Germany has two national regulators that are responsible for authorizing and supervising banks, insurers and certain other financial sector companies  ̶  the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and the German Federal Bank (“Deutsche Bundesbank”).

The BaFin and the Deutsche Bundesbank share supervisory responsibility, but not as a “twin peak” model. Pursuant to section 6 (1) of the Banking Act (Kreditwesengesetz or KWG) and section 5 (1) of the Securities Institutions Act (Wertpapierinstitutsgesetz or WpIG), the BaFin is the administrative authority responsible for the supervision of credit institutions and financial services institutions (under the KWG) and investment firms (under the WpIG). The Deutsche Bundesbank merely assists the BaFin in supervising these institutions. The cooperation of the BaFin and the Deutsche Bundesbank in the institutions’ ongoing supervision is governed by section 7 (1) of the KWG and section 9 (1) of the WpIG, which stipulate that, among other things, the Deutsche Bundesbank shall, as part of the ongoing supervision process, analyze the reports and returns that institutions have to submit on a regular basis and assess whether their capital and their risk management procedures are adequate. Ongoing monitoring of institutions by the Deutsche Bundesbank is normally carried out by its local head offices. In simplified terms, the Deutsche Bundesbank serves as the “eyes and ears” of the BaFin, but the Deutsche Bundesbank also provides input to the decision-making of the BaFin, even if the BaFin retains ultimate responsibility.

Under the EUs Single Supervisory Mechanism Regulation (SSM), the European Central Bank (ECB) carries out clearly defined supervisory tasks to protect the stability of the European financial system, together with the National Competent Authorities (NCAs) of participating member states. The SSM Regulation and the SSM Framework Regulation provide the legal basis for the operational arrangements related to the prudential tasks of the SSM.

The ECB is currently responsible for the direct supervision of approximately 24 German credit institutions representing the most important banks in the country and, as such, replaces the BaFin and the Deutsche Bundesbank under the relevant German supervisory laws. However, the two German regulators still form an important part of the regulatory institutions and participate in the supervision within the framework of the so-called Joint Supervisory Teams.

The ECBs responsibility extends to the following matters:

• Licensing (grant and revocation)
• Significant shareholdings (“ownership control”)
• Capital requirements
• Leverage ratio and liquidity requirements
• Governance
• Audits and stress testing
• Consolidated supervision
• Recovery plans, early intervention in case of breach of supervisory requirements

For the remaining less important credit institutions, the ECB has more limited supervisory powers but is directly responsible for the granting and withdrawal of licenses and the decisions on the ownership control procedure. In all cases, the decision will be prepared by the BaFin, but final decision-making takes place at the level of the ECB. In addition, the ECB has a step-in right in order to ensure consistent application of the rulebook (in consultation with the BaFin) and can also step in at the request of the BaFin.

Financial services institutions (not qualifying as credit institutions under the KWG), investment firms (not qualifying as credit institutions), payment services and e-money institutions, fund management companies, and, most recently added, credit service providers, are under the supervision of BaFin and Bundesbank in all respects.

In relation to recovery and resolution of banks under the rules implementing the EU Recovery and Resolution Directive (RRD), the responsible regulator is the Single Resolution Board (for the significant institutions that are under the direct supervision of the ECB) or BaFin (for the other German institutions).

In the area of insurance, the German national regulator in charge of supervising insurance and reinsurance undertakings and pension funds is the BaFin only. BaFin is in charge of licensing a new or foreign (re-)insurance undertaking or pension fund, it supervises the ongoing business of insurance and reinsurance companies and pension funds in Germany, it exercises the financial supervision over insurance undertakings and pension funds licensed in Germany as well as the legal supervision, possibly in cooperation with foreign insurance regulators in other EU countries, over all (re-)insurance undertakings and pension funds doing business in Germany.

On the EU level, the regulator in charge of the insurance business is the European Insurance and Occupational Pensions Authority (EIOPA). Unlike the ECB, the EIOPA is not in charge of a direct supervision of certain large insurance undertakings, but mainly focusses on the coordination of the national regulators and the rule-making in the EU.

Insurance intermediaries – which comprise, according to German law, insurance brokers and insurance agents – as well as independent insurance advisors are not subject to a direct supervision by the BaFin. Instead, they are licensed by the local Chamber of Commerce and Industry ("Industrie- und Handelskammer" – "IHK") that is in charge of businesses at the place where the insurance intermediary has its main office in Germany. The BaFin only carries out an indirect supervision over insurance intermediaries, since the BaFin is in charge of making sure that insurance undertakings doing business in Germany only cooperate with licensed insurance intermediaries (as far as a license requirement exists). Sanctions for non-compliance with the conduct of business rules for insurance intermediaries are typically imposed, depending on local laws, by the local trade supervisory authority and not by the local IHK.