The German banking and financial sector is a highly regulated area, hence, the appointment of a supervisory member is a crucial matter from a regulatory perspective.
The core provisions on vetting members of a supervisory body of an institution are laid down in the German Banking Act (Kreditwesengesetz – KWG), and specified by a guidance notice and certain forms published by the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin).
The vetting provisions are based mainly on the European rules, namely on (1) the Directive 2013/36/EU DIRECTIVE 2013/36/EU of the European Parliament and of the Council of 26 June 2013, on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC; and (2) the Regulation (EU) no. 575/2013 of the European Parliament and of the council of 26 June 2013, on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No 648/2012.
In the following, the cornerstones of the requirements of members of a supervisory body of a German institution should be laid down:
From a regulatory perspective, any member of a supervisory body must be reliable, have the necessary expertise to fulfil his/her control duty and the ability to assess and monitor the respective business, and devote sufficient time to perform his/her duties (Section 25d (para. 1) of the KWG).
For an appointment of a potential new member, his or her reliability, expertise, and whether he or she has sufficient time, will be assessed by BaFin and the Deutsche Bundesbank on a case-by-case decision.
Pursuant to the provisions of the KWG, expertise means that a member of a supervisory body has the professional knowledge to adequately control and supervise the management of the respective institution. Hence, the person in question has to understand the business carried out and be able to assess its risk. Therefore, the potential member must be familiar with the most important legal provisions relevant for the business. However, no specific knowledge is required, but the member must be in a position to recognise any need for advice.
A membership is not excluded because the respective expertise is not given at the point in time of the application. There is an option to acquire the required expertise through further trainings.
Furthermore, the respective member has to prove sufficient reliability. Reliability in the meaning of the KWG will be assumed in the absence of facts establishing a lack of reliability. In this respect, the personal conduct and the business practices of the member in relation to criminal, financial, property-related and supervisory issues will be taken into account.
Also, a member has to disclose possible conflicts of interest since a permanent conflict of interest can hinder someone from performing his or her duties. Members must devote sufficient time to perform their obligations, i.e., find a sufficient amount of time for the excise of the supervisory body function. In this context, the KWG restricts the number of mandates for a member to supervise different institutions according to section 25d para. 3 KWG.
Client Alert 2016-243