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Supervisory Programme 2019: Securities Supervision


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BaFin’s Securities Supervision Sector had only completed part of the journey when, together with the other Sectors, it first published the supervisory priorities for 2019 at the end of 2018. The financial year still lay ahead, and the major hurdle of implementing the priorities still had to be cleared. The time has now come to take a look at the past year and determine to what extent the priorities were successfully put into practice and the limited resources available to financial market supervisors efficiently used in 2019.

Monitoring compliance with the PRIIPs Regulation

To monitor whether those preparing the documentation under the Regulation on Packaged Retail and Insurance-Based Investment Products (PRIIPs Regulation) have been complying with the rules, BaFin concentrated its examination last year on selected key information documents (KIDs) for insurance-based investment products and also paid particular attention to the specific features of PRIIPs that offer investors multi-option products (MOPs). If deficits were identified, BaFin worked to ensure that corrections were made by those responsible for the KIDs. On the basis of random checks, BaFin also examined whether the valuation methods used for calculating the data for certificates in the KIDs were correct. To clarify uncertainties in the market, BaFin also published a Guidance Notice on the classification of corporate bonds as packaged retail investment products.

Monitoring compliance with MiFID II/MiFIR

A key area of the supervisors’ work last year consisted in taking a closer look at the second Markets in Financial Instruments Directive (MiFID II) with regard to investor protection and secondary market transparency.

To find out more about the current level of compliance, BaFin repeated a market survey in January 2019 that it had already conducted immediately after MiFID II’s entry into force on 3 January 2018 and transposition into national law. With the same focus and target group, BaFin wanted to establish in 2019 whether the investment services institutions had, in the past twelve months, remedied supervisory deficiencies that had come to light during the initial survey. In the second market survey, BaFin also concentrated on areas of particular importance to consumers, such as ex-ante cost information, suitability reports and the recording of telephone conversations (taping). BaFin has taken the findings into account in its ongoing supervision since then and brought the deficits directly to the attention of the institutions concerned.

In order to gain an impression of how satisfied or dissatisfied investors are with the new requirements of MiFID II and the PRIIPS Regulation, BaFin commissioned the market research institute forsa to carry out a survey of 3,800 consumers for the year 2019. The survey focused in particular on ex-ante cost information, the suitability report, taping and the key information documents (KIDs). The result: many investors assessed the new regulations, such as ex-ante cost transparency, as positive because they found them helpful when making decisions.

At a glance: MiFID II in BaFinJournal

In 2018, BaFin published a series of expert articles on its website explaining the most important changes introduced by the second European Markets in Financial Instruments Directive (MiFID II) from a consumer perspective. These changes concerned taping (expert article of 4 October 2018), the disclosure of information on costs and charges to clients (expert article of 1 October 2018), inducements received by banks from third parties (expert article of 24 September 2018) and the suitability report (expert article of 17 October 2018).

MiFID II intensified the regulation of the secondary markets by introducing additional transparency requirements – these too were a priority of BaFin’s supervision in 2019. Last year, for example, BaFin examined the quality of the transparency data and the costs associated with the provision of market data by trading venues and approved publication arrangements (APAs). This examination showed that further efforts were needed to improve data quality in the complex regulatory and technological environment and that the data cost requirements had yet to achieve the desired effect from the data users’ perspective. BaFin also contributed towards achieving a common European understanding on the implementation of provisions. One of the issues here was, for example, transparency requirements for transactions on futures exchanges.

Strengthening BaFin’s profile in collective consumer protection

To inform consumers directly and thereby strengthen collective consumer protection, BaFin addressed and discussed several topics relevant to consumers in 2019 in expert articles published on the BaFin website. For example, it recommended caution in dealing with blind pools, certain direct investments and multiple subordinated loans and explained several types of certificates (see expert article of 10 July 2019).

