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Law on the Prospectus for Securities Offered for Sale (Wertpapier-Verkaufsprospektgesetz – VerkProspG )

As promulgated on 9 September 1998 (Federal Law Gazette I p. 2701), as last amended by Article 2 of the Third Financial Market Promotion Act (Gesetz zur weiteren Fortentwicklung des Finanzplatzes Deutschland or Drittes Finanzmarktförderungsgesetz) of 24 March 1998 (Federal Law Gazette I p. 529)


Table of Contents 

Part I Scope

Section 1 General rule
Section 2 Exceptions with respect to the type of the offer
Section 3 Exceptions with respect to specific issuers
Section 4 Exceptions with respect to specific securities

Part II Offer of securities for which admission to Official Quotation (amtliche Notierung) or to the Regulated Market (geregelter Markt) has been sought

Section 5 Content of the prospectus
Section 6 Board of Admission (Zulassungsstelle) and Admissions Committee (Zulassungsausschuß)

Part III Offer of securities for which admission to Official Quotation or to the Regulated Market has not been sought

Section 7 Content of the prospectus
Section 8 Depository
Section 8a Permission and prohibition to publish a prospectus
Section 8b Prohibition of the public offer
Section 8c Obligation of the offeror to furnish information and provide documents
Section 8d Immediate enforcement
Section 8e Advertising

Part IV Publication of the prospectus; liability for statements made in the prospectus

Section 9 Period for and form of publication
Section 10 Publication of an incomplete prospectus
Section 11 Publication of supplementary information
Section 12 Reference to the prospectus
Section 13 Liability for statements made in the prospectus

Part V Procedure within the European Community

Section 14 Cooperation within the European Community
Section 15 Offer in several Member States of the European Union or in other Contracting States to the Agreement on the European Economic Area

Part VI Fees; provisions on fines; transitional provisions

Section 16 Fees
Section 17 Provisions on fines
Section 18 Transitional provisions


Part I Scope

Section 1 General rule

For securities which are offered to the public in Germany for the first time and are not admitted to trading on a German stock exchange, the offeror shall publish a prospectus (sales prospectus), unless different provisions are set forth in sections 2 to 4.

Section 2 Exceptions with respect to the type of the offer

A prospectus does not need to be published if the securities

1. are only offered to persons who on a professional or commercial basis purchase or sell securities for own account or for the account of a third party;

2. are offered to a restricted circle of persons;

3. are only offered to employees by their employer or by an undertaking associated with his undertaking;

4. may only be acquired in denominations of at least eighty thousand Deutsche Mark or only at a purchase price of at least eighty thousand Deutsche Mark per investor, or if the selling price for all securities offered does not exceed eighty thousand Deutsche Mark;

5. are part of an issue for which a prospectus has already been published in Germany.

Section 3 Exceptions with respect to specific issuers

A prospectus does not need to be published if the securities

1. are issued by

a) a Member State of the European Union, another Contracting State to the Agreement on the European Economic Area, a full member state of the Organisation for Economic Cooperation and Development, provided it has not rescheduled its foreign debt or has had similar financial difficulties within the last five years, or a state which has concluded special credit agreements with the International Monetary Fund in connection with its General Arrangements to Borrow;

b) a local authority of the states mentioned in a) above; or

c) an international organisation under public law, to which at least one Member State of the European Union or another Contracting State to the Agreement on the European Economic Area belongs;

2. are bonds which are continuously or repeatedly issued by

a) a credit institution within the meaning of section 1 paragraph (1) of the Banking Act (Gesetz über das Kreditwesen) or a financial services institution rendering financial services within the meaning of section 1 paragraph (1a) sentence 2 no. 1 to 4 of the Banking Act, or the Development Loan Corporation (Kreditanstalt für Wiederaufbau); or

b) an enterprise operating under section 53b paragraph (1) sentence 1 or paragraph (7) of the Banking Act which publishes its annual financial statements regularly;

an issue is deemed repeated if during the twelve calendar months preceding the public offer at least one issue of bonds was carried out within the European Community or another Contracting State to the Agreement on the European Area;

3. are units which are issued by a German investment company or a foreign investment company and in respect of which holders have the right to return the units;

4. are bonds issued by a company or a legal person domiciled in a Member State of the European Union or in another Contracting State to the Agreement on the European Area which operates under a state monopoly and which has been established or is regulated by, or by virtue of, a special law, or in respect of the bonds of which a Member State of the European Union or one of its federal states or another Contracting State to the Agreement on the European Area or one of its federal states has assumed the unconditional and irrevocable guarantee for interest and redemption repayment.

Section 4 Exceptions with respect to specific securities

(1) A prospectus does not need to be published if the securities

1. are Euro-securities which are not publicly advertised and are not offered by way of deals within the meaning of the Law Regarding Revocation of Door-to-Door and Similar Dealings (Gesetz über den Widerruf von Haustürgeschäften und ähnlichen Geschäften);

2. are shares in respect of which admission to Official Quotation on a German exchange has been sought and whose number, estimated market value or nominal value, or in the case of no-par stocks their calculated value, is less than ten per cent of the corresponding value of the shares of the same class officially listed on the same exchange, and if the issuer complies with the publication requirements necessary for admission; shares which only differ in respect of the time when the entitlement to dividends begins shall be deemed shares of the same class;

3. are shares in respect of which no admission to Official Quotation on a German exchange has been sought and whose number, estimated market value or nominal value, or in the case of no-par stocks their calculated value, is less than ten per cent of the corresponding value of the shares of the same class admitted to trading on a German exchange, if investors are provided with up-to-date information about the issuer equivalent to the information stipulated in Part III; shares which only differ in respect of the time when the entitlement to dividends begins shall be deemed shares of the same class;

4. are shares which are allocated to shareholders after a capital increase out of corporate funds;

5. are certificates which are issued instead of shares of the same company and with the issue of which no capital change is involved;

6. are issued after the exercise of exchange or subscription rights attached to securities other than shares, provided listing particulars or a prospectus were published in Germany at the time these securities were issued;

7. are offered in the case of a merger of companies;

8. are bonds with an agreed maturity of less than one year.

(2) Euro-securities within the meaning of paragraph (1) no. 1 are securities which

1. are underwritten or promised to be underwritten and distributed by a syndicate whose members do not all have their registered office in the same state,

2. for an essential part, are not offered in the state in which the issuer has his registered office; and

3. may only be subscribed or initially acquired via a credit institution within the meaning of section 1 paragraph (1) of the Banking Act, a financial services institution rendering financial services within the meaning of section 1 paragraph (1a) sentence 2 no. 1 to 4 of the Banking Act, or an enterprise operating under section 53b paragraph (1) sentence 1 or paragraph (7) of the Banking Act.

Part II Offer of securities for which admission to Official Quotation (amtliche Notierung) or to the Regulated Market (geregelter Markt) has been sought

Section 5 Content of the prospectus

(1) Where admission to Official Quotation on a German exchange has been sought for securities which are offered to the public, the provisions of section 38 paragraph (1) no. 2, paragraph (2) of the Exchange Act (Börsengesetz) in connection with sections 13 to 40 and 47 of the Exchange Admission Regulation (Börsenzulassungs-Verordnung) shall apply accordingly in respect of the language and the content of the prospectus.

(2) Where admission to the Regulated Market on a German exchange has been sought for securities which are offered to the public, section 73 paragraph (1) no. 2 of the Exchange Act shall apply accordingly in respect of the content of the prospectus.

Section 6 Board of Admission (Zulassungsstelle) and Admissions Committee (Zulassungsausschuß)

(1) Where admission to Official Quotation on a German exchange has been sought for securities which are offered to the public, the prospectus may only be published if it has been approved by the Board of Admission of the exchange. If a request for admission is made with several German exchanges simultaneously, the issuer shall determine the Board of Admission to be responsible for the approval of the prospectus. The Board of Admission shall decide about the request for approval within 15 exchange days after receipt of the prospectus.

(2) The Board of Admission shall monitor compliance with the requirements to which the offeror is subject in making a public offer.

(3) The Board of Admission shall provide the offeror upon request with a certificate of the approval of the prospectus.

(4) If admission to the Regulated Market on a German exchange has been sought for securities which are offered to the public, paragraphs (1) and (2) shall apply accordingly under the condition that the Board of Admission is replaced by the Admissions Committee. If the prospectus is approved, it must be indicated in a notification that this does not imply approval in accordance with Article 20 of the Directive 89/298/EEC of 17 April 1989 coordinating the requirements for the drawing up, scrutiny and distribution of the prospectus to be published when transferable securities are offered to the public (OJ EC No. L 124 p. 8).

(5) If a request for admission to Official Quotation and to the Regulated Market is made with several German exchanges simultaneously, the issuer shall determine the Board of Admission to be responsible for the approval of the prospectus.

Part III Offer of securities for which admission to Official Quotation or to the Regulated Market has not been sought

Section 7 Content of the prospectus

(1) Where admission to Official Quotation or to the Regulated Market on a German exchange has not been sought for securities which are offered to the public, the prospectus shall contain the information necessary to enable the public to make a proper assessment of the issuer and the securities.

(2) The Federal Government shall be authorised to issue, by ordinance and with the consent of the Bundesrat, any provisions necessary for the protection of the public regarding the language and the content of the prospectus, in particular as regards

1. the persons or companies assuming responsibility for the content of the prospectus;

2. the offered securities; and

3. the issuer of the securities as well as his capital and business activities, his assets and liabilities, financial position, profits and losses, his management and supervisory bodies as well as his prospects.

(3) An ordinance according to paragraph (2) above may also stipulate exemptions from the requirement to include certain information in the prospectus,

1. if there are special circumstances with respect to the issuer, the securities offered, the issue of these securities or the group of investors to which the securities issue is addressed and if the interests of the public have been sufficiently taken into account by an alternative form of information, or

2. considering the minor significance of individual information or in view of a considerable damage likely to be caused with the issuer.

Section 8 Depository

Before its publication the offeror shall sent the prospectus to the Federal Securities Supervisory Office (Federal Supervisory Office). Information to be added pursuant to section 10 shall be sent not later than the time when it is published. The Federal Supervisory Office shall provide the offeror with a confirmation of the date on which it has received the prospectus.

Section 8a Permission and prohibition to publish a prospectus

(1) The prospectus may only be published if the Federal Supervisory Office has permitted its publication, or if after receipt of the prospectus ten working days have elapsed without the Federal Supervisory Office having prohibited the publication.

(2) The Federal Supervisory Office shall prohibit the publication if the prospectus does not contain the information required under section 7 paragraph (1) or an ordinance issued pursuant to section 7 paragraphs (2) and (3). Section 10 shall not be affected.

Section 8b Prohibition of the public offer

The Federal Supervisory Office shall prohibit the public offer of securities for which admission to Official Quotation or to the Regulated Market has not been sought if it has evidence indicating that in contravention of section 1 the offeror has failed to publish a prospectus or that the prospectus does not contain the information required under section 7 paragraph (1) or an ordinance issued pursuant to section 7 paragraphs (2) and (3).

