“The risk landscape is heterogeneous and is constantly changing”, underlined BaFin’s President Mark Branson. At any time new risk drivers can emerge or unexpected events can trigger a market upheaval, Branson explained, as has happened with the COVID-19 pandemic and the current geopolitical situation. BaFin’s role, he went on to say, is to identify risks on an ongoing basis as they occur, assess their consequences for the German financial market, and ensure that it mitigates them as far as possible. He explained the principle that BaFin follows: the greater the risk, the more time and resources BaFin allocates to counteracting it.

The German financial system has proven to be stable and resilient even during the COVID-19 pandemic, Branson said. But time and again we see risks emerging that could have a negative impact on, or even jeopardise, the functioning, stability and integrity of the German financial market and the collective interests of consumers.

In BaFin’s view, the major risk drivers for Germany’s financial market, apart from the fraught geopolitical situation, are:

• Risks caused by the low interest rate environment
• Risks caused by corrections on the real estate markets
• Risks caused by significant corrections on the international financial markets
• Risks caused by corporate loan defaults
• Cyber risks
• Risks caused by inadequate money laundering prevention

Beyond this, there are many more risks that BaFin is currently working intensively to assess and mitigate. One such risk is that the balance sheets of companies subject to BaFin’s financial reporting enforcement could contain incorrect valuations or false representations that could lead to investors being deceived. Others include the diverse array of risks to consumers, such as risks from crypto assets and from investment recommendations on social media.
The “Risks in BaFin’s Focus” report is the successor to BaFin’s previous “Supervisory Priorities” publication.