The Federal Financial Supervisory Authority (Bafin) is currently particularly concerned with the Ukraine war and the sanctions against Russia.

At the annual press conference in Frankfurt, Bafin President Mark Branson said on Tuesday that the second and third round effects, which are difficult to assess, could become problematic.

The war slows down growth in the world economy, disrupts trade relations, drives up the prices of gas, oil and other raw materials and exacerbates the problem of supply shortages.

Markus Fruehauf

Editor in Business.

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“We are also seeing inflation continue to rise as a result.

which makes interest rate hikes more and more likely," said the Briton and former head of the Swiss financial regulator, who succeeded Felix Hufeld, who resigned in the wake of the Wirecard scandal, as Bafin head in August 2021.

Branson pointed to the risk of a further escalation in the military, trade or energy situation, which could trigger market turbulence.

German regulators have already had to pay tribute to the uncertain environment surrounding the war in Ukraine: They have indefinitely postponed the directive, which has been heavily criticized by the fund industry, with which funds are to be classified as sustainable.

"The current environment is not stable enough for permanent regulation," Branson said.

He reassured the fund industry, which could continue to issue and market sustainable investment products.

Here the supervisor wants to apply the principles that have already been put up for consultation.

Sustainable funds should invest at least 75 percent sustainably and pursue a sustainable investment strategy with at least 75 percent of the assets under management or map a sustainable index.

With these stricter auditing practices, Bafin wants to protect fund investors from greenwashing.

The investment company of Deutsche Bank, DWS, has been exposed to these allegations for some time.

It is said to have shown the volume of sustainable investments to be higher than it actually is.

Unsolvable questions for supervisors

Branson also acknowledged that it was impossible for an overseer to answer policy questions such as the sustainability of nuclear power.

In its criteria for sustainable financial investments (taxonomy), the European Commission, under pressure from some EU countries, above all France, classified nuclear power as a transitional technology and thus as sustainable.

The financial regulator is currently paying close attention, also due to the war, to the cyber risks of banks and insurers.

According to the Bafin, the risk of cyber attacks, which can paralyze the IT systems of the institutes, has increased.

"Cybercrime has become an insanely organized and profitable shadow industry," Branson said.

Russia's attack on Ukraine has increased the risk of cyber attacks, also because there are state-related actors there.

Improving security on this point, including with regard to internal IT security incidents, will remain a constant effort.

In extreme cases, damage to financial stability

According to Branson, such incidents can, in extreme cases, damage the stability of the financial system.

He admitted that the supervisor does not currently know if it is prepared for a serious incident.

The Bafin is therefore in close contact with companies, the Federal Office for Information Security (BSI) and other relevant institutions in order to keep the risk of cyber attacks under control.

Since the beginning of the war, the information from the National Cyber ​​Defense Center has been analyzed daily and the financial industry has been informed about possible attack patterns.

"And we continue to do dedicated IT reviews at the institutions and companies," added Branson.

Another important topic in German financial supervision is the fight against money laundering.

Deutsche Bank's Frankfurt headquarters were searched again last Friday in this context.

The Bafin is also involved in the investigation.

Although Branson did not go into this case or other individual institutions, he emphasized: "Our task is to ensure that the companies under our supervision are sufficiently armed against money laundering." Branson warned institutions involved in prevention to lax about the financial consequences and damage to their reputation, which could be immense, if not threatening their very existence.

The Bafin has been dissatisfied with Deutsche Bank's fight against money laundering for years.

In April 2021, the mandate of the special representative who had been in place in 2018 was extended and expanded after supervisors had criticized the slow progress in prevention.

The current case is said to be about transactions by a member of the Syrian ruling family around ruler Bashar al-Assad, in which Deutsche Bank was only indirectly involved as a correspondent bank.

Investigators are investigating whether the suspicion of money laundering was reported too late.

In the discussion with other European supervisory authorities such as the European Central Bank (ECB) in banking supervision, Branson misses more understanding of the German position regarding the interests of smaller institutions.

Savings banks and Volksbanks are demanding regulation based on the principle of proportionality.

Because of their lower systemic importance, smaller institutions should not be subject to such stringent requirements as large banks.

However, Branson made it clear that there must be internationally uniform rules for large institutes.

"Anyone who is only in favor of national regulations misjudges reality."