Section 8c Obligation of the offeror to furnish information and provide documents

(1) Upon request of the Federal Supervisory Office the offeror shall furnish information and provide documents required by the Federal Supervisory Office

1. for monitoring compliance with the requirements under sections 1, 8, 8a paragraph (1), sections 9 to 11, 12 sentence 1, section 14 paragraph (1), section 15 paragraphs (3) and (4); or

2. for verifying whether the prospectus contains the information required under section 7 paragraph (1) or an ordinance issued pursuant to section 7 paragraphs (2) and (3).

(2) A person obliged to furnish information may refuse to do so in respect of any questions the answers to which would place himself or one of his relatives as designated in Section 383 paragraph (1) numbers 1 to 3 of the Code of Civil Procedure at risk of criminal prosecution or proceedings under the Law on Administrative Offences. Such person shall be informed of his right to refuse to furnish information.

Section 8d Immediate enforcement

Objections to and actions to set aside measures in accordance with section 8a paragraph (2) sentence 1 and sections 8b and 8c paragraph (1) shall have no suspensory effect.

Section 8e Advertising

(1) The Federal Supervisory Office may prohibit advertising with information that is likely to mislead as to the extent of the verification pursuant to section 8a.

(2) Before general measures pursuant to paragraph (1) above are taken, the central associations of the economic sectors concerned and of the consumer protection agencies shall be consulted.

Part IV Publication of the prospectus; liability for statements made in the prospectus

Section 9 Period for and form of publication

(1) The prospectus shall be published pursuant to paragraph (2) or (3) below at least one working day before the public offer is made.

(2) Where admission to Official Quotation or to the Regulated Market has been sought, the prospectus must be published

1. by insertion in the official stock exchange gazettes in which the request for admission was or is going to be published; or

2. by making it available, free of charge, at the paying agents stated in the prospectus and at the Boards of Admission or Admissions Committees of those exchanges where admission has been sought; it shall be announced in the official stock exchange gazettes in which the request for admission was or is going to be published at what agents the prospectus is made available.

(3) Where admission to Official Quotation or to the Regulated Market has not been sought, the prospectus shall be published either by announcing it in a supra-regional official stock exchange gazette or by making it available, free of charge, at the paying agents stated in the prospectus; in the latter case it shall be announced in a supra-regional official stock exchange gazette that the prospectus is made available at the paying agents.

Section 10 Publication of an incomplete prospectus

If certain conditions of an offer are determined only shortly before the offer is made, the prospectus may only be published without this information if it states how this information is to be added. The information thus to be added shall be published not later than on the day of the public offer pursuant to section 9 paragraphs (2) and (3).

Section 11 Publication of supplementary information

If since the publication of the prospectus changes have occurred which are of material significance for the assessment of the issuer or the securities, these changes shall be published without delay and during the time of the public offer in a supplement to the prospectus. Such supplement shall be subject to the provisions relating to the prospectus and its publication accordingly, with the exception of section 8a above.

Section 12 Reference to the prospectus

Publications in which a public offer of securities is announced and the material characteristics of the securities are described shall contain a reference to the prospectus and its publication. If admission to Official Quotation or to the Regulated Market on a German exchange has been sought the publications shall be sent without delay to the Board of Admission or the Admissions Committee where admission has been sought.

Section 13 Liability for statements made in the prospectus

(1) If information in a prospectus that is material for the assessment of the securities is incorrect or incomplete the provisions stipulated in sections 45 to 48 of the Exchange Act shall apply accordingly as follows:

1. in applying section 45 paragraph (1) sentence 1 of the Exchange Act, the time of the initial public offer in Germany, instead of the time when the securities were introduced, shall be relevant for the determination of the period of six months;

2. section 45 paragraph (3) of the Exchange Act shall apply to issuers domiciled abroad whose securities are also offered to the public abroad.

(2) Regardless of the value of the matter in dispute, claims pursuant to paragraph (1) above as well as claims referred to in section 48 paragraph (2) of the Exchange Act shall only be decided upon by the local court (Landgericht)

1. in whose district the exchange is situated with the Board of Admission or Admissions Committee of which approval of the prospectus has been sought; or

2. in whose district the Federal Supervisory Office is situated, if admission to Official Quotation or to the Regulated Market has not been sought.

If such local court has a commercial division, the legal dispute shall be dealt with by this division.

Part V Procedure within the European Community

Section 14 Cooperation within the European Community

(1) If the securities are also to be offered to the public in other Member States of the European Union or in other Contracting States to the Agreement on the European Economic Area, the person who is responsible for publishing a prospectus shall sent to the competent authorities of such states the draft prospectus he intends to use in these states.

(2) As part of their functions and responsibilities the Boards of Admission, Admissions Committees and the Federal Supervisory Office cooperate among each other and with the competent authorities in the other Member States of the European Union or in the other Contracting States to the Agreement on the European Economic Area and provide each other with the necessary information in so far as official secrecy is respected; to this extent, the members of the Admission Boards, the Admissions Committees and the Federal Supervisory Office as well as the persons acting on their behalf are not subject to the secrecy requirement.

(3) If securities of an issuer domiciled in another Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area to which subscription rights for shares are attached are to be offered to the public in Germany, and if admission to Official Quotation on a German exchange has been sought, the Board of Admission shall obtain a statement from the competent authority of such other state before deciding on the request for approval of the prospectus if the shares of the issuer are admitted to official listing in this state.

Section 15 Offer in several Member States of the European Union or in other
Contracting States to the Agreement on the European Economic Area

(1) If securities of an issuer domiciled in another Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area are to be offered to the public in this state and in Germany simultaneously or nearly simultaneously and if admission to Official Quotation on a German exchange has been sought, the Board of Admission shall, except as provided in paragraph (2) below, approve without further examination the prospectus approved by the competent authority of such other state if it has been provided with a translation of the prospectus into the German language as well as with a certificate of the competent authority relating to the approval of the prospectus. The Board of Admission may waive or partly waive the requirement to furnish a translation of the prospectus if the prospectus is written in a language which is not uncommonly used in Germany in the field of cross-border securities trading. If admission to the Regulated Market on a German exchange has been sought, sentences 1 and 2 shall apply accordingly provided that the Board of Admission is replaced by the Admissions Committee.

(2) If the competent authority of such other Member State or such other Contracting State to the Agreement on the European Economic Area has granted an exemption in respect of specific information to be contained in the prospectus or if it has granted derogations from the information normally required, the Board of Admission or the Admissions Committee shall approve the prospectus pursuant to the first sentence of paragraph (1) above only if

1. the exemption or derogation is permissible under this Act or pursuant to this Act;

2. the same conditions justifying the exemption exist in Germany; and

3. if the exemption or derogation does not depend on further conditions which would cause the Board of Admission or the Admissions Committee to refuse the exemption or derogation.

(3) If securities of an issuer domiciled in another Member State or in another Contracting State to the Agreement on the European Economic Area are to be offered to the public in such state and in Germany simultaneously or nearly simultaneously and if admission to Official Quotation or to the Regulated Market on a German exchange has not been sought, a German translation of the prospectus approved by the competent authority of such other state may be published as the prospectus provided the Federal Supervisory Office has been provided with a translation of the prospectus into the German language as well as with a certificate of the competent authority relating to the approval of the prospectus. The Federal Supervisory Office may waive or partly waive the requirement to translate the prospectus if the prospectus is written in a language which is not uncommonly used in Germany in the field of cross-border securities trading.

(4) If securities of issuers domiciled outside the area of application of this Act are to be offered to the public both in another Member State or in another Contracting State to the Agreement on the European Economic Area not being the state of domicile and in Germany, the provisions of paragraphs (1) to (3) shall apply accordingly, provided the issuer determines that the prospectus be approved by the competent authority of such other state.

Part VI Fees; provisions on fines; transitional provisions

Section 16 Fees

(1) The Fee Regulations according to section 5 of the Exchange Act shall stipulate the fees to be levied by the Board of Admission or the Admissions Committee for the approval of the prospectus.

(2) The Federal Supervisory Office shall levy fees for the deposit of the prospectus. The Federal Ministry of Finance shall determine by ordinance not requiring the consent of the Bundesrat the details for levying the fees and the amount of the fees. The Federal Ministry of Finance may by ordinance delegate the authority to the Federal Supervisory Office.

Section 17 Provisions on fines

(1) An administrative offence is committed by any person who wilfully or carelessly

1. fails to publish a prospectus in contravention of section 1;

2. publishes a prospectus in contravention of section 6 paragraph (1) sentence 1, also in connection with paragraph (4) sentence 1, or section 8a paragraph (1);

3. fails to comply with an enforceable requirement pursuant to section 8a paragraph (2) sentence 1 or section 8b;

4. fails to comply with an enforceable requirement pursuant to section 8e paragraph (1); or

5. fails to make a publication or an announcement, fails to do so within the prescribed period or in the prescribed form in contravention of section 9 paragraph (1), section 10 sentence 2 or section 11, all also in connection with section 9 paragraph (2) or (3).

(2) An administrative offence is committed by any person who wilfully or carelessly in contravention of section 8c paragraph (1) fails to furnish information, or furnishes information incorrectly, incompletely or not within the prescribed period or fails to provide a document, provides a document incorrectly, incompletely or not within the prescribed period.

(3) The administrative offence is punishable by a fine not exceeding one million Deutsche Mark in the cases referred to in paragraph (1) numbers 1. to 3. above and by a fine not exceeding two thousand Deutsche Mark in the cases referred to in paragraph (1) numbers 4. and 5. above.

(4) The administrative authority within the meaning of section 36 paragraph (1) number 1 of the Law on Administrative Offences shall be the Federal Supervisory Office in the cases referred to in paragraph (1) above where no admission to Official Quotation or to the Regulated Market on a German exchange has been sought in respect of securities which are offered to the public, as well as in the cases referred to in paragraph (2) above.

Section 18 Transitional provisions

(1) In respect of securities which were offered in Germany before 1 April 1998 in connection with a public exchange offer and for which no prospectus was published pursuant to section 4 paragraph (1) number 7. as announced on 17 July 1996 (Federal Law Gazette I p. 1047), section 1 shall apply under the condition that the first offer to the public made after 1 April 1998 is deemed an initial public offer.

(2) As regards prospectuses published in Germany before 1 April 1998, section 13 as announced on 17 July 1996 (Federal Law Gazette I p. 1047) and the provisions of sections 45 to 49 of the Exchange Act as announced on 17 July 1996 (Federal Law Gazette I p. 1030) shall continue to apply.

(3) Section 16 paragraph (2) as announced on 17 July 1996 (Federal Law Gazette I p. 1047) concerning the levying of fees by the Federal Supervisory Office shall apply until an ordinance pursuant to section 16 paragraph (2) sentence 2 takes effect.

Law on the Supervision of Insurance Undertakings (Versicherungsaufsichtsgesetz – VAG)

Short Title: Insurance Supervision Law
Fully amended version as at January 2000

Translation provided by the Bundesaufsichtsamt für das Versicherungswesen (Federal Insurance Supervisory Office) and reproduced with kind permission.


