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BaFin (Federal Financial Supervisory Authority)

BaFin supervises the German financial markets and ensures they operate as per global AML policies and standards

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Monetary crime poses a serious threat to financial as well as corporate entities which is why it needs to be addressed properly. This is why BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) or the Federal Financial Supervisory Authority in Germany came in force to combat money laundering and terrorist financing concerns. 

As of 2021, BaFin is currently led by Mark Branson, who is also the former CEO of the Swiss regulator, FINMA. BaFin is led by a board of four other executive directors along with Branson and has headquarters in both Frankfurt and Bonn. 

What is BaFin?

BaFin is an independent regulatory body responsible for governing the German financial sector. It was created to mitigate money laundering and empower AML/CFT efforts to reduce monetary crime. Established in 2002, it regulates entities like banks, insurance firms, cryptocurrency exchanges, etc. operating in the financial market. It came into existence by the merger of three state entities: the Insurance Supervisory Office, the Banking Supervisory Office and the Supervisory Office for Securities. 

What does the Federal Financial Supervisory Authority do?

Apart from being the federal financial watchdog, BaFin acts as an intermediary between state agencies with control over German banks, the stock exchange market, insurance businesses, and companies providing financial services. Identifying and taking down potential money laundering instances in Germany’s financial markets is one of the main incentives for BaFin’s creation, ultimately promoting the global motive of anti money laundering (AML) and countering the financing of terrorism (CFT). 

Responsibilities of BaFin

Being an autonomous entity and one of the largest supervisory authority in the European Union, it directly reports to the Federal Ministry of Finance of Germany. It supervises and regulates all kinds of financial institutions in Germany emphasizing the need for safer financial operations and better stability of the industry. As per its supervisory role defined in the Securities Trading Act, the Insurance Supervision Act, and the Banking Act, it has authority over a wide array of financial institutions. These responsibilities include:

  • Acquiring transactional information from financial institutions and evaluating them for possible risks in collaboration with Deutsche Bundesbank
  • Issuing licences to new banks and financial organisations to carry out business operations in Germany
  • Conducting ongoing monitoring and supervisory controls to make sure BaFin-issued rules and regulations are fully enforced 
  • Assessment of banks and financial institutions by performing internal, external audits and review processes

What is the AML/CFT Policy of BaFin?

As an important member state of the Financial Action Task Force (FATF), BaFin takes charge as both a regional and global watchdog in ensuring AML/CFT compliance. In this regard, it devises policies and procedures to implement FATF’s 40 Recommendations so that financial institutions can appropriately combat money laundering risks. The Department for the Prevention of Money Laundering at BaFin is designated to supervise financial organisations as per Section 50 of the Money Laundering Act. Following a list of requirements banks must follow to comply with BaFin’s AML/CFT rules:

  • Incorporate Know Your Customer (KYC) diligence during customer onboarding
  • Develop an AML/CFT program based on a risk-based approach  
  • Screen clients against Politically Exposed Person (PEP) lists
  • Carry out monitoring/screening of new and existing customers using adverse media and global sanction 
  • Designate an official AML expert that presides the AML program

Suggested Reads: 

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AML Non-Compliance Penalties Soaring Sky High in the First Half of 2021

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