MIL OSI Translation. Region: Germany / Deutschland –
Source: Federal Ministry of Finance International / Financial Market
Law to Strengthen Financial Market Integrity
The Federal Cabinet today approved the draft of a law to strengthen financial market integrity (Financial Market Integrity Strengthening Act – FISG) submitted jointly by the Federal Ministry of Finance and the Federal Ministry of Justice and Consumer Protection. The draft law is a decisive step towards strengthening balance sheet control and reforming auditing and tougher action against criminal machinations. With our law for a clean financial market, we ensure that you can rely more on balance sheets and auditors’ certificates. The rules are significantly tightened and the supervisor gets more bite. This is good news for Germany as a financial location and for investors. The law strengthens confidence in the German financial market. My clear goal remains to implement the reforms during this legislative period. Now it’s the turn of the legislature! Federal Minister of Finance Olaf ScholzWith the new law, we are strengthening the quality of the statutory audit with a bundle of measures. We are increasing the auditors’ independence by limiting the maximum duration of audit mandates to ten years. In addition, testing and advice are more strictly separated. We are also tightening the civil liability of auditors. In addition, we are tightening accounting criminal law and accounting offense law. For example, a false “balance sheet oath” by company managers can in future be punished with up to five years’ imprisonment. This also applies to an incorrect attestation from the auditor on the conclusion of a company of public interest. Federal Minister of Justice Christine Lambrecht The Financial Market Integrity Strengthening Act (FISG) implements the central elements of the action plan to strengthen balance sheet control and financial market supervision. Important points of the draft law are: Tightening of the balance sheet control procedure The two-stage balance sheet control process, aimed at the consensual participation of the audited companies, is to be fundamentally reformed. In the future, it will be more state-sovereign. The Federal Financial Supervisory Authority (BaFin) is to be given more competencies and rights of intervention against companies, including Search and seizure rights. In the future, BaFin will be directly responsible for investigations into events and suspicion. In addition, within the framework of the balance sheet control, it is to be given the right to information against third parties, the possibility of forensic audits and the right to inform the public earlier than before about its procedure for the balance sheet control . The division of competencies between the auditing agency and BaFin is being readjusted: the auditing agency is subject to extensive reporting and disclosure obligations vis-à-vis BaFin. In order to ensure the exchange of information between the authorities and ministries involved, which is necessary for the investigation of suspected accounting violations, confidentiality obligations are lifted to the extent necessary. In addition, the financing of the balance sheet control process will also be reorganized. As before, random checks are to be financed through an allocation. The BaFin finances suspicious activity or cause reviews. Stricter rules for auditing The auditors’ independence from the audited company is to be strengthened. From now on, a mandatory external rotation of examiners will also apply to capital market companies after ten years. In addition, the obligation to separate auditing and advice in companies of public interest is to be significantly expanded. Specifically, this means that in future tax advisory and valuation services may no longer be provided for the same company in addition to the audit. The civil law liability of the auditor towards the audited company is to be tightened. When examining capital market-oriented companies, the maximum liability limits are increased by a factor of four (to 16 million euros in the future). A maximum liability limit of 4 million euros is to apply in the future for auditing non-capital market-oriented banks and insurance companies. In the event of grossly negligent behavior on the part of the inspectors, there will no longer be any maximum liability limit in future. This is intended to strengthen the quality of the audit and to provide the necessary incentives for a careful and conscientious examination. Stricter accounting offenses and accounting offenses law Also in the area of accounting criminal law and accounting offenses law, necessary adjustments are to be made in order to be able to punish violations more strictly in the future. A false “balance sheet oath” by company managers should in future be punishable by a prison sentence of up to five years (instead of the previous three years). This also applies to an incorrect attestation by the auditor on the financial statements of a company of public interest. In accounting offense law, the provisions on fines for auditors who examine companies of public interest are to be expanded in content and the range of fines from EUR 50,000 to up to EUR 5 million Corporate governance reform Internal controls in companies are to be expanded. The supervisory board of stock corporations, which are companies of public interest, is strengthened in its competencies and obliged to set up an audit committee. The chairman of the examination board should have a direct right to information from those heads of central departments who concern the tasks of the examination board. Listed stock corporations are to be obliged to set up an appropriate and effective internal control system and a corresponding risk management system. Extended powers of BaFin vis-à-vis companies with key banking functions BaFin is to be given direct powers to intervene vis-à-vis companies in which key areas such Bank and IT functions are outsourced. This allows BaFin to exercise more effective supervision where companies use third parties for important functions. New notification obligations for outsourcing are to be created and an obligation to keep an outsourcing register introduced. In addition, when outsourcing to third countries, BaFin should be able to use a domestic delivery agent. Restriction of private financial transactions by BaFin employees In order to avoid even the appearance of conflicts of interest, private trading by BaFin employees in financial instruments should be largely limited – / Gold investments To protect investors, business models in which an investment is made in precious metals and a return with interest is paid at the end of the term should be classified as an investment and therefore subject to the prospectus requirement in future. This is intended to give BaFin a right to product intervention and to put it in a position to prevent unfair practices more efficiently. Improving the quality of stock market segments and exchanging information The powers of the stock exchanges to sanction violations are to be flanked by law in order to make sanctions more transparent and effective . For this purpose, the exclusion of issuers from the quality segments of the exchange should be made easier in the event of violations and the possibility should be created for the exchange to publish sanction measures taken (so-called naming and shaming). In addition, the exchange of information between BaFin and the stock exchange supervisory authorities is to be improved. Extended powers for the Central Office for Financial Transaction Investigations In certain cases, the Central Office for Financial Transaction Investigations will in future be able to automatically retrieve some basic tax data. In addition, the Central Office for Financial Transaction Investigations should in future be able to collect reports on property-related legal transactions and decisions that are electronically transmitted by courts, authorities and notaries in suitable cases.
EDITOR’S NOTE: This article is a translation. Apologies should the grammar and / or sentence structure not be perfect.