Table of Contents 

I. Introductory provisions

Section 1
Section 2
Section 3
Section 4

II. Authorisation to do business

Section 5
Section 6
Section 7
Section 7a
Section 8
Section 8a
Section 9
Section 10
Section 10a
Section 11
Section 11a
Section 11b
Section 11c
Section 11d
Section 11e
Section 12
Section 12a
Section 12b
Section 12c
Section 12d
Section 12e
Section 13
Section 13a
Section 13b
Section 13c
Section 13d
Section 14
Section 14a

III. Mutual Societies

Section 15
Section 16
Section 17
Section 18
Section 19
Section 20
Section 21
Section 22
Section 23
Section 24
Section 25
Section 26
Section 27
Section 28
Section 29
Section 30
Section 31
Section 32
Section 33
Section 34
Section 35
Section 35a
Section 36
Section 36a
Section 36b
Section 37
Section 38
Section 39
Section 40
Section 41
Section 42
Section 43
Section 44
Section 44a to c
Section 45
Section 46
Section 47
Section 48
Section 49
Section 50
Section 51
Section 52
Section 53
Section 53a
Section 53b

IV. Management of insurance undertakings

1. Financial resources, investments

Section 53c
Section 53d
Section 54
Section 54a
Section 54b
Section 54c
Section 54d

1a. Accounting, auditing

Section 55
Section 55a
Section 56
Section 56a
Section 56b
Section 57
Section 58
Section 59
Section 60
Section 61 to 63
Section 64

2. Special provisions on the mathematical provisions and the Deckungsstock in life insurance

Section 65
Section 66
Section 67
Section 68 and 69
Section 70
Section 71
Section 72
Section 73
Section 74
Section 75
Section 76
Section 77
Section 78
Section 79
Section 79a
Section 80

V. Supervision of insurance undertakings

1. Duties and powers of the supervisory authorities

Section 81
Section 81a
Section 81b
Section 81c
Section 81d
Section 81e
Section 82
Section 83
Section 84
Section 85
Section 86
Section 87
Section 87a
Section 88
Section 89
Section 89a

2. Bundesaufsichtsamt für das Versicherungswesen

Section 90
Section 91 
Section 92
Section 93
Section 94 to 100
Section 101
Section 102
Section 103
Section 103a

Va. Supervision of the holders of qualifying participations in insurance undertakings

Section 104

VI. Insurance undertakings which have their head office abroad

1. Undertakings whose office is not in an EC Member State or EEA Member State

Section 105
Section 106
Section 106a
Section 106b
Section 106c
Section 107
Section 108
Section 109
Section 110

2. Undertakings which have their head office in an EC Member State or another EEA Member State

Section 110a
Section 110b
Section 110c
Section 110d
Sections 110e to 110i
Section 111

VIa. Cooperation of the Bundesaufsichtsamt für das Versicherungswesen with the competent authorities of the other EC Member States or another EEA Member State in the field of direct insurance

Section 111a
Section 111b
Section 111c
Section 111d
Section 111e

VIb. Notifications to the EC Commission

Section 111 f

VII. Building societies

VIII. Transitional provisions

Section 122
Section 123
Sections 124 to 127
Section 128
Sections 129 to 133e
Section 133f
Section 133g

IX. Provisions concerning offences and administrative fines

Section 134
Sections 135 and 136
Section 137
Section 138
Section 139
Section 140
Section 141
Section 142
Section 143
Section 144
Section 144a
Section 144b
Section 145
Section 145a
Section 145b

X. Final provisions

Section 146
Sections 147 to 149
Section 150
Section 151
Section 152
Section 153
Section 154
Section 155
Section 156
Section 156a
Section 157
Section 157a 
Section 158
Section 159
Section 160
Section 161

XI. Transitional provisions for the implementation of the monetary, economic and social union with the German Democratic Republic

Annex

A. Classification of risks according to classes of insurance

B. Description of authorisations granted for more than one class of insurance

C. Matching Rules

D Consumer Information

Section 1
Section 2


I. Introductory provisions

Section 1

(1) Subject to supervision under this law shall be undertakings which carry on insurance business and which do not write social insurance (insurance undertakings).

(2) For the purpose of undertakings which exclusively operate reinsurance business and which do not have the legal form of a mutual society only sections 55 to 59, 83, 89a, 93 below and sections 101 to 103, 137, 138 and 150 below shall apply; section 2 below shall apply accordingly. For the purpose of undertakings under public law of the civil service or the churches which exclusively provide for old age, invalidity or survivor’s benefits only section 13 (1) below, sections 14, 54 (2) below, first sentence, (a), and second sentence, section 55 (1) and (2) below, section 55a below and sections 81, 81a, 82, 83, 86, 88, 89, 89a and 93 below shall apply; for the purpose of insurance undertakings of this kind established under state (Land) law and subject to state supervision, the law of the state may provide otherwise. The Federal Finance Minister shall have the power to exempt from supervision under this law by way of an ordinance not subject to approval by the Bundesrat insurance undertakings under public law within the meaning of the second sentence which are not subject to state supervision if taking into account the legal requirements for the establishment of such undertakings or the agreements existing between the undertakings and their operators it is not deemed necessary to supervise such undertakings for the purpose of safeguarding the interests of the insured.

(3) Not subject to supervision under this law shall be

1. associations of persons which grant their members benefits without their having a legal claim to such benefits, in particular relief funds and relief societies of professional associations;

1a. relief funds established by guilds under the Handwerksordnung(Handicrafts Regulation Law);

2. alliances having legal capacity of chambers of industry and commerce and trade associations if the purpose of such alliances is to balance for their members the burden of benefit payments, to which they have committed themselves, by way of assessment and if such alliances have been granted their legal capacity by the government;

3. alliances not having legal capacity of local governments and associations of local governments if their purpose is to balance by way of assessment losses as described in the following resulting from risks taken by their members and by undertakings operated to comply with the duties of public authorities and in which one or several members or – in the case of b) – other regional and/or local authorities hold a share of at least 50 per cent, such as

a) losses for which the members or their staff may be held responsible by third parties in compliance with legal liability provisions,

b) losses arising from keeping motor vehicles,

c) benefits paid under the local government officials’ accident compensation scheme;

4. corporations and public institutions where insurance relationships are established by act of law, or which have to be entered into subject to a legal requirement;

5. undertakings operating within narrow territorial limits which grant benefits in the case of the occurrence of an uncertain event against payment of a lump sum provided such benefits do not consist in cash benefits, taking over of the costs or indemnity against liability with respect to third parties.

(4) Business listed under classes 23 and 24 of part A of the annex shall not be covered by the scope of application of this law unless it is carried on by insurance undertakings which have been authorised to operate the classes of insurance under 19 to 21 of part A of the annex; in this case such business shall be treated in the same way as life insurance business. Capital redemption operations (class 23 of part A of the annex) shall be any business operations where period of time and amount of the single or periodical premiums fixed in advance and of the liabilities have been determined in accordance with an actuarial method. Business for the purpose of class 24 of part A of the annex shall be the management of schemes which pay benefits on death or on reaching a certain age or in the case of impairment of the earning capacity, including the investment and management of the assets. For the purpose of business in accordance with the third sentence the insurance undertakings may in connection with such management also give guarantees with respect to the conservation of the managed capital and a minimum interest rate. Death benefit funds may not operate business specified in the first to fourth sentences, while pension funds may not operate business specified in the first, second and fourth sentences.

Section 2

The supervisory authority shall decide whether an undertaking is subject to supervision in accordance with section 1 above; this decision is binding on the administrative authorities. A decision made by a court or an administrative authority before 1st April, 1931, shall not be deemed to conflict with a decision made by the supervisory authority.

Section 3

If rules relating to the board of directors or the supervisory board have been stipulated in this law and if insurance undertakings under public law do not have bodies so designated the relevant executive body shall take the place of the board of directors and the relevant supervisory body shall take the place of the supervisory board.

Section 4

(repealed)

II. Authorisation to do business

Section 5

(1) Insurance undertakings may not carry on business unless authorised to do so by the supervisory authority.

(2) The operating plan shall be submitted together with the application for authorisation; it shall disclose the purpose and organisation of the undertaking, the area of the intended business operations and in particular clearly state the conditions which shall secure that the future liabilities of the undertaking can permanently be met.

(3) As part of the operating plan shall be submitted

1. the articles of association in so far as they do not refer to general insurance policy conditions,

2. information about the classes of insurance it intends to carry on and which risks of a class of insurance it intends to cover including designation and object of the insurance coverage; in the case of pension and death benefit funds the general insurance policy conditions and documents such as in particular the rates and principles for the calculation of the premiums and mathematical provisions including the calculation bases and mathematical formulas used,

3. affiliation agreements as specified under sections 291 and 292 of the Aktiengesetz (Public Limited Companies Law)

4. agreements for the purpose of permanently transferring distribution, management of the portfolio of insurance contracts, handling of claims, accounting, investments or asset management of an insurance undertaking wholly or an essential part of it to another undertaking (outsourcing).

(4) The operating plan shall give evidence of the existence of own funds in the amount of the minimum guarantee fund (section 53c (2) below). Their composition shall be disclosed. In addition, estimates shall be submitted for the first three financial years with respect to the expenses for commissions and other current operating expenses, the expected premiums, the expected expenses for claims incurred and the expected liquidity situation. In this connection it shall be stated the financial means expected to be available to meet the liabilities under the insurance contracts and the requirements with respect to the financial resources.

(5) In addition, the following shall be submitted

1. as regards health insurance within the meaning of section 12 (1) below and compulsory insurances the general insurance policy conditions,

1a. as regards health insurance within the meaning of section 12 (1) below the principles for the calculation of the premiums and mathematical provisions including the calculation bases and mathematical formulas used,

2. information about the intended reinsurance,

3. an estimate of the expenses for setting up the administrative services and the organisation for securing business; the undertaking shall prove that it disposes of the necessary funds for this purpose (organisation fund),

4. if an application is filed for authorisation to carry on insurance class 18 of part A of the annex information about the means of which the undertaking disposes to provide the promised assistance,

5. as regards the managers and directors the information necessary to judge their good repute and qualification (section 7a (1) below),

6. if any qualifying participations are held in an insurance undertaking (section 7a (2) below, third sentence)

a) disclosure of the holders and amounts of such participations,

b) information about the facts necessary to judge the requirements under section 7a (2) below, first and second sentences,

c) if such holders have to establish annual accounts, the annual accounts of the last three financial years including the audit reports of independent auditors if such reports have to be established, and

d) if such holders belong to a group of undertakings, information about the structure of the group and if annual accounts have to be established the consolidated accounts of the last three financial years including the audit reports of independent auditors if such reports have to be established,

6a. information about close relations existing between the insurance undertaking and another natural or legal person (section 8 (1), fourth sentence),

7. as regards the responsible actuary information necessary to judge his good repute and qualification (section 11a (1) below, sections 11e and 12 (2) below, second sentence).

(6) The Federal Finance Ministry shall have the power to lay down, by way of ordinance, provisions with respect to the nature, extent, and date of submission of the information to be provided in accordance with subsection 5 (5) and (6) above, section 13d (1) (2) (4) and (5) below to the extent that this is required for the supervisory authority to fulfil its duties. The above power may be transferred by ordinance to the BAV which shall stipulate the regulations in consultation with the supervisory authorities of the Länder (states).

