A high-performing financial system needs different providers and business models,” said Bundesbank Executive Board member Lutz Lienenkämper at the third symposium on the regulation of investment firms in the capital markets union in Frankfurt am Main. One of Germany’s strengths as a business location is that its almost 700 investment firms are highly heterogeneous. They will play a key role in the Savings and Investments Union, for example by advising investors, managing assets, and ensuring liquid securities markets. 

At this year’s symposium, representatives from academia and prudential supervision spoke on topics including risk management at investment firms as well as ESG and crypto-asset services in supervisory law. These topics were explored from both a German and European perspective.

Common European rules and practice

Lienenkämper highlighted the importance of close collaboration between national and European supervisory authorities: An institution that operates across borders first experiences Europe in its contact with the authorities. It must be able to rely on the same matters being assessed according to the same criteria everywhere. In addition to uniform rules, this also requires, in particular, common supervisory practice and this is achieved through direct collaboration, said the Bundesbank Executive Board member. This is being addressed by the European Commission’s market integration and supervision package. The measure of its success is simple: everyday market access for firms and investors must actually be made easier, he stressed. 

Lienenkämper: “Capital market access and investor protection go hand in hand”

More people will make use of the capital market only if they have trust in it, Lienenkämper said, arguing in favour of better protection for investors. In addition, the general public needs better financial literacy: People will only be able to take advantage of better investment opportunities if they are able to assess the opportunities, risks, and costs. 

With its many years of experience in the field of financial literacy, the Bundesbank is contributing to the Federal Government’s new financial literacy strategy, amongst other things. Lienenkämper pointed out that this topic is also personally very close to his heart, as financial literacy helps people to be self-determined when making decisions about investments and old-age provisions. It strengthens their independence and participation.”

Cultural change in risk management

In his speech, Lienenkämper welcomed the new risk management requirements, especially for investment firms, which will apply from 1 January 2027. The underlying idea is right: investment firms are not small banks. They need a framework that is suited to their own business – not a downsized version of a different framework. Previously, the rules for banks were applied to investment firms accordingly. At the same time, the framework remains aligned with the rulebook for banks.

The new rules are oriented to a greater degree around principles. According to the Bundesbank Executive Board member, it is now a matter of ensuring uniform supervisory practice. To this end, the Bundesbank will contribute its findings from ongoing supervision. The aim is to set out comprehensible standards and establish reliable dialogue with institutions, said Lienenkämper. Orientation around principles requires judgement on both sides: Institutions must be able to justify why their solution is appropriate. Supervisors must recognise appropriate solutions, even if they are not the same everywhere.”

Exchange on practices and trends

Representatives from supervisory authorities shared their experiences from practice. Amongst other things, they spoke about the challenges faced in supervising investment firms in Germany, France, and Luxembourg. The focus was also on the question of what is needed for effective and proportionate supervision from a European perspective.

One panel was dedicated to the new requirements for risk management. The participants discussed the improvements and challenges that could arise for small and medium-sized institutions. 

In addition, from the perspective of supervisors and firms, the participants explored questions arising from the safe custody of crypto-asset services by investment firms. 

This was the third symposium held by the Bundesbank’s University of Applied Sciences and the University of Basel. It provides experts with a platform to exchange information on current supervisory trends with regard to investment firms.