduct supervision

Alongside prudential supervision, a further field of supervision has gained considerable importance, in the wake of the 2007/2008 financial crisis at the very least: conduct supervision. The objective of conduct supervision is to ensure a level playing field for all market participants. Consumers benefit from this too – just as they do from prudential supervision, due to the latter's focus on the solvency of companies and their ability to fulfil their obligations at all times. Particularly in the recent past, a large number of requirements have been issued that are targeted directly at consumer protection. Indirectly, the finance industry benefits from this too: if providers act in the correct way with their customers, the customers' trust in them will grow, which is in turn beneficial for the stability of the financial market. An integrated supervisory authority is in the ideal position to meet the challenge of enabling this interaction to work as it should.

When prudential supervision and conduct supervision share the same roof, this does not just mean that information can flow unimpeded between the two fields and that the supervisors can develop a comprehensive picture of the companies and providers on the financial market. Although that alone would be reason enough for integration. There is also the benefit that the two supervisory fields can agree on their course of action. And should prudential and conduct supervision ever come into conflict, an integrated supervisory authority is particularly well-placed to make carefully balanced decisions.

Resolution vs. supervision

Resolution and supervision likewise benefit from being able to work independently but united under a single roof, and thereby more efficiently. If a bank gets into difficulties, it is now easier for BaFin to restructure it or – if it is necessary and the requirements are met – to resolve it and thereby prevent negative consequences for the general public. In such cases, every minute counts. Those working in supervision, restructuring and resolution have to act as a well-rehearsed team, which is easier to achieve within a single institution – in particular because, in this case as in others, the national authority, BaFin, tends to act as part of a European team and rarely alone. But it is not just in the dramatic hours either side of a resolution that resolution, restructuring and supervision need to work together seamlessly; it is also important in ongoing supervision, both in resolution planning and if there is a potential need for restructuring.

If a bank goes into freefall, information is also needed from colleagues in securities supervision and insurance supervision. BaFin does not need to first get in touch with a different authority if it wants to find out whether a bank's risks could penetrate through to an insurance undertaking or a fund subsidiary. There are also questions surrounding ad hoc announcements. These and other situations can be analysed and brought under control much more quickly in an integrated supervisory authority.

As an integrated supervisory authority, BaFin has far-reaching powers of intervention, but it too is bound by specific authorisations grounded in law – as is usual in a state under the rule of law. BaFin is not responsible for issues surrounding tax law, for instance. What BaFin does investigate, as appropriate, is the relevant implications under supervisory law of cases of harmful tax practices or criminal activity.