Check against delivery!

Ladies and gentlemen,

It is a pleasure to be speaking to you today at Euro Finance Week for the first time in my role as BaFin President.

It will not surprise you that in the first few months in my new role, I have focused primarily on BaFin as an institution – on its modernisation, and on its culture. For example, I have been addressing the question of how we can ensure supervisorydecisions of the very best quality and quickly bring our working methods up to date. However, speaking here only about BaFin as an institution would, I feel, be a little too introspective. Instead, I would like to share with you the overall priorities which we, as supervisors, have setourselves.

Our legal mandate is clear: simply put, we are tasked with ensuring the stability, security and integrity of the financial system. Which also means that we protect the collective interests of consumers. The key question is: how do we prioritise our activities? We do not intend to be merely followers of developments in the financial sector – to simply react. We want to stay one step ahead. To help us manage that task – and to maintain that head start – we have formulated ten medium-term objectives, which we published today. Over the next four years, these objectives will guide our actions and help us make the kind of intelligent and clear-sighted decisions that are expected of professional supervisors.

What developments did we have in mind while formulating our objectives? I will spare you a litany of the opportunities and risks for the financial sector. Instead, here are just a few examples: one phenomenon that brings opportunities and risks in equal measure is digitalisation. It is helping banks and insurers to accelerate their processes and offers new possibilities for distribution and potential sources of income. But it also makes companies vulnerable. For us supervisors, operational resilience has therefore become just as important as financial resilience. The situation is similar when it comes to sustainability: this issue also harbours both opportunities and risks. The financial industry will have a major role to play in efforts to decarbonise the economy. New opportunities for generating income are emerging, as are new risks. What will our role be in all of this? To ensure that companies have their climate-related financial risks under control.

Low interest rates pose one of the greatest financial risks to the industry. If interest rates remain this low, they will cause increasing damage to the business models of banks and life insurers. If they suddenly increase, things will get turbulent. The ongoing low-rate environment is also having unpleasant side-effects: it is giving rise to market exaggerations and concentration risks. Banks must therefore in particular ask themselves about the risks they have on their books where their customers have particularly high leverage. I am thinking above all of the fast-growing shadow banking sector. Another risk I consider high – too high – is the financial sector’s risk of being misused for money laundering.

So – where do our priorities lie? There are a number of key concepts that are always at the centre of our supervisory activities. “Stability” and “security” are definitely on this list. In line with our mandate, our first objective is to ensure that the financial system and the companies we supervise are secure and stable – that they are resilient to stress. That is exactly what we want to measure, using multiple scenarios that we develop ourselves – including even contradictory scenarios. This is classic prudential supervision. Only more forward-looking – in “what if” mode.

Our second objective is to focus on the operational stability and security of the companies we supervise. How well, for example, are banks and insurers protecting themselves against cyber attacks and internal security incidents? How resilient and reliable are their technology platforms? Institutions that do not remedy gaps in their IT security risk suffering substantial losses, are putting their reputations on the line and – in a worst case scenario – could damage the stability of the financial system. This risk is very prevalent, and it is growing fast. I am not sure if we are all adequately prepared for a truly serious security incident. As supervisors, we must also bear in mind that the fragmentation of the value chain is changing companies’ risk profiles – especially due to the far-reaching outsourcing of activities and processes. But we now have the authority to directly inspect companies providing outsourced services, and that is precisely what we intend to do.

As our third objective, we also need to identify at an early stage the companies that have the potential to end up in serious difficulties: weak companies, companies with problematic business models, inadequate control systems or insufficient governance. A nice facade and apparently plentiful revenue can sometimes hide serious problems. We want to identify such problems in good time to ensure that we can take the necessary steps without delay.

Our new Focus Units are helping us take a holistic view of potentially problematic companies. The Focus Units were launched in August – you could say we began our work at BaFin together – and are already supervising 17 banks, insurers, securities firms and payment service providers. In addition, BaFin is setting up a task force that can immediately be called into action in urgent cases and can carry out forensic inspections.

We are also stepping up our efforts to combat money laundering. The risk of being misused for money laundering purposes is particularly high in the financial sector. Our fourth objective is to minimise this risk by requiring all companies to have risk-adequate control systems in place. In particular those banks with a greater degree of money laundering risk will receive our special attention. Here too, we want to stay one step ahead – not just react. To this end we will be significantly increasing our staff in the area of money laundering prevention.

