On September 26, 2022, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“) published an amended draft of its circular “Minimum Requirements for Risk Management” (Mindestanforderungen an das Risikomanagement – “MaRisk“), which is now open for consultation.
MaRisk codifies BaFin’s administrative practice on risk management for German banks, particularly with regard to business organization and outsourcing, and in doing so specifies the statutory requirements of Section 25a of the German Banking Act (Kreditwesengesetz – „KWG“).
The draft of the 7th MaRisk amendment includes, among other things
- the implementation of the European Banking Authority (“EBA”) guidelines on credit allocation and supervision;
- specific requirements for real estate transactions by banks;
- basic rules that credit institutions must comply with when using risk models;
- ESG risk management requirements.
BaFin for the first time explicitly imposes binding requirements on banks for the treatment of ESG risks
BaFin had already provided banks with guidance on the management of sustainability risks in its leaflet on dealing with sustainability risks. It defines the term “sustainability” in terms of “ESG” (environmental, social and governance). However, the guidance still served as a summary of non-binding “good practice” approaches. By incorporating these approaches into MaRisk, they can become part of BaFin audits in the future.
This means that banks will have to develop an approach to sustainability risks that is appropriate to their business model and risk profile. This involves adapting existing processes and developing new measurement, management and risk mitigation tools for sustainability risks.
In line with the proportionality principle of MaRisk, simpler structures, processes and methods may suffice if the risk profile is less complex. However, the more significant the sustainability risks are for a credit institution, the more elaborate the instruments must be.
Banks are also to take the impact of ESG risks into account in risk classification procedures. However, as long as this proves to be impracticable, separate ESG scores can also be used in the assessment of creditworthiness and credit assessment, according to BaFin.
The consultation will run until October 28, 2022. BaFin and Deutsche Bundesbank are accepting comments by e-mail to email@example.com and B32_MaRisk@bundesbank.de with the subject “Consultation 6/2022”. The new version of MaRisk will then replace the currently valid Circular 10/2021.