In the context of special audits, banking institutions have extensive obligations to cooperate with the auditors.
(Photo: Thomas Rathay / teamwork / FOTOF (M))
Dusseldorf The Federal Financial Supervisory Authority Bafin has ordered a special audit at the Landeskreditbank Baden-Württemberg, L-Bank for short. The development institute will probably have to undergo this from the second week of November. “The IT systems and IT processes used in the L-Bank, including any outsourcing,” are checked, as the bank reports.
After the KfW, the NRW-Bank and the Landwirtschaftliche Rentenbank, the L-Bank is the fourth largest public development institute in Germany. With a total of 15 billion euros in 2021, your promotional business was higher than ever.
According to a spokeswoman, the test that has now been announced is a routine test as part of supervisory activities. The last on-site inspection at L-Bank took place in 2016, at that time still under the supervision of the European Central Bank.
However, this is only part of the truth. It is true that special audits are among the standard instruments of financial supervision and can also be carried out without a special reason.
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However, the Banking Act also provides for so-called event-related checks. Bafin explains what this type of inspection is all about on its website: “Occurrence-related inspections are carried out for a specific reason.” In doing so, the supervisory authority can “gain its own, in-depth insight into the risk situation of an institution”.
Bad grade for corporate management
According to Handelsblatt research, the background to the audit at the L-Bank is, among other things, deficiencies in the IT compliance program. The Bafin had already addressed this in February in a notification to the L-Bank. The shortcomings also contributed to supervisors giving a lower grade for corporate governance. The sub-grade for corporate management was “just two”, Bafin determined with regard to its criticism of the management around CEO Edith Weymayr, who has been in office since 2020.
“Should there be a special audit, the L-Bank will work with the auditors from Bafin and the Bundesbank with full transparency and work through any deficiencies that have been addressed.” Opinion L Bank
The fact that the special test was coming up had been apparent for a long time. In the ongoing supervisory dialogue with the L-Bank, Bafin raised the possibility of such a special audit in the field of IT, a spokesman for the institute admitted to the Handelsblatt in July. “Should there be a special audit, the L-Bank will work with the auditors from Bafin and the Bundesbank with full transparency and work through any deficiencies that have been addressed,” it said. The bank has now confirmed this again.
In the context of special audits, banking institutions have extensive obligations to cooperate with the auditors. According to Section 44 of the German Banking Act, you must provide information on all business matters, submit documents and make copies if necessary. The examiners can enter and inspect the business premises of the institute.
As a rule, the examinations extend over several months. In the event of identified violations, there is a risk, among other things, of stricter reporting obligations or increased capital requirements.
At the beginning of 2022, the Bafin had demanded increased equity from the L-Bank – detached from the upcoming special audit. She asked the development bank to hold twelve percent of its own funds instead of the previous eight percent.
“Risks have been identified” at the bank for which “additional capital requirements must be met,” according to the Bafin in the order issued in February. Accordingly, it is about risks resulting from changes in interest rates, as well as “other significant risks, based on the RTF report you submitted (risk-bearing capacity, ed.)”.
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