Germany’s largest stock exchange operator has a total of four subsidiaries with a banking license – three of which are based in Germany and one in Luxembourg.
(Photo: dpa)
Frankfurt Deutsche Börse boss Theodor Weimer can breathe a sigh of relief. After an intensive examination, the financial supervisory authority Bafin decided not to classify Germany’s largest stock exchange operator as a financial holding company. A company spokeswoman confirmed the relevant information from the Handelsblatt from financial circles.
If it were classified as a financial holding company, Bafin would have monitored Deutsche Börse much more closely, much like a bank. CEO Weimer had urgently warned of this after the investigation became known two years ago.
“All the stock exchanges in the world are not financial holdings,” said Weimer in February 2021. If the Dax group were the only stock exchange in the world to be classified as a financial holding and regulated like a bank, this would be “a significant strategic and operational disadvantage”.
The Bafin currently only monitors individual stock exchange subsidiaries such as Clearstream Banking AG Frankfurt and Eurex Clearing AG. These companies mainly deal with the processing of commercial transactions and the safekeeping of securities.
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The Hessian stock exchange supervisory authority is primarily responsible for monitoring the German stock exchange, which currently has a market capitalization of a good 30 billion euros. This is based at the Hessian Ministry of Economic Affairs.
Fear of financial regulators overreacting
In response to the Wirecard scandal, Bafin had scrutinized numerous companies that had a similar structure to the payment service provider that collapsed in summer 2020. Specifically, it was about company conglomerates that had one or more bank subsidiaries, but which as a whole were not supervised by Bafin.
According to its own statement, the fact that the financial supervisory authority did not uncover the fraud scandal at Wirecard was also due to the fact that it classified the company as a technology group and therefore did not monitor it as a whole. The authority only had direct access to the subsidiary Wirecard Bank, emphasized the former Bafin boss Felix Hufeld several times.
According to an internal email, the German financial regulator finds it difficult to control banks that are part of a larger corporate conglomerate.
(Photo: imago images/Hannelore Fˆrster)
After the Wirecard scandal, Deutsche Börse boss Weimer warned of excessive reactions from the financial regulator. “We should be careful not to throw the baby out with the bath water,” he said. “It would be completely unfair if other companies were suddenly regulated like a bank just because they have a bank.”
As a former investment banker at Goldman Sachs and long-standing CEO of Hypo-Vereinsbank, Weimer is very familiar with the banking sector.
Exchange subsidiaries like Clearstream formally have the character of a bank, but are not comparable to a normal bank, he argues. “We don’t take deposits, we don’t give loans.” Bank-like transactions also accounted for significantly less than 50 percent of sales and total assets at Deutsche Börse.
The Bafin, which did not want to comment on the classification of Deutsche Börse, came to the same conclusion in the end. According to financial circles, the month-long review included the question of how the criteria for a financial holding, which are based on banks, are interpreted at Deutsche Börse.
After the end of the Bafin investigation, Deutsche Börse now has clarity for the future as to which calculation model the financial supervisory authority will use as a basis for its calculations. This could be helpful, among other things, if the Dax group wants to ensure in the run-up to acquisitions that it will not be classified as a financial holding company by Bafin even after a planned acquisition.
Bafin takes on several stock exchange subsidiaries
Despite the Bafin decision, nobody at Deutsche Börse can sit back and relax. The financial supervisory authority has recently carried out several special audits at the stock exchange subsidiaries it monitors and has identified various deficiencies.
Among other things, this involves the outsourcing of IT services and the management of tax risks. At the end of last week, the authority asked the companies to eliminate the weak points and to “ensure proper business organization”. The exchange subsidiary Eurex Clearing AG must also regularly inform the Bafin and the Deutsche Bundesbank about their progress in “correcting the deficiencies”.
In addition, the Cologne public prosecutor’s office is investigating several employees of Deutsche Börse for so-called cum-ex transactions. For years, banks and investors have cheated the state out of billions of euros by having capital gains tax paid only once in dividend transactions reimbursed several times.
The public prosecutor’s office therefore searched Deutsche Börse in 2019. Among other things, they are investigating the suspicion that stock exchange employees have advised banks on share transactions at the expense of taxpayers. A report commissioned by the Hessian stock exchange supervisory authority also criticizes the role played by Deutsche Börse in cum-ex transactions. The Dax group, on the other hand, sees itself relieved by internal investigations and various other reports.
More: Deutsche Börse and the business that was not allowed to exist.