“We have adapted our supervisory requirements in light of the crisis.” With these words, as part of his statement at BaFin’s press conference on 12 May 2020, BaFin President Felix Hufeld outlined the temporary measures taken by BaFin since the outbreak of the coronavirus pandemic. These measures are aimed at strengthening institutions and offering them relief to ensure that they are able to mitigate the effects of the crisis on the real economy. The amendments to the supervisory requirements are published on the BaFin-Website at in the form of FAQs. Some of the most important changes are also presented in this article.

Banking supervision

Banks and Sparkassen have a key role to play in combating the economic effects of the coronavirus crisis: they are tasked with implementing the state-aided Special Programmes of the KfW Banking Group (Kreditanstalt für Wiederaufbau), which BaFin helped to develop. In considering how to ease the burden on institutions, BaFin has also taken suggestions from the banking sector into account. However, during the press conference, Felix Hufeld once again emphasised that, in making the amendments, BaFin has gone only as far as financial regulation, accounting standards and financial stability allow.

Simplifications with regard to creditworthiness assessments

BaFin has published information providing clarification with regard to loans for which the KfW has granted exemption from liability, i.e. loans for which the institutions themselves do not assume liability. BaFin is allowing institutions to perform a simplified credit assessment procedure so that they can process requests more quickly.

Flexible approach to governance requirements

With regard to governance requirements, BaFin is making concessions towards institutions as far as this is possible within the legal framework, an approach institutions have found helpful. For instance, during the coronavirus crisis, employees of banks are allowed to conduct trading activities while working from home. Under normal circumstances, strict requirements must be fulfilled in order for such trading activities to be conducted outside the institutions’ business premises. However, in the current situation, employees conducting trading activities while working from home does not constitute a breach of the Minimum Requirements for Risk Management (MaRisk).

During the coronavirus crisis, BaFin is also allowing for more flexible deployment of staff. For example, staff who normally work in the internal audit function may now also be deployed in other areas where resources are lacking, subject to certain conditions.

Postponement of loan payments

At the beginning of the coronavirus crisis, institutions asked to be able to help their customers through liquidity stresses resulting from the crisis in particular through the postponement of loan payments.

BaFin has therefore clarified when the postponement of liabilities in an individual case for an obligor experiencing financial difficulties due to the crisis is not to be regarded as a default: where interest is applied to the amounts postponed in line with the conditions originally agreed (“original effective interest rate”) and the present value of the remaining payments – calculated using the customer’s original effective interest rate – falls by no more than 1%, the obligor is not regarded as defaulted.

BaFin has also clarified how it applies the guidelines of the European Banking Authority (EBA) on general payment moratoria in contrast to postponements on a case-by-case basis: a general payment moratorium is so broad that obligors that are not considered defaulted within the meaning of Article 178 of the Capital Requirements Regulation (CRR) may also make use of it. Where an obligor makes use of a financial concession such as a general payment moratorium, this by itself will not imply that the obligor is to be considered defaulted. Moreover, the institution must review whether obligors that fall under the scope of a general payment moratorium are to be assessed as defaulted at a later date. This assessment is based on the payment obligations towards the institutions in accordance with the postponement as stipulated by the general payment moratorium.

New requirements: limiting the pressure on institutions

In order to avoid putting any extra pressure on institutions, BaFin has delayed the publication of the amended version of the MaRisk, which was originally planned for the end of 2020, until the first quarter of 2021. The amended requirements will not be relevant to audits with the reference date 31 December 2020. BaFin will also grant appropriate transitional periods.

SREP capital add-on suspended

In 2020, BaFin is suspending the cycle for setting the capital add-on as part of the Supervisory Review and Evaluation Process (SREP). Capital add-ons scheduled to be reset in 2020 will be deferred and any capital add-ons that have already been set will remain the same in 2020

Changes to reporting requirements

Reports and data on the current situation are important – above all in times of crisis. Nevertheless, in the area of reporting, too, BaFin has made some concessions towards institutions. For example, BaFin will not raise any objections if it receives certain reports with a delay. This also applies to the disclosure of accounting documents under section 26 of the German Banking Act (Kreditwesengesetz – KWG). For the period until 30 June 2020, BaFin will not investigate potential violations resulting from statutory deadlines that have not been met.

Insurance and pension fund supervision

Operational adjustments have also been made in the supervision of insurers and pension funds.

Reporting

Insurers subject to the Solvency II supervisory regime may submit the narrative part of the Solvency and Financial Condition Report (SFCR) with an 8-week delay. Institutions now have until 1 June 2020 instead of 1 April 2020 to complete the comprehensive holistic impact assessment, which is a calculation of the impact that possible changes as part of the ongoing review of Solvency II would have on institutions.

