Politics

DAX Supervisory Board members against compulsory replacement of auditors

In the mind of EU internal-market Commissioner Michel Barnier, auditors are in future to be appointed by governments. The Supervisory Boards of German companies, however, want to continue choosing their auditors themselves, and also agreeing auditors’ fees themselves. The centralization would take power away from shareholders, says Frankfurter Allgemeine Zeitung, quoting a letter from the DAX groups to the Commissioner. The Supervisory Board members are however in favour of verifying after at most seven years whether there might not be alternatives to today’s auditing companies.

Tougher penalties for “creeping up”

Hostile takeover attacks like Porsche’s on Volkswagen, Schaeffler’s on Continental or the present one by ACS on Hochtief are to be made more difficult in future. In early December the Bundestag finance committee debated tougher penalties for so called creeping-up. The concealed building-up of share positions could according to these be the object of deterrent penalties. On the committee, legal experts had proposed amendments to the Securities Trading Act (WpHG) providing that shareholders would in future not just have to indicate actual shareholdings of over 3%, but also disclose when they had options through special instruments on shares to a value of over 5%. One possible punishment for concealment might be for the Federal Institute for Financial Services Oversight (BaFin) to prevent the shares from option transactions actually being handed over. If the plan should emerge only once the shares had already been transferred, BaFin could block these securities’ voting rights for a year. To date, the fine on such moves was only up to €500,000. Social Democrats had called for it to be possible in future to require a takeover bid not just when 30% is exceeded, but also at 50%, but they failed.

Bundesrat decides bank levy

In late November the Bundesrat agreed to the Act to reorganize and restructure financial institutions, thus starting off the long-controversial bank levy. As from 2011, rehabilitation procedures are planned, to help remove problems facing credit institutions well before threatened bankruptcy proceedings. Before this, interventions in rights of creditors and the inclusion of shareholders are planned during reorganization procedures. The restructuring and ordered winding-down of an institution of systemic relevance is to be financed through a fund into which the financial sector will have to pay to through a bank levy. Here savings banks and cooperative banks are explicitly not excluded from paying into the fund, as had initially been requested by the Länder of Baden-Württemberg and Hessen. After a pronouncement by Federal Chancellor Angela Merkel (CDU), the mediation committee was not called in here – as previously threatened. The fund should keep reserves amounting to 70 billion euros, and payments are to be progressively graded. The annual amounts will be according to the bank’s business volume and size, as well as the degree of involvement of the institute concerned in the financial markets. It was also decided that the pay of employees working at state-supported banks would be limited to €500,000 per year. With State holdings of over 75%, additionally, variable payments, such as bonuses, would be entirely eliminated. Finally, company-law liability of officers of listed companies infringing their obligations would be doubled to ten years.

Rearrangement of bank oversight

The CDU and FDP agreed in mid December on a reform of national bank oversight. By contrast with the coalition paper from the black-yellow government, bank oversight would not be brought under a single umbrella. Originally the FDP wanted to hand banking oversight completely over to the Bundesbank. Plans are now for the Deutsche Bundesbank and the Federal Institution for Financial Services Oversight (BaFin) to continue to share banking oversight in future. Here BaFin will be under supervision from the Federal Ministry of Finance, while the Bundesbank will also in future continue to be independent of political instructions. After the keynote paper now to be drawn up by the Federal Finance Minister, the Bundesbank is to be responsible for system stability, while decisions in individual cases such as removal of bank executives or closure of a credit institution are in future to be taken by BaFin. Supervision of securities markets and insurance will also continue to be under BaFin. Critics are calling the four key points presented more of a mini-reform than a real reform. An independent foundation for financial products resembling Stiftung Warentest is also to be brought in.

Transparent risk-management at banks

The Federal Institution for Financial Services Oversight (BaFin) published new minimum requirements on banks’ risk management (MaRisk) in mid-December. The provisions apply immediately and must be implemented by all credit institutions by the end of 2011. The banks are now being called on to formulate specific parameters for sustainable business strategies. Alongside targets, measures for reaching them are also to be laid down, and risks to be taken into account. That means that in future company management will come into the focus of BaFin supervision. Specifically, banks must in emergency cases be able to meet their liquidity needs for at least a month from sustainable reserves. Additionally, they are to keep available highly liquid assets that can be sold at any time without major loss of value. Moreover, BaFin is also tightening up requirements on banks’ stress tests. Thus, as part of so-called inverse stress tests, events and developments able to bring down a credit institution are to be identified.

EU tightens up information duties on investment advisers

In late November the EU Commission, following two years of discussion, published plans for how in future it is to combine distribution and the information obligation in connection with private financial investments in the EU. To date there exists a patchwork of national rules and sector-specific EU provisions. Irrespective of whether a bank, an insurance representative or an independent adviser in future sells insurance, funds, certificates or savings accounts, in future commissions and conflicts of interest are to be disclosed on the same basis Europe-wide. To date, for funds and certificates, the financial market guideline Mifid applied, and this is now to be extended as a standard to all products. Ultimately the investors are to be able to compare costs, chances and risks on a double sheet of paper. The plans are to be given statutory form before the end of 2011. By the end of January the financial industry and also consumer protection groups are to be able to take positions on the proposals.

Tax from financial transactions to come after all

The topic of a tax on financial transactions is not yet dead, despite the German government’s failure on the international stage and in EU circles. At a meeting of Finance Ministry tax experts with financial-industry associations in mid-December, the tax was fleshed out, with the lowest figure of 0.01% being set for the tax rate. The Minister is not concerned with producing a guiding effect on financial transactions. Instead, the tax should raise additional revenue, says the Ministry. Federal finance minister Wolfgang Schäuble (CDU) is planning to tax all financial products, including derivatives and OTC (Over the Counter) products not traded on the exchange. While the associations reject the tax, they want as a minimum consensus to prevent the taxation of pensioner products, funds and savings accounts. It is however currently unclear when and how the tax is to become due. Schäuble has already pencilled in revenue from the tax amounting to 2 billion euros for the 2012 budget. Experts are expecting annual takings of up to 12 billion euros. Opponents of the tax fear that if it is introduced unilaterally by the Federal Republic of Germany, financial transactions might move out to other countries. The object of the tax is to make the financial industry share in the consequences of the crisis. Especially low-margin transactions and computerized trading could be limited through the tax, which could contribute to stabilizing the markets.