Section 6

(1) The authorisation shall not be granted for a limited period of time unless otherwise provided for in the operating plan. It shall be granted, notwithstanding any limitation of the application, for the territory of all Member States of the European Community (EC) and all the other Member States of the European Economic Area (EEA) as provided for in the Anpassungsprotokoll (Adjustment Protocol) of 17th March, 1993 (BGBl. (Federal Law Gazette) 1993 II, p. 1294).

(2) The authorisation shall be granted for each class of insurance separately. It shall cover the entire class of insurance unless the undertaking intends to cover only part of the risks of such class of insurance in accordance with its operating plan.

(3) The authorisation may also be granted jointly for several classes of insurance under designations specified in part B of the annex.

(4) The authorisation granted for one or several classes of insurance shall also include coverage of additional risks of other classes of insurance if these risks relate to the risk of a class of insurance operated, concern the same object and are covered by the same contract. Risks of classes 14, 15 and 17 of part A of the annex shall not be deemed to be additional risks for the purpose of an authorisation granted for other classes of insurance. Risks of class 17 of part A of the annex which meet the requirements of the first sentence shall be covered by an authorisation granted for other classes of insurance if they refer to disputes or claims arising from the operation of ships on sea or relating to such operation or if the authorisation is granted for carrying on class 18 (a) of part A of the annex.

Section 7

(1) An authorisation may only be granted to public limited companies, mutual societies and corporations and institutions under public law.

(1a) The head office must be located within the country.

(2) The insurance undertakings shall be permitted to carry on in addition to insurance business only such other business as is directly related to it. Such a relationship shall be deemed to exist if in the case of dealings in futures, options and other financial instruments these are to serve as security against the risk of changes in market prices and interest rates of existing assets or of future purchases of securities or if any additional return is to be realised on existing securities without this resulting in any insufficient representation of the restricted assets when delivery commitments are met.

Section 7a

(1) The directors and managers of insurance undertakings shall be of good repute and professionally qualified. A prerequisite of professional qualification shall be sufficient theoretical and practical knowledge of insurance business and management experience. This shall be deemed to be the case if the director or manager can furnish proof of having held a managerial position with an insurance undertaking of comparable size and type of business for at least three years. Directors and managers shall be the natural persons who have been appointed in accordance with the law or articles of association or as authorised agents of a branch in an EC Member State or another EEA Member State to manage the business affairs and represent the insurance undertaking.

(2) The holders of a qualified participation in the insurance undertaking shall meet the requirements for the purpose of a sound and prudent management of the insurance undertaking and in particular be of good repute. If the participation is held by legal persons or partnerships the same shall apply to the natural persons who have been appointed in accordance with the law or articles of association to manage the business affairs and represent the insurance undertaking and the personally liable partners. A qualified participation shall be deemed to exist if either directly or indirectly through one or several subsidiaries at least 10 per cent of the nominal capital or voting rights of an insurance undertaking are held, or if at least 10 per cent of the members funds of a mutual society (section 22 below) have been subscribed, or if even though this percentage is not reached a decisive influence can be exercised on the management. As regards computation of the share of the voting rights, article 7, first sentence, of Council directive 88/627/EEC of 12th December 1988, on the information to be disclosed for the purchase and sale of a qualified participation in a listed undertaking (OJ of the EC No. L 348, p. 62) shall apply. Full allowance shall be made of the indirectly held participations for the purpose of the undertaking holding the indirect participations. Subsidiaries shall be deemed to be undertakings which are subsidiaries within the meaning of section 290 of the Handelsgesetzbuch (Commercial Code) irrespective of their legal form and head office; every subsidiary of a subsidiary shall also be deemed to be a subsidiary of the parent undertaking which exercises common control. Parent undertakings shall be deemed to be undertakings which are parent undertakings within the meaning of section 290 of the Handelsgesetzbuch irrespective of their legal form and head office.

Section 8

(1) Authorisation shall not be granted if

1. there are facts from which it may be concluded that the directors and managers do not meet the requirements under section 7a (1) above,

2. there are facts from which it may be concluded that the requirements of section 7a (2) above, first and second sentences, have not been met,

3. it has become apparent from the operating plan and the documents submitted in accordance with section 5 (4), third and fourth sentences, and subsection 5 above that the interests of the insured are not adequately safeguarded or the liabilities under the insurance contracts cannot be sufficiently deemed to be permanently fulfilled.

Authorisation may be refused if the insurance undertaking is affiliated to the holder of a qualified participation (section 7a (2) above, third sentence) and if because of this affiliation (section 15 of the Aktiengesetz) or the structure of the affiliation of the holder of the qualified participation to other undertakings does not permit any effective supervision of the insurance undertaking. The same shall apply if effective supervision of the insurance undertaking is not possible due to close links with another natural or legal person or due to the laws, regulations and administrative provisions of a non-EEA Member State applying to such a person. Close links shall be deemed to exist if

1. the insurance undertaking and a natural or another legal person are linked by virtue of a participation of at least 20 per cent of the nominal capital, voting rights or members funds, held either directly or indirectly through one or several subsidiaries;

2. the insurance undertaking and another undertaking are parent undertaking and subsidiary according to section 7a (2), sixth and seventh sentences, or if the insurance undertaking is linked in a similar way to a natural or another legal person.

Authorisation may also be refused if contrary to section 5 (5) above no sufficient information or documents have been submitted with the application.

(1a) The authorisation to carry on life insurance (classes 19 to 24 of part A of the annex) and the authorisation to carry on other classes of insurance shall be mutually exclusive. The same shall apply to the granting of an authorisation to carry on health insurance within the meaning of section 12 (1) below and of an authorisation to carry on other classes of insurance.

(2) An authorisation may be granted subject to certain requirements having been met.

(3) The supervisory authority shall defer decision on the application for authorisation or limit the authorisation following a decision by the Commission or Council of the European Communities which was taken in pursuance of article 29b (4) of the first Council directive 73/239/EEC of 24th July, 1973, on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ of the EC No. L 228, p. 3), or article 32b (4) of the first Council directive 79/267/EEC of 5th March, 1979, on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (OJ of the EC No. L 63, p. 1). Such deferral or limitation shall not exceed three months from the date on which such decision was taken. The first and second sentences shall also be applicable to proposals for authorisation submitted after the date when the decision was taken. If the Council of the European Communities decides to prolong the period of time according to the second sentence the supervisory authority shall observe such prolongation.

(4) Authorisation may not be refused for reasons other than those mentioned under subsections 1 and 1a above.

Section 8a

(1) An insurance undertaking which carries on legal expenses insurance together with other classes of insurance shall transfer the handling of claims under legal expenses insurance to another undertaking whose legal form is as specified under section 7 (1) above or that of another corporation (loss adjustment firm). Any such transfer shall be deemed to be an act of outsourcing.

(2) The loss adjustment firm shall not carry on any classes of insurance other than legal expenses insurance and not handle any claims in other classes of insurance.

(3) Section 7a (1) above shall apply accordingly to the directors and managers of the loss adjustment firm. They shall not carry out activities for an insurance undertaking which operates other classes of insurance in addition to legal expenses insurance. Employees entrusted with the handling of claims shall not be permitted to carry out any similar activity for such an insurance undertaking.

(4) The members of the board of directors and the employees of an insurance undertaking pursuant to subsection 1 above shall not give any instructions to the loss adjustment firm with respect to the handling of individual claims. The directors and managers and the employees of the loss adjustment firm shall not supply any such insurance undertaking with information which could lead to clashes of interests to the disadvantage of the insured.

(5) Subsections 1 to 4 above shall not apply to legal expenses insurance if it concerns disputes or claims resulting from the operation of ships on sea or if it is related to such operation.

Section 9

The articles of association of an insurance undertaking shall include the individual classes of insurance to be carried on and specify the principles of investment; they shall also specify whether insurance business is to be operated only directly or also indirectly (by way of reinsurance).

Section 10

(1) The general insurance policy conditions shall contain full information about:-

1. the events upon the occurrence of which the insurer shall be liable to pay benefits and the cases where for special reasons this liability shall be excluded or suspended;

2. the nature and size of the benefits of the insurer and when they fall due;

3. the date when the premium falls due and the legal consequences of a delay in payment;

4. the rights of the applicant and the insurer to influence the contents of the contract and the obligations and duties to disclose before and after loss occurrence;

5. the forfeiture of an insurance claim if periods stipulated are not observed;

6. the domestic jurisdictions;

7. the principles and standards according to which the insured participate in the surplus.

(2) The provisions of subsection 1 above may be incorporated in the articles of association of mutual societies and insurance undertakings under public law instead of the general insurance policy conditions.

(3) Subsection 1 above shall not be applicable to reinsurance and the large risks mentioned in article 10 (1) of the Einführungsgesetz zu dem Gesetz über den Versicherungsvertrag (Introductory Law of the Insurance Contract Law).

Section 10a

(1) The insurance undertakings shall ensure that the policyholder, if he is a natural person, is informed by way of information given to the consumer about the essential facts and rights under the insurance contract before the insurance contract is concluded and during the term of the contract in accordance with part D of the annex. In the case of large risks pursuant to article 10 (1) of the Einführungsgesetz zu dem Gesetz über den Versicherungsvertrag it shall be sufficient to mention the applicable law and the competent supervisory authority.

(1a) Prior to the conclusion of a private health insurance contract, the person interested in taking out the insurance shall confirm receipt of an official information sheet issued by the Federal Insurance Supervisory Office and explaining the different principles on which the public and private health insurance systems are based.

(2) The consumer information shall be clearly listed in writing and provided in unambiguous and comprehensible German language or native language of the policyholder.

(3) The number of proposals for the conclusion of legally independent insurance contracts covered by any proposal form shall only be such as not to affect clarity, legibility and comprehensibility. The applicant shall be informed in writing emphasising, in particular, the legal independence of the contracts for which proposals have been submitted including the relevant insurance policy conditions, and the periods of validity of the proposals and the terms of the contracts.

Section 11

(1) Premiums in life insurance shall be sufficient on reasonable actuarial assumptions for the insurance undertakings to meet all their liabilities, and, in particular to establish adequate mathematical provisions for the individual contracts. For this purpose, the financial situation of an insurance undertaking may be taken into account, without any systematic and permanent use of input from resources other than premiums being permitted.

(2) If the prerequisites are the same, the same principles shall be used to calculate both premiums and benefits.

Section 11a

(1) Every life insurance undertaking shall appoint a responsible actuary. He shall be of good repute and professionally qualified. To meet the qualification requirement the actuary shall dispose of adequate knowledge in the field of actuarial theory and professional experience. He shall be deemed to dispose of adequate professional experience if he can furnish proof of having carried on an activity as actuary for at least three years.

(2) Before appointing the envisaged responsible actuary the insurance undertaking shall inform the supervisory authority and provide it with the necessary information to judge his good repute and professional qualification in accordance with subsection 1 above. If there is evidence of the envisaged responsible actuary not meeting the good-repute or qualification requirement, the supervisory authority may require that another person be appointed. If after the appointment there should be evidence of certain circumstances which would have prevented his appointment or if the responsible actuary does not properly fulfil his duties set out in this law, the supervisory authority may require that another responsible actuary be appointed.