Volatility adjustment and transitional measures

Two tools in particular, which have always formed part of Solvency II, may help life insurers during the coronavirus crisis: the volatility adjustment and the transitional measures which insurers can use to gradually bring their own funds requirements up to the required level within 16 years. BaFin will reach decisions regarding new requests to make use of these tools at very short notice and as a matter of priority. If required, approval can also be granted with retroactive effect from 31 March 2020.

Guarantee assets

Pension funds benefit from extended deadlines with regard to guarantee assets (Sicherungsvermögen), which must be established in accordance with the respective pension plans. Where pension funds and employers agree that the obligation to make additional contributions resulting from underfunding will not be declared due immediately, the pension funds must submit to BaFin a plan for re-establishing cover since the claims are not qualified for the guarantee assets. If BaFin approves this plan, it will raise no objections to the underfunding. Previously, in cases of underfunding between 5 and 10%, BaFin required this plan for re-establishing cover, detailing how the company intends to get back on track, to be submitted at the latest within three months after underfunding occurs.

In the current situation, however, this period may be extended beyond three months up until 1 October 2020. Payments by the employer behind the pension fund are not required until 2021, instead of 2020. This is proportionate considering the fact that restoring coverage takes several years and is not a matter that is resolved within months.

For pensions funds and small insurers that are required to invest guarantee assets on the basis of the Regulation on the Investment of Guarantee Assets of Pensionskassen, Funeral Expenses Funds and Small Insurance Undertakings (Anlageverordnung – AnlV), BaFin will, on a temporary basis, raise no objections if the proportion of investments in real estate exceeds 25%. This is intended to avoid the necessity of emergency sales, which could arise due to provisions under supervisory law.

All insurance undertakings will benefit from operational simplifications insofar as the register of guarantee assets will not have to be submitted in paper form until 30 June 2020.

Securities supervision

In BaFin’s securities supervision sector, the challenge of recent weeks in the current crisis has been in striking the right balance between ensuring effective investor protection and making adjustments for the industry.

Working from home

For investment services enterprises with staff working from home, it can be difficult to meet all of the requirements of the European Markets in Financial Instruments Directive II (MiFID II). Problems may arise, for example, in the electronic recording of telephone conversations or the timely provision of suitability statements and ex-ante cost information for customers. For this reason, BaFin has made it clear that it will not investigate breaches of this directive if the companies in question take suitable alternative measures. Here it is essential that the companies make the necessary effort and keep customers informed.

BaFin is also making concessions towards asset management companies. In BaFin’s view, it is reasonable from a supervisory perspective to temporarily relax the strict rules for investment funds in order to allow staff to work from home. Companies that have in the past ruled out trading outside their business premises must explicitly suspend this prohibition and provide clear guidelines regarding the timeframe in addition to the conditions under which this new rule is to apply and must record this in corresponding work instructions. BaFin has also adjusted its supervisory practice to the situation by allowing, in large part, electronic submissions in place of original paper copies of documents. Furthermore, those tasked with the valuation of fund properties may, under certain conditions, omit the property viewing.

Financial reporting

Like other national securities supervisors, BaFin is not treating the investigation of funds managers that submit their annual or semi-annual reports with a delay as a priority. However, funds managers should inform BaFin if they are unable to submit their reports by the relevant deadlines.

Money laundering prevention

Even during the coronavirus pandemic, it is necessary to combat money laundering and terrorist financing. When identifying recipients of state-aided loans, banks may apply the simplified due diligence requirements under section 14 of the Money Laundering Act (Geldwäschegesetz – GwG), according to which a copy of identification documents is sufficient. This requires, however, that there is only a small risk of money laundering or terrorist financing.

If, over the course of a business relationship, as part of the ongoing customer and transaction monitoring, indications of a higher risk arise, the bank must subsequently take additional measures, such as personal identification procedures based on identity documents.

Authorisation requirement

Through its decision regarding an authorisation requirement for guarantees, BaFin has provided relief above all for the real economy. If suppliers run out of funds, leaving them unable to supply their customers, this can quickly lead to a halt in production. In order to prevent this from happening, customers often want to act as guarantors.

BaFin has clarified that, in such cases, customers are not deemed to be conducting guarantee business within the meaning of section 1 (1) sentence 2 no. 8 of the KWG and also do not require authorisation. This also applies if the customers provide guarantees for numerous suppliers. They may not, however, charge fees for these guarantees.

BaFin has also granted Deutsche Post AG temporary authorisation to provide a contactless payment procedure in the form of a SEPA one-off direct debit, without it having to meet the usual obligations.