Contact with BaFin

As part of its mandate to protect consumers collectively, BaFin monitors the way advice is provided and marketing is conducted in the securities business. Specifically, this involves monitoring compliance with the conduct of business obligations and organisational requirements set out in part 6 of the Securities Trading Act. Visits by BaFin to banks and savings banks are important sources of information in this context.

In 2017, interviews were held in 235 head offices and branches (including tied agents). BaFin talked to 353 investment advisers and 293 sales control employees.

The venues and issues for discussion were, as always, selected on the basis of risk. The market investigation into internal control systems conducted in 2017 was aimed at establishing whether the institutions have adequate control systems. The on-site visits were aimed at expanding on the insights gathered in the preceding survey by talking to those employees tasked with implementing the control processes as part of their day-to-day activities. In addition, BaFin used the visits to establish how the institutions are implementing the voluntary undertaking by the associations when marketing credit-linked notes.¹

Moreover, some visits were triggered by the need to perform checks at short notice in response to tip-offs from anonymous whistleblowers. Routine checks were carried out in the advice business. For example, BaFin examined 3,865 individual cases to verify whether the requirement was met to recommend financial instruments only if they are suitable; in addition to the investment recommendation, it looked at 885 securities accounts in order to test the recommendation against the securities portfolio before and after the advice was provided.

Employee and Complaints Register

The Employee and Complaints Register (see info box "Employee and Complaints Register") is a proven tool of collective consumer protection. It gives BaFin important insights for the supervision of impropriety and also has a disciplining effect on both institutions and investment advisers.

Employees

By the end of 2017, BaFin had been notified of 142,832 employees (previous year: 149,156; see Table 4 "Number of employees"). The employee notifications and their identification numbers again gave BaFin a general idea of staff turnover in investment advice and distribution in 2017.

Table 4 Number of employees3O3

Number of employees

BaFin

Complaints

In 2017, BaFin was notified of 4,353 complaints (previous year: 4,996; see Table 5 "Number of complaints notified"). BaFin is able to check on the basis of the complaints notified whether investment firms are complying with the conduct of business obligations incumbent on them when advising retail clients. The complaints notified allow BaFin to investigate systemic and individual irregularities.

Table 5 Number of complaints notified

Number of complaints notified

BaFin

Since there is no indication from the complaints notified whether they are justified, BaFin continually assesses individual complaints and the respective investment advice records on the basis of risk. These assessments always focus on whether the investment advice provided was suitable for the investor.

If these assessments give rise to doubts about the expertise or reliability of an employee, or if attention is drawn to employees as a result of violations of supervisory requirements, BaFin will initiate investigations.

Measures and administrative fine proceedings

In 2017, BaFin investigated in 28 proceedings any findings that indicated that investment advisers and sales officers were unreliable. In another proceeding dating from 2017, BaFin prohibited an employee from working as an investment adviser. The evaluation of an employee’s reliability is based on the German WpHG Employee Reporting Regulation (WpHG-Mitarbeiteranzeigeverordnung), pursuant to which an employee is not deemed reliable if he or she was convicted of certain offences in the previous five years and the judgement was final.

In 2017, BaFin also dealt with 2 warnings. 1 case is still ongoing, while in another BaFin issued a warning to an employee. This warning was based on repeated complaints. Various investment firms had submitted complaints about an investment adviser to the Employee and Complaints Register. The investigation into the nature of the complaint revealed repeated violations of the conduct of business obligations that fell under the responsibility of the employee concerned. The employee's changes of employer could be traced through the Employee and Complaints Register.²

BaFin launched 6 new administrative fine proceedings in 2017 because of violations of the conduct of business rules as well as organisational and transparency requirements by investment firms; it also concluded 6 proceedings by imposing an administrative fine.³ 13 proceedings were discontinued, 12 of them for discretionary reasons. A total of 54 proceedings were still pending from the previous year. The highest total administrative fine imposed on an undertaking in this area was €120,000.