In the past, we were understaffed in this area, as were many other authorities in Europe. Altogether, I have the impression that the problem has been underestimated in many European countries. Which is all the more reason for me to welcome the fact that this issue is now being addressed more intensively at the European level. And given that money laundering is a cross-border issue, this is the only way to tackle the problem with any real promise of success.

Ladies and gentlemen, the relationship between consumers and providers sometimes resembles that of David and Goliath – with the crucial difference that it is rarely the providers who end up going down. Our fifth objective is to actively support consumers. This means, for example, helping to correct the information imbalance between providers and consumers. We want to help ensure that the public is generally better informed about financial issues. This is something we are already doing – but we want to better tailor our consumer protection activities to the needs of the various consumer groups and to make use of new information channels such as social media. Essentially – and we will not be able to manage this on our own – this is a matter of enabling as many consumers as possible to protect themselves and make informed decisions. Furthermore, we will warn retail investors against risky and dubious products and practices and also directly intervene wherever there is no alternative. At the moment, for example, we are observing the increasing interest in the world of cryptocurrencies with concern: Bitcoin et al. are still highly speculative.

Our sixth medium-term objective is to establish an effective financial reporting enforcement process. Events involving Wirecard revealed the weaknesses in the current two-tier system. Starting in 2022, BaFin will assume sole responsibility for financial reporting enforcement. We will be sending twice as many staff members into action as in the two predecessor teams put together: approximately 60 employees will be working in BaFin’s financial reporting enforcement directorate. All in the interests of ensuring a clean capital market. Financial reporting enforcement is not an end in itself. It is a risk-based tool to protect investors. Here, too, we will have a preventative approach. This, by the way, is true for our market supervision as a whole. We want to deter dubious and fraudulent providers.

As far as sustainability is concerned – which is the subject of objective number seven – we will focus on analysing and mitigating financial risks. It is financial risks we are interested in, such as stranded assets on a bank’s balance sheet or in an insurer’s investment portfolio. This should not be mixed up with environmental policy objectives which belong in the political world. We will also advocate transparency and focus on the quality of sustainability-related disclosures. Furthermore, we want to prevent misleading marketing practices in selling products to consumers. The criteria for “green” financial products need to be clearer.

BaFin has taken an initial step in this direction and drafted a guideline for sustainability-oriented investment funds. We’ve taken a few punches for this in terms of public criticism. But I would say we are generally on the right track in this regard. Are we being overhasty? Well, we are certainly faster than others. We want to ensure that investment funds advertised as “green” are indeed green. Otherwise, we will soon have an entire generation of disappointed investors. And that would ultimately jeopardise the opportunity to contribute to the transformation of the economy. In this regard as well, we are talking about prevention – specifically in our product authorisation procedures.

Digital innovation offers companies and customers new possibilities – in terms of both costs and benefits. Since innovation is not only helpful, but also essential for the future of the financial industry, we want to play a supporting role here – that is objective number eight. We want to understand and analyse new technologies and incorporate our findings directly into our supervisory practice. We will also carefully examine processes that are based on artificial intelligence. We will be very careful to ensure that consumers can benefit from technological innovation and that they are not unduly exposed to technology-driven risks.

These changes around us not only require new knowledge and new processes, we also need to update our supervisory culture – which is the focus of objective no. 9. We need to be faster. And our actions must be more holistic, more integrated and more forward-looking. But not only that. We also need the courage to make tough decisions. Even under time pressure, and even if responsibilities are not clearly defined and not every detail can be clarified. Don’t get me wrong: we are not rewriting any laws, and we are not going to get carried away. This simply means exercising our discretion on the basis of the best available information. This is our duty as a supervisor.

For all the technology: supervision is, and will always be, a people business. People are the ones making the decisions. For this reason, our tenth medium-term objective is to be an attractive employer for highly qualified personnel. We want to ensure that both experts and those with managerial ambitions have access to equivalent career opportunities. In short, we want to continue developing the strengths of our staff so that together we can ensure our supervisory activities are highly effective.

Ladies and gentlemen, our objectives may not be very surprising: they are based on our mandate, and they reflect the developments, risks and opportunities on the financial markets. But it is important for us to have a solid, consistent and transparent basis for our actions. We intend to make significant progress in all ten of these priority areas over the next four years. It will be difficult to measure this progress, but that is the nature of preventative supervision. Our situation is a little similar to that of a football referee: people often only notice we are there when we make a wrong call!