If in the cases mentioned in the second and third sentences also the envisaged or the freshly appointed responsible actuary does not meet the requirements or if no fresh appointment is made, the supervisory authority may appoint a responsible actuary itself. Whenever the appointment of the responsible actuary comes to an end, the supervisory authority shall be informed without delay.

(3) The duties of the responsible actuary shall be as follows:-

1. He shall ensure that both the premiums and mathematical provisions are calculated in accordance with the principles of section 11 above and the ordinances issued pursuant to section 65 (1) below and section 341f of the Handelsgesetzbuch. He shall investigate the financial situation of the undertaking in particular as to whether the undertaking is in a position to meet its liabilities under the insurance contracts at any time and whether it disposes of adequate resources in the amount of the solvency margin.

2. Other than in the case of a kleinerer Verein (mutual society with limited activity) (section 53 (1) below, first sentence) he shall certify at the end of the balance sheet that the mathematical provision has been established in accordance with section 341f of the Handelsgesetzbuchand the ordinances issued in accordance with section 65 (1) below (actuarial certification); section 341k of the Handelsgesetzbuchrelating to auditing shall not be affected. He shall specify in a report to the board of directors of the undertaking the underlying calculation bases and any additional assumptions for his certification.

3. As soon as he realises on performing his legal duties that he will possibly not be able to grant a certification in accordance with paragraph 2 above or be able to grant only a qualified certification, he shall inform the board of directors and, if the board does not take any remedial action immediately, the supervisory authority without delay.

4. For the purpose of insurance contracts with profit participation he shall submit to the board of directors proposals for adequate participation in such profits.

(4) The board of directors of the undertaking shall be obliged

1. to make available to the responsible actuary all the necessary information which will enable him to fulfil his duties properly in pursuance of subsection 3 above, and

2. to deposit with the supervisory authority the report with respect to actuarial certification in accordance with subsection 3 (2) above.

(5) Death benefit and pension funds which do not meet the requirement of section 156a (3) below, fifth sentence, shall not be subject to subsection 3 (1), first sentence and paragraph 2, second sentence, and subsection 4 (2) above. The obligation to investigate pursuant to subsection 3 (1) above, second sentence, shall also apply in these cases. Subsection 3 (2) above, first sentence, shall apply subject to the requirement that the certification mentioned is replaced by a certification to the effect that the mathematical provision has been established in compliance with the approved operating plan (actuarial certification).

(6) The Federal Finance Ministry shall have the power to lay down by ordinance the wording of the actuarial certificate and any further details regarding the contents and scope of the report to which subsection 3 (2) and subsection 5 above relate and the period available for submission of the report. This power may be transferred by ordinance to the BAV which shall stipulate regulations in consultation with the supervisory authorities of the states (Länder).

Section 11b

If the insurance policy conditions of life insurance contracts concluded after 28th July, 1994, permit to change the premiums and the provisions concerning profit participation of existing insurance contracts, any such changes may not become effective unless they have been approved by an independent trustee. Section 12b (3) and (4) below and section 12d (2) below shall apply to the trustee accordingly. Approval by an independent trustee shall not be required if changes in accordance with the first sentence have to be approved by the supervisory authority.

Section 11c

As regards life insurance contracts concluded before 29th July, 1994, (existing contracts) the operating plan approved by the supervisory authority before that date shall remain fully applicable. Section 13 (1) below in conjunction with section 8 (1), first sentence, paragraph 3 above shall apply to changes of the operating plan. Section 11a (1) (2) and (4) above shall apply accordingly and subsection 3 above subject to the requirement that the mathematical provision has to be calculated in accordance with the applicable operating plan.

Section 11d

If accident insurance undertakings write insurances with premium refunds sections 11 to 11c above shall apply accordingly

Section 11e

Für die Berechnung der Deckungsrückstellung von Renten in der Allgemeinen Haftpflichtversicherung, der Kraftfahrzeug-Haftpflichtversicherung, der Kraftfahrt-Unfallversicherung sowie der Allgemeinen Unfallversicherung ohne Rückgewähr der Prämie gilt § 11a entsprechend.

Section 12

(1) To the extent that health insurance is appropriate to be a substitute for compulsory health insurance (substitutive health insurance) wholly or partly it shall be treated in the same way as life insurance within the country, whereby

1. the premiums shall be calculated in accordance with actuarial principles on the basis of probability tables and other pertinent statistical data taking into account, in particular, any relevant assumptions with respect to the invalidity and sickness risk, mortality, dependence of the risk on age and sex and probability of cancellation and taking into account safety loadings and other loadings and a maximum technical interest rate of 3.5 per cent,

2. the old age provision shall be established in accordance with section 341f of the Handelsgesetzbuch,

3. in the insurance contract the right of the insurance undertaking to a contractual or statutory notice of termination, in hospital daily allowance insurance from the fourth year of insurance at the latest, shall be excluded and a premium increase shall be permitted,

4. the policyholder shall be granted in the insurance contract the right to modify the contract by choosing other rates with comparable coverage while the rights and old age provision entitlements acquired so far under the contract shall be maintained.

(2) Insurance undertakings writing substitutive health insurance shall appoint a responsible actuary. Section 11a (1), second to fourth sentences, and subsection 2 above shall apply accordingly.

(3) The duties of the responsible actuary shall be as follows:-

1. He shall ensure that in calculating both the premiums and mathematical provisions in particular old age provision the actuarial methods (subsection 1 (1) and (2) above) are followed and the regulations of the ordinance issued in pursuance of section 12c below are observed. He shall investigate the financial situation of the undertaking in particular as to whether the undertaking is in a position to meet its liabilities under the insurance contracts at any time and whether it disposes of adequate resources in the amount of the solvency margin.

2. He shall certify at the end of the balance sheet that the old age provision has been calculated in accordance with paragraph 1 above (actuarial certification). This does not apply to kleinere Vereine(section 53 (1) below, first sentence).

Section 11a (3) (3) and subsection 4 (1) above shall apply accordingly.

(4) As regards substitutive health insurance section 11 (2) above shall apply accordingly. The premiums for new business shall not be lower than the premiums for the insured of the same age under the existing portfolio of insurance contracts leaving out of account their old age provision.

(4a) In substitutive medical expenses insurance, at the latest at the beginning of the calendar year following the year of the insured’s attaining the age of 21 and ending in the calendar year of the insured person’s attaining the age of 60, a loading of 10 per cent of the annual zillmered gross premium shall be charged to the insured, allocated annually and directly to the old-age provision pursuant to section 341 f (3) of the Handelsgesetzbuch, and used for the purpose of premium reduction in old age in accordance with section 12a (2a) below. The first sentence above shall not apply to health insurance involving agreed contract terms covering the insured during periods of training or education, stays abroad, or travels, and to tariffs terminating at the latest upon the insured’s attaining the age of 65.

(5) If the non-substitutive health insurance is treated in the same way as life insurance subsections 1 to 4 above shall apply accordingly.

Section 12a

In medical expenses insurance and voluntary nursing care insurance (nursing care medical expenses and nursing care daily benefit insurance) operated in accordance with the technical principles of life insurance, the insurance undertaking shall directly credit annually to the insured investment income attributable to the sum of the respective positive old-age provision of the insurances concerned available at the end of the preceding financial year. The amount credited shall be 90 per cent of the average yield exceeding the yield obtained by applying the technical interest rate (excess yield from interest payments).

(2) The full share of the amount determined in accordance with subsection 1 above which is attributable to the share of the old-age provision that has been accumulated from the loading shall be credited annually to the insured who paid the loading under section 12 (4a) above, until the end of the financial year of their attaining the age of 65. Of the remaining amount, 50 per cent shall be credited directly to the old-age provision of all insured persons. The percentage rate referred to in the second sentence above shall increase annually by two per cent, from the financial year of the insurance undertaking beginning in 2001, until it attains 100 per cent.

(2a) The amounts referred to in subsection 2 above shall be used, from the moment the insured attains the age of 65, to fund, for an unlimited period, the additional premiums arising from premium increases, or a portion of the additional premiums, insofar as the available funds are not sufficient to fund the additional premiums fully. Amounts which have not been used up shall be used for a premium reduction from the moment the insured attains the age of 80. Any subsequent allocations shall be used for an immediate premium reduction. In voluntary nursing care daily benefit insurance the insurance policy conditions may provide for increased benefits instead of a premium reduction.

(3) The share of the investment income determined in accordance with subsection 1 above which remains after deduction of the amounts used in accordance with subsection 2 above shall be set aside in favour of the insured who, by the balance sheet date, have attained the age of 65 for a profit-unrelated premium refund and be used within a period of three years to avoid or limit premium increases, or to reduce premiums. In derogation of the first sentence above, 25 per cent may be used, until the balance-sheet date following January 1, 2010, also for insured persons who have attained the age of 55 but not yet the age of 65. The premium reduction as per the first sentence above may be limited to prevent that the premium of the insured will fall below the initial premium paid at the age at entry; the portion of the amount credited which has not been used up shall be credited additionally in accordance with subsection 2 above.

Section 12b

(1) As regards health insurance treated in the same way as life insurance premium adjustments in compliance with a premium adjustment clause shall not be made unless an independent trustee has approved of the adjustment. The trustee shall verify whether the premium has been calculated in accordance with the existing legal requirements. For this purpose, he shall be made available all technical calculation bases required to verify the premium adjustments including the necessary supporting documents and data. The technical calculation bases shall comprise all the principles for the calculation of the premiums and old age provision including the calculation bases and mathematical formulas used. Approval shall be granted if the requirements of the second sentence have been met.

(1a) The following shall be subject to the approval of the trustee:

1. The date and the amount of the withdrawal and the use of funds from the provision for profit-unrelated premium refunds to the extent that they are to be used in accordance with section 12 a (3);

2. The use of the funds from the provision for profit-related refunds.

Where the first sentence, nos. 1 and 2, above applies, the trustee shall see to it that the conditions provided in the articles of association and the insurance policy conditions are met and that the interests of the insured are sufficiently safeguarded. In respect of the use of funds to limit premium increases, he shall in particular see to an appropriate distribution on the groups of the insured who paid the loading to the premium under section 12 (4a) and those who did not, and he shall sufficiently take into account the aspect of reasonableness of the premium increases in per cent and in absolute figures for the older insured

(2) The insurance undertaking shall for every rate calculated in the same way as in life insurance compare at least annually the required insurance benefits with the calculated insurance benefits. If the comparison to be submitted to the supervisory authority and the trustee shows a deviation of more than 10 per cent for a certain rate, provided the general insurance policy conditions do not require a lower percentage, the undertaking shall examine all premiums under this rate and, if the deviation may be considered not to be only temporary, adjust them with the approval of the trustee. There shall be no adjustment if the insurance benefits were insufficient when they were calculated for the first time, or recalculated, and a prudent and conscientious actuary should have recognised this. In this connection the fixed amount of any retention may also be adjusted and any agreed premium loading changed accordingly if this has been stipulated in the contract. If in the opinion of the trustee premium increases or reductions are necessary for a rate wholly or partly and if no agreement can be reached with the undertaking the trustee shall inform the supervisory authority without delay.

