There are plenty of reasons why bank customers decide to transfer their securities accounts to another provider: premiums for switching providers, new cost models, bad customer service or restricted trading functions. But no matter their motive, customers expect the institutions to complete the transfer process quickly. They perceive delays as a source of annoyance – particularly when there is much market fluctuation. This is because, during the transfer period, trade in securities is either not possible at all or only to a very limited degree. Customers therefore have very few means - if at all - of reacting to market developments. They run the risk of sustaining lower returns or even losses.

Under section 69 of the Securities Trading Act (Wertpapierhandelsgesetz – WpHG), securities account transfers must be carried out “without undue delay”. But what exactly does “without undue delay” mean in this context? Consumers and institutions have long differed in their understanding of this notion. Since it usually takes a few days for money to be transferred from one current account to another, consumers were often unable to comprehend why it took so long for securities to be transferred to other securities accounts. As a result, BaFin received an unusually high influx of complaints concerning the enormous length of time for carrying out securities account transfers, especially in 2020 and 2021. The trend continued in 2022: by the end of the second quarter, submissions regarding delays in the securities account transfer process made up the bulk of investor complaints to BaFin’s securities supervision sector.

Maximum processing period: three weeks

Thus, in its FAQs on conduct of business obligations under MiFID II in accordance with sections 63 et seq of the WpHG, BaFin specified on 18 March 2022 that a securities account transfer was to be completed within three weeks at the very latest. If, in a specific case, this was not possible, the institution instructed by the customer to carry out the transfer must, as soon as the three-week period is over, send the customer an interim notification immediately, but within no later than five working days. And this interim notification must state the reason for the delay. BaFin has therefore for the first time defined a specific timeframe for securities account transfers.

“Consumers are justified in expecting the transfer of their securities account to another provider to be completed quickly. This was why we clarified our position on this matter in March”, explained Christian Bock, BaFin’s Director-General for Consumer Protection and Consumer Protection Officer, adding at the same time that the BaFin provision was appropriate and feasible for institutions as well.

When determining the maximum processing period, BaFin used information provided by the institutions, amongst other things: many financial institutions stated, for example on their websites, that securities account transfers took an average of three weeks to be completed. In its decision 19 U 1687/06, the Munich Higher Regional Court (Oberlandesgericht Munich) also supported this assessment of the time required for securities account transfers. The court found that a breach of duty was assumed to have taken place on the part of the institution if a securities account transfer was not carried out within three weeks. Even though this was a decision passed under civil law, and is thus per se not relevant for provisions under supervisory law, BaFin deemed it appropriate to use this decision as a basis for its assessment.

BaFin examining implementation of its FAQs

Since publishing its FAQs on the maximum length of time for a securities account transfer, BaFin has been analysing how the new provision is being implemented in practice, where there might still be problems and how the parties involved assess the implementation period. “Initial talks show that institutions consider the transfer period of three weeks to be realisable”, reported Bock, adding that longer transfer periods were only expected to occur in exceptional cases. “This is good news”, Bock summarised. “The generally positive feedback from market participants – both consumers and companies – shows that the provision stipulated by BaFin fulfils its intentions and is moderate.”

Institutions largely in agreement with the specifications

There are a number of reasons for the lengthy processing times: these include the lack of cooperation between the participating institutions, the complexity of the delivery channels or the class of security being transferred. For example, it might take far longer to complete the transfer of a security class that is held in safe custody in a depository outside the EU. Moreover, when transferring securities to another securities account the staff of the institutions in question often have to carry out procedural steps manually.

As talks between BaFin and the institutions before the FAQs were published already show, many of these problems could be resolved if processes were optimised. BaFin established, for example, that a number of securities account providers lacked the resources to quickly process a larger volume of securities account transfers when faced with a growing number of customers interested in conducting securities transactions. This resulted in delays, as the institutions needed more time to complete certain procedural steps – e.g. queries to customers or counterparties, entries of delivery instructions. In these cases, BaFin rigorously checked whether the institutions had adopted appropriate measures in order to prevent such delays in the future. BaFin follows up complaints regarding the lengthy processing times very closely, especially if a striking number of these complaints concern one particular institution.

Moreover, BaFin learned in dialogue with investors that they felt badly informed by their securities account providers about the reasons for the longer processing times. This lack of transparency about the current stage reached in the transfer application process was often more likely to prompt investors to contact BaFin than the time it took to carry out the transfer itself. Such information is useful for financial institutions: by sending out the interim notification demanded by BaFin in which customers are informed about the reasons for the delay, the grievance can be resolved relatively simply and customer satisfactions levels enhanced at short notice. In most cases, the institutions are now implementing this provision and keeping their customers informed.

BaFin’s Consumer Protection Officer Bock claims that, by specifying the maximum length of time for carrying out securities account transfers, Germany’s financial supervisor has set a framework that financial institutions can use as a guidance for organising or re-organising their internal procedures. Moreover, according to Bock a number of institutions were using BaFin’s provisions as an opportunity to digitalise their procedures even more greatly.

Customers benefiting from planning certainty and transparency

Customers are also clearly benefiting from the BaFin provisions. The specifications give customers greater certainty for planning securities account transfers and the time required for this. And they specifically mention them in their communication with BaFin. “Many consumers have now started to refer to our FAQs when complaining about securities account transfers and the institutions’ failure to inform them about delays on time and in a transparent way”, Bock reported.

Moreover, Bock infers from the feedback that many customers welcome the fact “that the procedure has become more transparent now that companies are obliged to inform customers about delays and the reasons for them within no later than five working days after the three-week completion period is over.”

Weaknesses identified

In exceptional cases, securities account transfers still take longer than the specified three-week period. A foreign partner is often the reason for this – e.g. if it is a counterparty, a custodian or a link in the delivery chain. The situation is often complicated by the fact that procedural steps must be made manually: the securities account providers coordinate the delivery channels of a securities transfer with foreign settlement service providers by way of hand-written e-mails. A communication channel of this kind is very prone to errors and leads to delays in the transfer of the securities. The securities account provider cannot continue the procedure until it has received an answer from the counterparty. In general, the institutions have indicated to BaFin that they consider the three-week completion period to be realistic even if foreign partners are involved.

In specific cases, but also in the ongoing operational supervision, BaFin continues to monitor very closely whether companies are meeting the requirements for processing securities account transfers. Above all, BaFin continues to check whether institutions are adopting measures designed to prevent backlogs in the processing of such transfers. If an institution is unable to meet the time requirements, BaFin will also examine whether there are organisational reasons for this – e.g. staff shortages. “If we establish shortcomings in the course of our investigations, we will adopt supervisory measures to ensure that the institutions quickly remedy them“, Bock announced.