BaFin | Financial Regulator of Germany

Functions of BaFin

BaFin was created in 2002 by the merger of three supervisory agencies. The regulator is subordinate to the German Government and cooperates with the German Federal Bank. BaFin’s mandate covers the whole financial sector of the country, including banks. The regulator is financed from licensees’ contributions without the usage of budgetary funds. A license from BaFin is mandatory for all registered legal entities. Each type of service rendered is licensed on separate conditions.

Tasks and purposes of BaFin in the Forex market:

• Grant licenses in compliance with the laws of Germany and the EU, as well as the Markets in Financial Instruments Directive II (MiFID II).

• Oversee and control the banking and non-banking sectors. Monitor licensees’ solvency and ability to fully carry out their obligations.

• Ensure that licensees provide services in accordance with regulatory standards.

• Develop risk reduction mechanisms. Participate in the development of legislation that regulates the interaction between financial market participants.

• Examine licensees’ financial statements on a regular basis.

• Counteract money laundering, illegal money turnover, and other types of forbidden activities.

• Combat financial manipulations and the use of insider information, etc.

• Protect the rights of investors and financial service users.

Compared to other regulators, BaFin has broad powers. Cooperation with financial authorities in both Germany and the EU, enables it to instantly get detailed information about a broker, its subsidiaries, and transactions, and stop any attempted violation. The regulator’s mandate includes all enforcement tools from warnings and fines to initiation of a broker liquidation procedure.

To obtain a BaFin license, a broker has to:

• Follow recommendations in relation to operating capital. Its amount is determined individually, depending on the license type and services offered by the broker.

• Observe the account segregation principle, according to which clients’ accounts are separated from the broker’s accounts.

• Have at least 2 residents of Germany in its top management.

• Provide a detailed scheme of anti-crisis measures in case of force-majeure or similar circumstances, including the protection of clients’ interests.

• Complete yearly disclosure of the company’s financial state and transactions and annual audits, as mandated by BaFin.

BaFin can conduct unscheduled inspections and change the amount of reserved capital, depending on the broker’s capital turnover.

Information on the official website

Overview of the BaFin website:

• Upper main menu.

  

  BaFin Review — Section of the website

• News and useful links. Information about investigations, warnings, applied sanctions, changes in legislation and regulations, etc.

  

  BaFin Review — Section of the website

• Footer. Here you can find the site map, basic conditions and terminology, documents about personal information security, etc.

  

  BaFin Review — Section of the website

Main menu structure:

• Companies is a section for legal entities such as banks, startups, insurance and investment funds. There are also regulations and guidelines here.

• Consumers is a section for clients of brokers and other licensees. Here you can file a complaint, find information about warnings, discover common fraud schemes, etc.

• International is a section about European supervision and international cooperation.

• Laws & Regulations. Administrative acts, legal issues, and recommendations.

• Publications & data. Annual reports, statistics, development strategy, speeches, interviews, and expert opinions.

• BaFin comprises a section about the regulator such as functions and history, organizational structure, contacts, and careers at BaFin.

These sections interest traders:

• News. In this section, you can find warnings about violations committed by brokers and information about investigations. A broker’s license may remain valid, but violations may be a red flag for traders.

• Consumers is a section with a theoretical information basis for traders and clients of other financial organizations.

  

  BaFin Review — Section of the website

To obtain a BaFin license, a broker has to:

The regulator’s website has a convenient structure and search system. Licenses can be found with a few clicks.

To confirm a broker’s license on the BaFin website, do the following:

• 1

  Find a broker with a BaFin license. It is preferable to have the license number, but searching by the broker’s legal name also works. The license number can be in the footer or the About Us section of the broker’s website.

  

  BaFin Review — Section of the website

• 2

  On the BaFin’s homepage, enter the company’s name or license number in the search box.

  

  BaFin Review — Section of the website

• 3

  If the search result registers “no hits”, use BaFin’s “database of companies” to continue your search.

  

  BaFin Review — Section of the website

• 4

  In the search form, include the available details. In this case, it’s the company’s name.

  

  BaFin Review — Section of the website

• 5

  View the license information.

  

  BaFin Review — Section of the website

Here you can see that some of the permissions have expired and some have been active since the middle of 2021. To further analyze this information, you need to know the basics of the applicable German law. For example, “Abschluss vermittlung” is about intermediary services and “Anlage Beratung” is about investing.

BaFin’s basic requirements for brokers

BaFin’s requirements are some of the strictest in Europe. After a license is acquired, it is even more difficult to fully comply with all norms of European legislation, which, for example, limits maximum leverage, requires full disclosure of money turnover information, etc. A broker has two options: (i) minimize competition by obtaining a BaFin license and become one of the most reliable and transparent companies in Europe; or (ii) violate European laws, obtain offshore licenses, and forfeit traders’ trust.

BaFin’s jurisdiction

Germany is a party to the European Economic Area Agreement. This is an agreement about free trade that allows all BaFin-licensed brokers to offer their services to any EU member state through a single EU license. In other words, BaFin-licensed brokers must also fulfill the requirements of other eurozone regulators in compliance with MiFID II.

For Asian traders, access to European markets through BaFin-licensed brokers is not a problem on the condition that laws valid in a non-resident’s country and the eurozone are not violated. There may be exceptions for sanctioned countries.

Submission and consideration of complaints

BaFin responds to all complaints by individuals and tries to consider each as promptly and objectively as possible. Therefore, when filing a complaint, provide the fullest possible description of the problem. Include the time of every action, and add references to the violated clauses of your agreement with the broker, screenshots of the trading platform, your user account, and screenshots of your conversations with the broker’s support service.

How to submit a complaint to BaFin:

• 1

  On the BaFin website’s homepage, go to the Consumers section and select Complaints.

  

  BaFin Review — Section of the website

• 2

  Select one of these four options:
  •Making a complaint to a company that holds a BaFin license. Follow the link to get recommendations on how to do it as effectively as possible. •Filing a complaint with BaFin. •Resolving disputes through dispute resolution entities recognized by the Federal Office of Justice. For example, through an ombudsman. •Resolving disputes through BaFin, namely its dispute resolution panel.

• 3

  The second option, Filing a complaint with BaFin, is best where a broker violates the offer conditions.

  

  BaFin Review — Section of the website

  Here you can review the complaint filing procedure. Everything is clearly explained in detail. At first, you might get confused by the numerous links, but they are necessary for your complaint to get exactly to the person who can help fix your problem. Structuring client requests enables the regulator to respond to complaints quickly.

  Note the scheme on the left: it will help you find the right section if you go to the wrong one.

• 4

  Select a complaint form.

  

  BaFin Review — Section of the website

• 5

  Fill out the form.

  

  BaFin Review — Section of the website

How to check on a BaFin-licensed broker

TU analysts value your time. Every month, they view regulators’ websites and update information about every broker in the brokers rating. If a broker has several licenses, you don’t need to look for them on each regulator’s website, as the rating displays current information on all valid licenses. Besides that, TU monitors warnings. If a regulator issues a warning or applies sanctions to a broker, you will learn about it on Trader Union’s website.

About the author of this review

Oleg Tkachenko, author and analyst at TU

Oleg Tkachenko has been TU’s financial analyst and economic observer since 2016. During this time, he has prepared more than 100 reviews of financial companies and analytic articles on technical and fundamental analysis, as well as developed over 10 proprietary trading strategies. Oleg’s motto is to help everyone come all the way from a novice trader to a professional.