(3) Only persons shall be appointed trustee who are of good repute and professionally qualified and not linked with the insurance undertaking and who in particular do not have concluded with the insurance undertaking or any associated undertaking an employment contract or other service contract. To meet the qualification requirement the trustee shall dispose of adequate knowledge in the field of premium calculation in health insurance.

(4) Before appointing the designated trustee the supervisory authority shall be informed and provided with the necessary information to judge the requirements in accordance with subsection 3 above. If there is evidence of the designated trustee not meeting the good- repute or professional qualification requirement, the supervisory authority may require that another person be appointed. If after the appointment there should be evidence of certain circumstances which would have prevented his being appointed in accordance with subsection 3 above or if the trustee does not properly fulfil his duties set out in this law, in particular if he approves of any premium adjustment which does not comply with the legal requirements, the supervisory authority may require that another trustee be appointed. If in the cases mentioned in the second and third sentences also the designated or the freshly appointed trustee does not meet the requirements or if no fresh appointment is made, the supervisory authority itself may appoint a trustee.

Section 12c

(1) The Federal Finance Ministry shall have the power to lay down by ordinance for health insurance treated in the same way as life insurance

1. the actuarial methods for the calculation of the premiums including premium adjustments and the mathematical provisions mainly the old age provision taking into account in particular the relevant assumptions with regard to the invalidity and sickness risk, mortality, dependence of the risk on age and sex, and probability of cancellation as well as the amount of the safety loading and interest rate and the principles for the assessment of the other loadings,

2. more detailed provisions with regard to the similarity of the insurance coverage and allowance for the acquired rights and old age provision entitlements in case of change to a different rate in accordance with section 12 (1) (4) above,

3. provisions on how to determine the excess yield from interest payments in accordance with section 12a (1) above, how to distribute the amounts among the entitled insured in accordance with section 12a (2) and (3) above, and how to determine the initial premium at the age at entry,

4. the procedure to compare the required insurance benefits with the calculated insurance benefits in accordance with section 12b (2) above, first and second sentences, and the period available for submitting this comparison to the supervisory authority and the trustee.

This power may be transferred by ordinance to the BAV which shall stipulate regulations in consultation with the supervisory authorities of the states (Länder).

(2) Ordinances in accordance with subsection 1, first sentence, paragraph 1 above shall be issued in agreement with the Federal Ministry of Justice. This shall also apply to ordinances in accordance with subsection 1 above, second sentence, if they serve to transfer the power to issue ordinances in accordance with subsection 1, first sentence, paragraph 1 above.

Section 12d

(1) If with regard to health insurance treated in the same way as life insurance the premiums for insurance contracts concluded before 29th July, 1994, may be adjusted under an adjustment clause with the approval of the supervisory authority, such approval by the supervisory authority shall be replaced by the consent of the trustee (section 12b (1) and (2) above).

(2) If the insurance undertaking does not appoint for health insurance treated in the same way as life insurance a trustee who meets the requirements under section 12b (3) above, the supervisory authority may assume the duties of the trustee at the expense of the insurance undertaking. The first sentence shall no longer be applicable if a sufficient number of trustees who meet the requirements under section 12b (3) above offer their services within the country. The Federal Finance Minister shall have the power to determine by way of an ordinance not requiring approval by the Bundesrat when the requirements of the second sentence shall be deemed to have been met.

Section 12e

(1)As regards insurance contracts concluded before January 1, 2000, section 12 (4a) shall apply subject to the requirement that

1. the loading shall be charged for the first time on the 1st of January of the calendar year which follows the 1st of January 2000;

2. in the first year, the loading shall be two per cent of the gross premium and increase on each 1st of January of the following years by two per cent to an amount not exceeding 10 per cent of the gross premium, unless it is dropped because of the insured’s attaining the age of 60;

3. the insurance undertaking is obliged of inform the policyholder in good time before the loading is charged for the first time of its amount and the annual increases;

4. the loading shall only be charged if the policyholder does not object in writing within three months after receipt of the information as per no. 3 above.

Section 13

(1) Any change in the operating plan shall not become effective until it has been approved by the supervisory authority. The first sentence shall not apply to amendments to the articles of association whose purpose it is to increase capital. Section 8 above shall apply accordingly.

(1a) Subsection 1 above shall not apply to outsourcing contracts (section 5 (3) (4) above). Any such contracts concluded with insurance undertakings subject to supervision under this law shall not become effective until they have been submitted to the supervisory authority. Any such contracts concluded with other undertakings shall not become effective until three months have elapsed from their deposit with the supervisory authority provided the latter did not object on the grounds mentioned in section 8 (1) above. The supervisory authority shall be authorised to extend this period to six months where this is justified by circumstances. This period of time shall end earlier as soon as the supervisory authority finds that the contracts are unobjectionable. The second to fifth sentences shall not apply if only the remuneration has been changed. Changes of remuneration in contracts with affiliated undertakings (section 15 of the Aktiengesetz) and undertakings treated like them in accordance with section 53d (3) below shall not become effective until the amended contract has been deposited with the supervisory authority. Section 53d below shall not be affected.

(2) If business operations are to be extended to other classes of insurance supporting documents shall be submitted in accordance with section 5 (3) to (5) above. In addition, the undertaking shall prove that it disposes of own funds in the amount of the solvency margin (section 53c (1) below, first sentence) or the minimum guarantee fund prescribed for the new activity if the latter is greater.

(3) If business operations are to be extended to an area not located in the EC Member States and other EEA Member States proof shall be given that also after the intended extension of its business operations the undertaking will meet the financial resources requirements of the EC Member States and the other EEA Member States and that if it establishes a branch in an area not located in the EC Member States and the other EEA Member States the undertaking has been granted the authorisation to carry on business required there; in addition, it shall specify which classes and types of insurance it intends to operate.

Section 13a

(1) The insurance undertaking shall be permitted to operate direct insurance business on an establishment or services basis in the other EC Member States and the other EEA Member States according to sections 13b and 13c below. A branch shall also be deemed to exist if insurance business is operated through an independent person though permanently in charge of such business from a facility in such other EC or EEA Member State. The first and second sentences shall not apply to pension and death benefit funds; section 13 (3) above shall apply to them subject to the requirement that it shall be applicable to any activity carried out abroad.

(2) Provision of services within the meaning of this law shall mean that the insurance undertaking whose head office is in an EC or EEA Member State covers from its head office or its branch in an EC or EEA Member State by way of direct insurance risks located in another EC or EEA Member State without the undertaking making use there of a branch. An EC or EEA Member State in which the risk is located shall mean

1. as regards the insurance of risks with respect to immovables in particular buildings and plants and equipment installed there covered by the same contract, the EC or EEA Member State where these are located,

2. as regards the insurance of risks with respect to vehicles of any kind to be entered into an official or officially recognised register and provided with a distinguishing number in an EC or EEA Member State, such EC or EEA Member State,

3. as regards the insurance of travel and holiday risks in insurance contracts of a maximum term of four months, the EC or EEA Member State in which the applicant performed the legal acts required for the conclusion of the contract,

4. in all the other cases,

a) if the policyholder is a natural person, the EC or EEA Member State in which he has his habitual residence,

b) if the policyholder is not a natural person, the EC or EEA Member State in which the undertaking, facility or relevant installation is located to which the contract refers.

Section 13b

(1) The insurance undertaking shall notify to the supervisory authority the intended establishment of a branch and mention the relevant EC or EEA Member State. This notification shall include:-

1. the information and estimations under section 5 (3) (2), subsection 4, third and fourth sentences, and subsection 5 (3) and (4) above; if health insurance is to be written within the meaning of article 54 (2) of the Council directive 92/49/EEC of 18th June, 1992, on the coordination of laws, regulations and administrative provisions for direct insurance (other than life insurance) and amendment of directives 73/239/EEC and 88/357/EEC (third non-life directive) (OJ of the EC No. L 228, p. 1), additionally the information in accordance with section 5 (5) (1a) above,

2. information about the organisational structure,

3. the name of the designated authorised agent who shall possess sufficient powers to bind the undertaking in relation to third parties and to represent it in relations with the authorities and courts of the other EC or EEA Member State,

4. the prospective address which shall also be the business address of the authorised agent,

5. if the risks mentioned in part A (10) (a) of the annex are to be covered through the branch, a statement to the effect that the undertaking has become member of the national indemnity fund for the victims of road accidents caused by uninsured or unidentified motor vehicles and of the national bureau in the other EC or EEA Member State.

(2) The supervisory authority shall examine for the purpose of the above within a period of three months of receipt of the documents mentioned under subsection 1 above, second sentence, in addition to the lawfulness, the adequacy of the administrative structures and the financial situation of the undertaking and if the authorised agent and responsible managers or directors of the branch meet the requirements of section 7a (1) above. If no objection can be made it shall send, before the above period has expired, to the supervisory authority of the other EC or EEA Member State

1. these documents, and

2. a certificate to the effect that the undertaking disposes of own funds in the amount of the solvency margin or of the minimum guarantee fund required for the classes of insurance operated, whichever is the greater, and inform the undertaking accordingly. In the contrary case it shall inform the undertaking before the above period has expired that approval for the establishment of a branch will not be granted and give the grounds for not granting it.

(3) In the case of subsection 2 above, second sentence, the branch may be established and take up its activities if two months have elapsed since the undertaking received the notification unless the supervisory authority of the other EC or EEA Member State has specified an earlier date.

(4) The insurance undertaking shall notify to the supervisory authority any changes in the information provided in accordance with subsection 1, second sentence, paragraphs 1 to 4 above not later than one month before it is intended to put such changes into effect. Otherwise, subsection 2 above shall apply accordingly.

Section 13c

(1) The insurance undertaking shall notify to the supervisory authority that it intends to carry on business under the freedom of services provision mentioning the relevant EC or EEA Member State. It shall also state which classes of insurance it intends to operate and which risks of an insurance class it intends to cover there; if health insurance is to be written within the meaning of article 54 (2) of the third non-life directive the information in accordance with section 5 (5) (1a) above shall additionally be provided. As regards the coverage of risks pursuant to part A (10) (a) of the annex the notification shall to the extent that this is required in compliance with the laws of the other EC or EEA Member State also include:-

1. a declaration in accordance with section 13b (1), first sentence, paragraph 5 above,

2. the name and business address of a representative (representative for the settlement of losses) residing or established in the other EC or EEA Member State to whom section 7a (1) above, first sentence, shall apply accordingly and who

a) collects all the necessary information about losses and disposes of the necessary furniture and fixtures for this purpose,

b) disposes of adequate powers to represent the undertaking with respect to persons making claims in and out of court in particular vis-à-vis administrative authorities and to confer any relevant authority,

c) until final settlement of the claim disposes of adequate powers to pay the amounts due in respect of such claims, and

d) has the power to represent the undertaking in relations with the authorities of the other EC or EEA Member State as regards the existence and validity of the insurance contracts.

