Mr Branson, you have now been BaFin’s President for exactly 107 days. Before that, you were head of the Swiss Financial Market Supervisory Authority (FINMA) in Bern. Are things done differently in Bonn?

There are many similarities, of course. The two cities even shared the name “Bern” in the Middle Ages. But the dimensions are different here in Germany: BaFin is a large authority with almost 3,000 employees and supervisory responsibility for more than 4,000 companies. What is more, Germany is part of the EU. And BaFin is currently undergoing a rapid process of change and modernisation.

For more than seven months now, BaFin has been implementing a modernisation project. Is it on the right path?

The modernisation project has set many significant changes in motion. A number of key reform measures have already been completed, others have been launched. The time horizon is different in each case. For example, we have now concluded the process of making our communication with whistleblowers more professional, which involved an almost complete redesign. Our Focus Units, which we set up to deal with complex cases, are also already up and running.

Other measures can be regarded as journeys that will take several years to complete – such as the question of how we can process data for supervisory purposes more intelligently. In this area, the project has provided impetus for the development of prototypes that will make the most relevant data available to supervisors in a sort of cockpit.

So the answer is yes, we are clearly on the right path, but the process of modernising a large, complex authority cannot be completed in less than a year. It is a process that will now continue within BaFin and that must become part of our culture and part of our DNA.

What else will have to change within BaFin to ensure that its supervisory activities have the “bite” that Germany’s Federal Finance Minister Olaf Scholz has called for?

We need to focus our attention on three key aspects. Firstly, we need to ensure that the decisions we make are of the very best quality. Secondly, we need modern working methods that are fast, transparent and digital. And thirdly, we need clear objectives so that we can clearly communicate where our priorities lie.

All of these issues – high-quality decisions, up-to-date working methods and clear objectives – are tasks that we as an authority have to work on continuously – which brings us back to the matter of culture. By that, I don’t only mean our supervisory culture, but also the culture within BaFin: are we willing to ask ourselves, time and again, if there is a better way to reach decisions of the best quality or a more efficient way to do our work? This is also why it is so important to set clear objectives. We have already taken an important step in this direction: on 15 November, we published the objectives we have set ourselves – as an authority and in particular in our supervisory activities – over the medium term, i.e. in the next four years (see below).

You would like BaFin to make faster decisions. Why is that so important to you?

It is important for several reasons. If there is a serious shortcoming that calls for BaFin to take action, then it almost goes without saying that the matter is urgent. In such cases, it does not help to wait before we intervene. That is one aspect. Another is that BaFin’s work involves numerous processes that are very important for the companies we supervise. Take the authorisation procedures for new business models, for example.

Here, the level of interest in fast supervisory decisions is extremely high. In my experience, market participants appreciate fast, reliable answers – even a rejection is preferable to an approval which takes so long that, by the time it is received, the world has already moved on.

BaFin has issued a general administrative act requiring banks to inform their customers of unauthorised interest rate clauses in premium-aided savings plans. BaFin also uses very clear language in its supervisory statement regarding the decision issued by Germany’s Federal Court of Justice on the fees charged by banks. Should institutions expect BaFin to take a tougher supervisory stance from now on?

It is not about being tough or lax. It is about BaFin quickly forming an opinion and either taking measures or communicating our expectations clearly and consistently in each individual case. In urgent cases, we should not hesitate to act even if we do not have all of the relevant information at hand. I think this is exactly how a professional supervisory authority should act.

That doesn’t necessarily have anything to do with being tough. We have to look at each case individually. And we have a clear mandate: to protect consumers, creditors and the stability of the financial system. It is our duty to enforce supervisory legislation. And we need to do that with a great deal of energy and good judgement.

What are BaFin’s plans in the area of consumer protection?

Now that we have been given new resources and powers in this area, we need to start by setting clear priorities. We shouldn’t try to do too many things at once. In addition to looking for significant risks in the financial sector that could pose a threat to the interests of investors, our attention should also be turned to the most vulnerable consumers.

