Prior to 2002, in Germany the regulation of the financial industry was undertaken by three separate agencies. In May 2002 BaFin was formed, following the passing of the Financial Services and Integration Act. The aim of the Act and the merging of the three agencies was to create one integrated financial regulator that would be able to cover all financial markets. The agencies that merged together were the Federal Banking Supervisory Office, the Federal Supervisory Office for Securities Trading, and the Federal Insurance Supervisory Office.
BaFin was given further responsibility following the passing of the Banking Act in 2003 with the aim of increasing customer protection and improving the reputation of the German financial system. The extra powers included monitoring the credit-worthiness of financial institutions and collecting detailed information about them. This particular area of responsibility was shared with the Bundesbank. Currently, BaFin is experiencing a kind of transition, as the responsibility for banking supervision is being taken over by the European Central Bank.
What you can expect from BaFin Forex brokers
BaFin regulated brokers have to comply with some of the highest standards out there. The supervision of BaFin falls under the remit of the German Federal Ministry of Finances, which means a trader can be certain that BaFin (Federal Financial Supervisory Authority) is overseeing the regulation and auditing member companies in the best possible way. BaFin Forex brokers are also required to comply with regulatory guidelines that form part of the German Securities Trading Act. BaFin also monitors the activities of its member companies to ensure they adhere to standard rules of conduct. Because of the supervisory powers it holds, BaFin has been very successful in reducing financial fraud, which has led to an increase in trust and confidence from consumers. BaFin has actually been more successful at reducing the level of fraud than almost any other regulatory agency in the EU.
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Other requirements imposed on a BaFin Forex broker include the need to submit regular financial reports and to allow third-party auditors to examine their books. A certain amount of capital has to be kept separate, and a BaFin-regulated broker has to be able to prove that this is being done. The capital has to be kept in segregated German bank accounts. Should a Forex broker regulated by BaFin have to be liquidated, then account segregation will ensure that client funds are affected.
Is BaFin different from any other financial regulatory body?
There is one aspect of BaFin’s service that makes it stand out from any other European agency, and that is the fact that it is happy to offer assistance with customer complaints. Agencies such as the FCA in the UK and CySEC in Cyprus do not offer such help. BaFin actually encourages consumers to get in touch when they are having a problem with a BaFin-regulated broker. There are a number of customer hotlines which are open during normal office hours, and these are manned by a team of well-informed support staff.
As well as working to protect consumer interests, BaFin also looks to provide a number of member services to help maintain members’ integrity. Individual investors and financial firms are treated equally, and both are considered important.
Things haven’t always been so rosy for BaFin
We’ve already mentioned that the framework of regulation provided by BaFin is considered to be one of the best in the world, but it hasn’t always been such a garden of roses. Since its formation in 2002, BaFin has had to weather a number of corruption scandals. 2006 saw several internal board members charged with embezzling funds. Legal proceedings did eventually indict them, but BaFin suffered further criticism following the financial crisis of 2008. Following the leaking of an internal document it was discovered that several banks had issued some bad loans and a number of “bad businesses” had accrued debts of more than 800 billion euro. Of course, this sent some serious shockwaves through the German economy and undermined the trustworthiness and efficiency of BaFin.
Despite these moments of poor regulation, BaFin has nevertheless been very instrumental in improving the Germany economy. It has been able to reduce the number of cases of financial malpractice, and developed a code of conduct to ensure the integrity of German financial markets. German authorities have also been able to reduce the level of corruption by overseeing the day-to-day operations of BaFin and ensuring that it is accountable. A Federal Chamber has been created by BaFin, made up of lawyers, notaries, tax advisors, and accountants, to watch over all illegal financial activities such as financial fraud and money-laundering.
Is it easy to find BaFin-regulated Forex brokers?
If you pay a visit to BaFin’s website you will find a list of financial companies and brokers regulated, so it’s easy to just pick one or two from the list, and then compare other factors you should be looking for when picking a Forex broker. There are also regular press releases and circulars that provide details of any legal action that has been taken against a financial company. We will, or course, mention in our Forex broker reviews whether a broker is regulated by BaFin, in order to help you find the right one. It is also possible to contact the agency directly and ask for advice; and there is a section of the website where you can find out about the authenticity of a company.
If a Forex broker is regulated by BaFin, or indeed any other regulatory body, you will find this information clearly displayed on individual websites, and if you are unable to find it there should be no problem getting in touch with the broker and requesting its licensing details. If you can’t find any mention of regulation and the broker is unwilling to discuss it, this is a surefire sign there is something shady going on. Even if there is regulatory information, we would strongly advise traders to check its authenticity, as there have been a number of cases where the information has been completely untrue.