(2) The supervisory authority shall examine within a period of one month of receipt of the documents mentioned in subsection 1 above, second and third sentences, the lawfulness of the intended business. If no objection can be made it shall send before the above period has expired to the supervisory authority of the other EC or EEA Member State

1. these documents,

2. a certificate about the classes of insurance the undertaking shall be permitted to operate and the risks of an insurance class it shall be permitted to cover,

3. a certificate pursuant to section 13b (2), second sentence, paragraph 2 above and inform the undertaking accordingly. In the contrary case it shall inform the undertaking before the above period has expired that approval for operating direct insurance business by way of provision of services will not be granted and give the grounds for not granting it. Approval shall be deemed to have been denied if a notification of the supervisory authority has not been received by the end of the above period of time.

(3) In the case of subsection 2 above, second sentence, the undertaking may take up its activity on receipt of the relevant notification.

(4) Subsections 1 to 3 above shall also apply if the undertaking wishes to operate additional classes of insurance or cover additional risks or appoint another representative for the settlement of claims.

Section 13d

The insurance undertakings shall inform the supervisory authority immediately about

1. the appointment of a manager or director stating all essential facts to judge his good repute and qualification (section 7a (1) above),

2. the resignation of a manager or director,

3. amendments to the articles of association for the purpose of increasing the capital,

4. the acquisition or sale of a qualifying participation in an insurance undertaking, incidents where the participation limits of 20 per cent, 33 per cent and 50 per cent of the voting rights or nominal capital have been reached, exceeded or not been reached as well as the fact that the insurance undertaking will become or no longer is a subsidiary (section 7a (2) above, sixth sentence) of another undertaking as soon as the insurance undertaking has been informed about such changes in the participations,

4a. the existence, modification or abandonment of any other close link pursuant to section 8 (1), fourth sentence,

5. the name and address of the holder of a qualifying participation in an insurance undertaking and the amount of the participation annually as soon as the undertaking has been informed about it,

6. the principles for the calculation of the premiums and mathematical provisions including the calculation bases and mathematical formulas used, which they shall also submit, after having been granted an authorisation to operate life insurance; this shall also apply when new or changed principles are used,

7. the intended use of new or changed general insurance policy conditions, which they shall also submit, with respect to health insurance within the meaning of section 12 (1) above and compulsory insurances,

8. the intended use of new or changed principles within the meaning of section 5 (5) (1a), which they shall also submit, with respect to health insurance within the meaning of section 12 (1) above.

Section 14

(1) Any contract by which the portfolio of insurance contracts of an undertaking is to be transferred wholly or partly to another undertaking shall be approved by the responsible supervisory authorities of the undertakings in question. The transferee undertaking shall prove that after the transfer it will dispose of own funds in the amount of the solvency margin. Otherwise, section 8 above shall apply accordingly. For the purpose of the portfolio transfer the rights and obligations of the transferor undertaking under the insurance contracts shall also in relation to the policyholders be transferred to the transferee undertaking; section 415 of the Bürgerliches Gesetzbuch (Civil Code) shall not be applicable.

(1a) If a domestic insurance undertaking transfers wholly or partly a portfolio of insurance contracts concluded in accordance with section 13a above on an establishment or services basis to an undertaking which has its head office in an EC Member State or another EEA Member State only the approval of the responsible supervisory authority of the transferor undertaking shall be required in derogation of subsection 1 above, first sentence. The approval shall be granted, provided there is no ground on which to deny it in accordance with subsection 1 above, third sentence, only if

1. it has been proved by a certificate made out by the supervisory authority of the home Member State that after the transfer the transferee undertaking will dispose of own funds in the amount of the solvency margin,

2. the supervisory authorities of the EC or EEA Member States in which the risks of the portfolio of insurance contracts are located have given their approval, and

3. in the case of transfer of the portfolio of insurance contracts of a branch the supervisory authority of the EC or EEA Member State of the branch has been consulted.

The first and second sentences of paragraph 1 above shall also apply to the transfer of a portfolio of insurance contracts concluded within the country. In the cases of the first and third sentences subsection 1 above, fourth sentence shall apply accordingly.

(2) The contract covering a portfolio transfer shall be concluded in writing; section 311 of the Bürgerliches Gesetzbuch shall not be applicable.

(3) Approval of the portfolio transfer shall be published in the Bundesanzeiger(Federal Gazette). If only supervisory authorities of the states (Länder) are concerned publication in the relevant gazettes of the states (Länder) shall be sufficient.

Section 14a

Any transformation of an insurance undertaking in accordance with section 1 of the Umwandlungsgesetz (Law regulating Transformation of Undertakings) shall be subject to approval by the supervisory authority. Section 14 (1), second to fourth sentences, shall apply accordingly. Approval may also be rejected if the transformation requirements have not been met.

III. Mutual Societies

Section 15

A society which intends to insure its members according to the mutuality principle shall acquire legal capacity by receiving from the supervisory authority permission to carry on business as a “mutual society”.

Section 16

The requirements of the first and fourth books of the Handelsgesetzbuch with respect to merchants shall, with the exception of sections 1 to 7 above, apply to mutual societies accordingly unless otherwise provided in this law. As regards accounting the requirements of the second subsection of the fourth section in conjunction with the requirements of the first and second sections of the third book of the Handelsgesetzbuch shall apply accordingly.

Section 17

(1) The statutory framework of a mutual society shall be laid down in its articles of association unless otherwise provided in this law.

(2) The articles of association shall be certified by a notary.

Section 18

(1) The articles of association shall lay down the name and head office of the society.

(2) It shall be possible to infer from the name where the society is located. It shall also be stated in the name or in a supplement that insurance is carried on on a mutual basis.

Section 19

As regards the liabilities of the mutual society its creditors shall only be entitled to the assets of the mutual society. The members shall not be liable for claims of the creditors.

Section 20

The articles of association shall include provisions about the beginning of membership. A requirement for membership shall be to conclude an insurance contract with the mutual society. Membership shall end on termination of the insurance contract unless otherwise provided in the articles of association

Section 21

(1) Contributions to be paid by the members and benefits payable to the members shall under similar conditions be determined only on an equality basis.

(2) The mutual society shall not be entitled to carry on insurance business against fixed premiums without the policyholder having to become a member unless this has been expressly permitted by the articles of association.

Section 22

(1) The articles of association shall provide for the establishment of members funds to cover the cost of the foundation of the mutual society and serve as guarantee and operational funds. The articles of association shall contain the conditions on which the members funds shall be at the disposal of the society and in particular stipulate how they shall be repaid and if and to what extent the persons who made available the funds shall be entitled to participate in the management of the mutual society.

(2) For the purpose of paying in the members funds, only legal tender, checks certified by the Deutsche Bundesbank, payments into a domestic account with the Deutsche Bundesbank or a credit institution or postal giro account of the society or its board of directors, available at its free disposal, shall be permitted. Any claims of the board of directors against these paid-in funds shall be deemed to be claims of the society. The articles of association may permit promissory notes instead of the above payments.

(3) The persons who made available the funds shall not be granted a right to call for repayment. In the articles of association they may be entitled, in addition to interest payments on the annual income, to participation in the profit as shown in the annual balance sheet; it is within the discretion of the supervisory authority to decide on the maximum percentage by which both interests and total payments received may exceed the paid-in cash amount. The members funds may be divided into shares for which share certificates may be issued.

(4) The members funds may be repaid only out of the annual income and only to the extent that the loss reserve under section 37 below has increased; repayment shall begin as soon as the capitalised expenses for starting operations have been fully written off.

Section 23

(repealed)

Section 24

(1) The articles of association shall stipulate whether the expenses are to be covered by single or recurring contributions to be paid in advance or by contributions distributing the actually required amount among the members (required contributions).

(2) If the contributions are to be paid in advance the articles of association shall also specify whether a right to collect supplementary contributions is reserved or excluded; if it is to be excluded it shall also be specified whether the benefits may be reduced.

(3) The articles of association may provide maximum amounts for supplementary contributions and required contributions. Any restriction to the effect that payments of supplementary contributions or required contributions may only be invited to cover the claims of the members shall not be permitted

Section 25

(1) Members who left or joined the mutual society during the financial year shall also be liable to pay supplementary contributions or required contributions. Their obligation to pay contributions shall depend on the length of time they have been members in the financial year.

(2) If the supplementary contribution or the required contribution of a member is determined on the basis of the contribution paid in advance or the sum insured and if the contribution or sum insured has been increased or reduced during the financial year the higher amount shall be taken as a basis for the calculation.

(3) Subsections 1 and 2 above shall apply unless otherwise provided in the articles of association.

Section 26

A member shall not be entitled to set off the obligation to pay contributions against a claim the member may have against the mutual society.

Section 27

(1) The articles of association shall specify the conditions under which supplementary contributions or required contributions may be invited, in particular, to what extent other funds (members’ funds, reserves) shall be used first.

(2) The articles of association shall also specify how the supplementary contributions or required contributions are to be invited and collected.

Section 28

(1) The articles of association shall stipulate how notices of the mutual society are to be published.

(2) Notices to be published in the press shall also be included in the Bundesanzeiger (Federal Law Gazette) if the business operations of the mutual society extend beyond a single state (Land); the supervisory authority may, however, grant exemptions. If business operations are limited to a single state (Land) the highest authority of that state may designate another paper instead of the Bundesanzeiger. Other papers shall be designated by the articles of association.

Section 29

The articles of association shall specify how a board of directors, a supervisory board and supreme representation (supreme body; assembly of members or of representatives of the members) shall be established.

Section 30

(1) All members of the board of directors and supervisory board shall apply for registration of the mutual society with the court of the district where the society has its head office. The application shall state the power of the individual members of the board of directors to represent the society.

(2) The supervisory authority shall inform the registration court of any authorisation to carry on business granted in accordance with section 15 above.

Section 31

(1) The application shall be accompanied by

1. the document authorising the society to carry on business;

2. the articles of association;

3. the document relating to the appointment of the board of directors and the supervisory board;

4. the document relating to the establishment of the members funds together with a statement by the board of directors and the supervisory board as to how and to what extent the members funds have been paid in and that the paid-in amount is definitely at the free disposal of the board of directors.

(2) The members of the board of directors shall deposit their signatures with the court.

(3) Originals or certified copies of the documents accompanying the application shall be deposited with the court.

Section 32

(1) It shall be entered into the commercial register the name and head office of the mutual society, the classes of insurance to be operated, the amount of the members funds, the date on which authorisation to carry on business was granted, and the names of the members of the board of directors. The powers of the members of the board of directors to represent the society shall also be entered.

(2) If the articles of association include any provision with regard to the lifetime of the society this shall also be entered.

Section 33

The following shall be published together with the contents of the entry:

1. whether the expenses shall be covered by contributions paid in advance or distributed among the members later and if in the case of contributions to be paid in advance a right to collect supplementary contributions is reserved or excluded, whether the obligation to pay contributions is limited and whether insurance benefits may be reduced (section 24 above);

2. the provisions under section 28 above;

3. how the bodies to represent the society shall be appointed and composed;

4. the members (name, status and place of residence) of the first supervisory board;

5. how the supreme representation shall be appointed.