In my view, supervisory authorities also have a role to play in ensuring consumers can help themselves – in other words, we need to promote consumer information and literacy. BaFin will not be able to manage that on its own, of course. At any rate, we have a great interest in seeing additional activities develop in this area. After all, the very best consumer protection is provided by the consumers themselves. Is that enough? No, our experience over the years has shown otherwise. In future, too, there will have to be an authority to carefully monitor whether specific products and services are suitable and sufficiently transparent for certain consumer groups. If the information imbalance between providers and consumers could lead to significant disadvantages for consumers, we will intervene.

BaFin has also been given more bite with the German Act to Strengthen Financial Market Integrity, which draws lessons from the Wirecard scandal. Does this fulfil the need for reform for the time being?

In addition to the traditional aspects of financial stability, stability of the supervised companies and consumer protection, there are other issues that are extremely important for the reputation of a financial centre and for financial institutions themselves. The efforts to combat money laundering need to be intensified throughout Europe – i.e. also in Germany. We have not yet succeeded in reducing the problems to an acceptable level overall. This is a struggle against organised crime that will never end, and it will require us to be extremely vigilant.

The German capital market has experienced a couple of shocks in recent years. Here, too, more must be done – and BaFin must become more visible – to protect the integrity of the market and to secure investors’ trust in the market. Besides general market supervision, a key issue in this context is financial reporting enforcement – we have recently been given new powers in this area.

You will find all of this in our medium-term objectives, which were published on 15 November. They cover stability and operational issues such as the fight against cyber risks, but also – very prominently – the issues of anti-money laundering and market supervision.

You have just touched on the topics of money laundering and cyber risks. Where do you currently see the greatest risks for the financial sector?

There are risks arising from the economic and financial environment, and there are also operational risks. To my mind, the greatest financial risks are all linked to interest rates, which have been extremely low for a long time now. For specific business models used by banks and life insurers, the low interest rate environment is fraught with problems. These business models are absolutely dependent on interest rate transformation. At the same time, there is a growing risk of bubbles forming in various markets. This is conventionally the case in the real estate market, where we naturally expect to find a great deal of bank financing. As prices and indebtedness levels rise, these portfolios will become riskier. In addition, in a very large number of markets – from the typical stock markets to cryptocurrencies – we have seen valuations that seem very high compared to the real economic development, and some of these valuations are linked to high levels of indebtedness. Consider the collapse of the hedge fund Archegos in the US, for example – which was heavily in debt. This was an individual case, and it cost several banks billions of euros. We have always seen interactions between the regulated world and the world of shadow banks as a weak point. These interactions can become really dangerous in this market environment.

On the operational side, I would say cyber risks constitute the no. 1 risk. They are increasing in intensity, and they are certainly capable of taking on systemic dimensions. But I also very clearly see risks posed by criminals who misuse the financial system, either through the movement of funds – i.e. money laundering – or by engaging in dubious practices on the capital markets.

You are in favour of strict capital rules for banks – and especially for institutions that operate internationally. Do you feel the proposals of the European Commission on the implementation of Basel III are strict enough – also with regard to internal models?

First of all, I would like to make it clear that in our treatment of internal models under Basel III, we are primarily talking about large or international banks that are often also very active on the capital markets. In my opinion, they need to be viewed and treated differently to small banks or savings banks that have a purely regional or national focus. For large banks, it is very important that they have a sound capital base – not only to cover the risks that these banks can predict and model, but also with regard to unforeseen risks.

A great deal has been achieved in terms of regulation since the last financial crisis. This must not be lost. The new provisions will lead to significant increases in capital requirements for institutions that may have gained capital savings through the use of internal models. And that is how it should be.

For smaller institutions, especially those that are sound and conservative in their dealings, I see less of a need for action. The important thing with the complex package that is Basel III is not to modify any parameters without knowing what the overall impact will be. The package as a whole is complex enough, even without the political process that will follow. And the temporary relief measures applicable in the transition period must not be allowed to become permanent.