The German Federal Financial Supervisory Authority (BaFin) issued a draft circular applicable to all credit institutions, financial services firms, investment management companies, payment institutions, financial holding companies and mixed financial holding companies in Germany and addresses the prevention of fraudulent acts.
In accordance with German law, the above mentioned companies “are required within the scope of their proper business organisation and appropriate risk management for the prevention of fraudulent acts to their detriment to establish and update internal rules and suitable business and customer-related safety systems and conduct controls." The purpose is to implement the supervisory standards of the Basel Committee on Banking Supervision.
The prevention of fraudulent acts - as well as the prevention of anti-money laundering and terrorist financing for which specific provisions were laid down - is in the institutions’ own interest; in particular because of the extraordinary damage such acts cause to the banking industry every year. It is also a component of operational risk and forms part of the due business organisation (risk management) of every institution.
The BaFin circular sets out methods and principles for the prevention of fraudulent acts. The BaFin takes a risk-oriented approach which requires an institution-specific preparation of an analysis on the risk of fraudulent acts adversely affecting an institution (or a group) (“risk analysis"). It further provides for “safety measures" that must be focussed on both customers and staff.
The circular is still in draft form; we will keep you updated on any new developments.