Germany is one of the most powerful EU states, and it does not lag behind in Forex trading in Europe. As a state known for honesty, punctuality, accuracy, and perfectionism, Germany tries to transfer all of these qualities to the financial capital market by inferring strict policies on broker dealers and financial securities companies.
The BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht or Federal Financial Regulatory Authority of Germany) is the regulation agency to go to if you need a Germany-based financial dealings licence.
Banks, financial services dealers, insurance companies, and securities trading are overseen by the BaFin agency. Integrity and stability of the German financial market is their overall task.
They work by the motto that investors, bank customers, and insurance policy owners should have trust in the financial system and that they can ensure it by keeping the German market stable and safe.
The BaFin acts on the basis of relevant laws and expects the market participants to abide by the law.
Bonn and Frankfurt am Main are the seat addresses of this public institution with over 2000 employees.
Their management consists of the Executive Board of five members. The Board counts four chief executives (one for each branch: securities supervision, bank supervision, insurance supervision and human resources) with the President on top.
The BaFin is not funded from the state budget but from fees and contributions of their client companies and businesses (banks, brokerage companies, insurance companies, etc.).
BaFin’s Client Base
They regulate 1,850 banks, 680 financial services organizations, 30 pension funds and ca. 590 insurance companies. Since they oversee solvency, they make sure that their clients fulfill their financial obligations.
Monitoring of the overall market enables them to enforce fair and transparent market conditions for all participants. As Germany is the EU leader, BaFin participates in many European bodies advocating for a single European financial market.
They have an additional task to promote investor protection. On that behalf, they’ve created a helpline or service support for consumers where people can make enquiries about their financial future regarding pensions, insurance, etc. They also take on complaints about banks and companies and if they can, they exercise influence over these institutions urging them to rectify their errors. Sometimes, they just have to explain to people that there is no legal basis for complaints.
On behalf of investor protection, they promote topics like pension provision and investments since consumers take more and more responsibility for their financial future.
Who is under the BaFin Supervision?
Talking about banks, universal and specialists banks, big and regional cooperative banks, and saving banks are among BaFin’s clients. Some of the most prominent names like Deutsche Bank belong to their customer base.
Only authorized companies can offer their services, and the directors or mangers of these businesses need to have the necessary qualifications. They are also bound to comply with the law. Banks, for example, have to have the capital solvency to cover potential risks.
Nevertheless, BaFin is not responsible if a bank ends up in bankruptcy, in case of which, deposit guarantee schemes save the most of customers’ deposits.
In a similar way, they ensure that the insurance business runs smooth. They expect insurance institutions to meet the legal and financial obligations that are managed by reliable and qualified directors.
Monitoring Securities
Fair and transparent market conditions are the utmost core principles of securities trading. The BaFin aims to prevent illegal trading, insider trading, malpractice and manipulation. If there is a reason for suspicion, the regulator is authorized to act.
They supervise if the BaFin regulated companies and their shareholders comply with the current laws and regulations. The shareholder must report if they own at least 30% of the voting rights and if so, they are obliged to sell their shares to other shareholders.
In addition, BaFin is involved in accounting supervision of publicly traded companies together with the Financial Reporting Enforcement Panel.
BaFin Registered Forex Brokers
In terms of solvency monitoring, the BaFin is responsible to make sure that BaFin regulated brokers meet their payment obligations to their clients. Brokers also need to prove that they possess credit-worthiness. If a Forex broker is not credit-worthy, it suggests that maybe the broker is not stable. The BaFin makes sure that Forex brokers are liquid, that the risk control is appropriate, and adequate management strategies are in place.
The BaFin regulated Forex brokers have to submit periodic audit reports and financial statements for assessment.
BaFin tries to keep track of the companies to avoid abuse and price manipulation. They have free hands to investigate and prosecute Forex brokers who are suspects of illegal dealings that harm the integrity of the market.
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Application Process
To apply for certification, a broker must meet the minimum capital requirement to cover credit, market and operational risks. In that way, customers’ positions are protected, and withdrawals can run smoothly. The Commerzbank and Deutsche Bank are the banks were most of the brokers maintain their accounts while the banks itself are big players in the Forex market.
The audit reports must include the information like the state of liquidity. Regarding employees, BaFin Forex brokers must have at least two executive directors or senior managers with the adequate knowledge and professional experience, who have never been blacklisted by the Federal Central Register and the Central Commercial Register.
The applicant broker companies also have to submit a business plan with detailed information on the main idea of the business, organizational structure, and control systems.
Interested Parties and the Public
The BaFin maintains a website where they occasionally release information on unregulated Forex brokerage companies, but they also have a mechanism where individuals can request information about the specific broker they are interested in, before becoming the broker’s clients.
As expected, they also keep a list of all Forex brokers registered with BaFin and provide details on their status upon request.
Germany is a well-regulated country in general, and as such, they maintain a secure financial market for their investors. If you are looking to become a trader and investor in Germany always look for a BaFin registered Forex broker in order to be able to participate in the market under fair business conditions whereby you can enjoy the safety and legal protection against crooked brokerage firms.