Other publications that highlight BaFin’s work in the area of consumer protection and aim to strengthen consumer competence in questions of finance are the brochure on basic rules for investing “Grundregeln der Geldanlage” and BaFin’s investment primer written in simple language “Das kleine ABC in Leichter Sprache: Geld-Anlage”, which has been completely revised.

BaFin also attended a number of trade fairs in 2019, such as the “Börsentage” in Hamburg, Berlin, Munich and Frankfurt and the investor fair “Anlegertag” in Düsseldorf. BaFin also took part in the World Investor Week that aims to inform consumers throughout the world about financial issues. In November, BaFin invited representatives from consumer protection organisations and associations and from the finance industry, research/academia and politics to its Consumer Protection Forum at which information and views were exchanged on consumer protection on the financial market in the age of digitalisation and sustainability.

In 2019, three “digital meet-ups” (Digitale Stammtische) were also staged by BaFin in which information was provided on the topics of “Safe travelling”, “Direct investments” and “Digitalisation in the financial world – new possibilities, new risks”.

Preparing the implementation of the EU Prospectus Regulation

Since 21 July 2019, the main sections of the EU Prospectus Regulation and accompanying Commission Delegated Regulations (EU) 2019/979 and 2019/980 have been in force. In addition, the amended Securities Prospectus Act (WertpapierprospektgesetzWpPG) also came into effect on 21 July 2019. In 2019, BaFin accompanied these regulatory developments at all levels by making preparations for the new rules and transitional provisions, training its staff and informing the public through publications, lectures, events and workshops. It is also engaged in dialogue with associations and affected companies.

Dealing with new forms of capital market instruments

Crypto tokens – in particular Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) – were another priority area of BaFin’s supervision in 2019. To assist issuers of crypto tokens in classifying their tokens in accordance with the relevant legal requirements regarding prospectuses and authorisation, BaFin’s Securities Supervision Sector published a Guidance Notice in November 2019. This Guidance Notice also provides information on BaFin’s procedures, thus helping the supervisory authority to process preliminary enquiries even more efficiently and promptly. BaFin continues to receive vast numbers of preliminary enquiries, which in turn underscores the need for more information on issues such as the qualification of financial instruments as securities under the EU Prospectus Regulation or the WpPG, the qualification of assets as capital investments under the Capital Investment Act (VermögensanlagengesetzVermAnlG) and possible authorisation requirements under the German Banking Act (KreditwesengesetzKWG), the German Payment Services Supervision Act (ZahlungsdiensteaufsichtsgesetzZAG) or the German Investment Code (KapitalanlagegesetzbuchKAGB).

ESG aspects in asset management

To gain an impression of how asset managers implement ESG (Environmental, Social, Governance) aspects in practice and to what extent they have already integrated them into the business processes of their companies, BaFin’s investment funds supervisors visited selected asset management companies in 2019 and also organised a round table with fund experts and ESG data providers.

In addition, the investment fund supervisors held presentations at fund industry events. In 2019, BaFin published a Guidance Notice on dealing with sustainability risks.

Supporting ESMA in achieving European convergence in supervisory practice

BaFin is contributing in various ways to the convergence activities of ESMA in all subject areas. Supervisory convergence means creating a shared supervisory culture, ensuring consistency in supervisory practices and guaranteeing standard procedures throughout the European Union (see expert article of 31 August 2018). The ESMA Regulation was amended last year during the review of the functioning of the European Supervisory Authorities (ESAs) and enacted on 1 January 2020. BaFin was involved in incorporating the adjusted convergence framework into the concrete work processes of ESMA.

In two peer reviews of the national supervisory authorities on data quality in connection with the European Market Infrastructure Regulation (EMIR) and on suspicious transaction and order reports (STORs) under the Market Abuse Regulation, BaFin was part of the assessment group in each case and was one of the supervisory authorities that was visited on-site.

In 2020, BaFin is also addressing specific priority areas. However, in light of current developments such as the coronavirus crisis, these areas are being redefined.

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