Section 34

The board of directors shall consist of at least two persons. Section 76 (1) and (3) and sections 77 to 91, 93 and 94 of the Aktiengesetz shall apply to the board of directors accordingly. The provisions contained therein with regard to decisions taken by the general assembly shall apply here to the decisions taken by the supreme representation. Section 93 (3) of the Aktiengesetz shall be replaced by the following provision:-

The members of the board of directors shall in particular be liable to indemnification if in defiance of the law

1. the members’ funds are repaid or interest is paid thereon,

2. the assets of the mutual society are distributed,

3. payments are made after the society has become insolvent or any debt overload has become apparent; this shall not apply to payments which also thereafter are consistent with the care and diligence of a manager or director,

4. credit is granted.

Section 35

(1) The supervisory board shall consist of three members. The articles of association may specify a higher number. It shall be possible to divide this number by three. The maximum number of board members shall be twenty-one.

(2) The supervisory board of mutual societies to which section 76 of the Betriebsver-fassungsgesetz applies in accordance with section 77 (2) of the Betriebsverfassungsgesetz (Works Constitution Law) shall be composed of members elected by the supreme representation of the society and members representing the employees; as regards other societies it shall be composed only of members elected by the supreme representation.

(3) Section 30 (2) and (3), first sentence and first half of the second sentence, section 96 (2), sections 97 to 100, section 101 (1) and (3), sections 102, 103 (1), (3) to (5) and sections 104 to 116 of the Aktiengesetz shall apply to the supervisory board accordingly. The duties assigned there to the shareholders meeting shall in this case be performed by the supreme representation. Every member of the supreme representation shall have the right to file motions in accordance with section 98 (2) (3) and section 104 (1), first sentence, of the Aktiengesetz. Section 113 (3) of the Aktiengesetz shall be replaced by the following provisions which shall apply in addition to section 116 of the Aktiengesetz:-

1. If the members of the supervisory board are entitled to profit participations these shall be calculated on the basis of the annual surplus less accumulated losses brought forward and transfers to earnings reserves; the shares in the surplus to which pursuant to section 22 (3) above the persons are entitled who made available the members funds shall be deducted. Any provisions to the contrary shall be void.

2. The members of the supervisory board shall in particular be liable to indemnification if any of the acts under section 34 above, fourth sentence, are performed with their knowledge and without their taking any actions.

Section 35a

Section 117 of the Aktiengesetz shall apply accordingly.

Section 36

The provisions of sections 118, 119 (1) (1) to (3), (5), (7) and (8) and subsection 2, sections 120, 121 (1) to (3) and (4), first sentence, sections 122, 123 (1), sections 124 to 127, 129 (1) and (4), sections 130 to 133, 134 (4) and sections 136, 142 to 147, 241 to 253 and 257 to 261 of the Aktiengesetz applicable to the shareholders meeting shall apply to the supreme representation accordingly. Section 256 of the Aktiengesetz shall apply accordingly. If the supreme representation is the general assembly of members, section 134 (3) of the Aktiengesetz shall also apply accordingly. Subordinated loans (section 53c (3a) below) shall not be granted unless the supreme representation has taken a relevant decision. A majority of three quarters of the votes cast shall be required to take a decision. A different majority and additional requirements may be stipulated in the articles of association.

Section 36a

(repealed)

Section 36b

If the provisions of the Aktiengesetz, which in accordance with sections 34, 35a and 36 above shall apply accordingly, grant rights to a minority of shareholders (section 93 (4), third sentence, section 117 (4), section 120 (1), sections 122, 142 (2) and (4), sections 147, 258 (2), third sentence, section 260 (1), first sentence, and subsection 3, fourth sentence, of the Aktiengesetz) the articles of association shall specify the required minority of the members of the supreme representation.

Section 37

The articles of association shall stipulate that a reserve to cover extraordinary operational losses (loss reserve, reserve fund) shall be established, the annual amounts to be reserved, and the minimum amount of the reserve.

Section 38

(1) Any surplus shown in the balance sheet shall be distributed among the members specified in the articles of association unless such surplus shall be allocated to the loss reserve or any other reserve or used for the payment of remunerations or carried forward to the next financial year in accordance with the articles of association. Section 53c (3a) below of this law and section 269 of the Handelsgesetzbuch shall not be affected.

(2) The articles of association shall stipulate the rules for any such distribution and whether the surplus shall be distributed only among the members existing at the end of the financial year or also among the members who left the mutual society.

Section 39

(1) Only the supreme representation shall be entitled to amend the articles of association.

(2) It shall be entitled to delegate the power to make amendments which only affect the form to the supervisory board.

(3) It may authorise the supervisory board in case the supervisory authority requires any changes to be made before it approves of an amendment decision to make such changes.

(4) For the purpose of a decision of the supreme representation to abandon a class of insurance or to introduce a new one a majority of three quarters of the votes cast shall be required; the articles of association may, however, stipulate otherwise. As regards other decisions in accordance with subsections 1 to 3 above any such majority shall not be required unless otherwise specified in the articles of association.

Section 40

(1) An application for registration in the commercial register shall be filed for any amendment to the articles of association. The application shall be accompanied by the certificate of approval. The complete text of the articles of association shall also be submitted and provided with a certification by a notary to the effect that the amended provisions of the articles of association comply with the decision to amend the articles of association and that the unattended provisions comply with the latest version of the articles of association submitted for the purpose of registration in the commercial register.

(2) On registration reference may be made to the documents submitted to the court and relating to the amendment unless the amendment concerns information in accordance with section 32 above. Any provisions shall be published to which the publications prescribed under section 33 above relate.

(3) The amendment shall not become effective unless it has been entered in the commercial register with the competent court of the district where the mutual society has its head office.

Section 41

(1) Section 39 (1) and (2) above shall, subject to subsection 2 below, apply to amendments to the general insurance policy conditions under section 10 above accordingly.

(2) The articles of association may authorise the board of directors to introduce or amend general insurance policy conditions with the approval of the supervisory board. If neither the board of directors nor the supervisory board are authorised by the articles of association to amend the general insurance policy conditions, the supreme representation may authorise the supervisory board to make preliminary amendments to the general insurance policy conditions if there is an urgent need; the amendments shall be submitted to the supreme representation at its next meeting and repealed if so required.

(3) Any amendment to the articles of association or the general insurance policy conditions shall not affect any existing insurance contract unless the insured explicitly approves of any such amendment. This shall not apply to provisions where it has been expressly stipulated in the articles of association that any amendment thereto may also have effect on the existing contracts.

Section 42

The mutual society shall be dissolved:-

1. after expiry of the period of time specified in the articles of association;

2. on decision taken by the supreme representation;

3. by instituting insolvency proceedings against the assets of the mutual society;

4. from the date the order becomes final by which the institution of insolvency proceedings is rejected due to the bankrupt’s assets being inadequate to cover the expenses of the proceedings.

Section 43

(1) The decision of the supreme representation to dissolve the society (section 42 (2) above) shall be taken by a majority of three quarters of the votes cast unless otherwise provided in the articles of association. Members of the supreme representation who voted against the dissolution may have their objection to the dissolution recorded.

(2) The decision shall be approved by the supervisory authority which shall inform the registration court of its approval.

(3) If the mutual society has been dissolved by a decision of the supreme representation the insurance contracts concluded between the members and the society shall be terminated on the date specified in the decision, at the earliest, however, after expiration of a period of four weeks. Any claims which have accrued by that date may be asserted; on the other hand, as regards any contributions paid in advance for future periods of insurance these may be reclaimed only after deduction of the accrued expenses. These provisions shall not apply to life insurance contracts; they shall not be affected unless otherwise provided in the articles of association.

Section 44

Contracts for the purpose of transferring the portfolio of a mutual society wholly or partly to another company shall be subject to approval by the supreme representation to become effective. Any such decision shall require a majority of three quarters of the votes cast if not otherwise provided in the articles of association.

Section Section 44a to c

(repealed)

Section 45

The board of directors shall apply for registration of the dissolution of the mutual society in the commercial register. This shall not apply if insolvency proceedings have been instituted or their institution has been rejected. In these cases (section 42 (3) and (4) above) the court shall register the dissolution of the society and the grounds thereof in its official capacity; the office of the insolvency court shall send to the registration court a certified copy of the order to institute insolvency proceedings or a certified copy of the order to reject the institution of insolvency proceedings certifying the date the order has become final.

Section 46

(1) After dissolution the mutual society shall be wound up unless insolvency proceedings have been instituted against the assets of the mutual society.

(2) During winding up the same provisions shall apply as before winding up unless otherwise provided in the following provisions or implied from the purpose of the winding up. In particular supplementary contributions or required contributions (sections 24 to 27 above) may be invited and collected. New insurances may no longer be written, the existing insurances may not be increased or renewed.

Section 47

(1) Winding up shall be performed by the members of the board of directors as liquidators unless other persons have been designated by the articles of association or a decision of the supreme representation. Also a legal person may be liquidator.

(2) The registration court shall, if there are any important reasons for this, appoint and dismiss liquidators at the request of the supervisory board or a minority of the members to be specified in the articles of association. Section 146 of the Reichsgesetz über die Angelegenheiten der freiwilligen Gerichtsbarkeit (Reich Law on Matters of Non-contentious Jurisdiction) shall apply accordingly. Any liquidators who have not been appointed by the court may be dismissed by the supreme representation at any time. As regards claims arising from the employment contract the general rules shall be applicable.

(3) Otherwise, section 265 (4), sections 266 to 269, section 270 (1) and (2), first sentence, sections 272, 273 of the Aktiengesetz shall apply in the case of winding-up accordingly. Notwithstanding section 270 (2), third sentence, and (3) of the Aktiengesetz to be applied accordingly, the provisions applicable to the establishment and auditing of the annual accounts and annual report of the mutual society and sections 175, 176 of the Aktiengesetz and sections 325, 328 of the Handelsgesetzbuch shall apply accordingly to the opening balance sheet, the explanatory report, the annual accounts and annual report.

Section 48

(1) The members funds may not be repaid unless the claims of all the other creditors, in particular the claims of the members under insurance contracts have been met or security has been furnished. No supplementary contributions or required contributions shall be allowed for repayment purposes.

(2) The assets of the mutual society remaining after the obligations have been met shall be distributed among the members existing at the time of dissolution using the same criteria as for profit distribution.

(3) The articles of association may stipulate otherwise with regard to the distribution of the assets. They may authorise the supreme representation to designate other eligible recipients.

Section 49

(1) If a mutual society has been dissolved due to expiration of time or a decision taken by the supreme representation, the supreme representation may elect to continue operation of the society unless distribution of the assets among those eligible has not yet been started. The decision shall require a majority of three quarters of the votes cast unless otherwise provided in the articles of association. It shall be approved by the supervisory authority which shall inform the registration court of its approval.

(2) The same shall apply if the mutual society has been dissolved following the institution of insolvency proceedings, but if the proceedings have been discontinued at the request of the mutual society, or set aside after an insolvency plan providing the continued operation of the mutual society has been confirmed.

(3) The liquidators shall file an application for registration of the continuation of the society’s operations in the commercial register; on filing the application they shall prove that distribution of the assets of the society among those eligible has not yet been started.

(4) The decision to continue operations shall not become effective unless it has been entered in the commercial register of the place where the mutual society has its head office.

Section 50

(1) If existing or former members are required to pay contributions under the law or articles of association (sections 24 to 26 above) they shall if insolvency proceedings are instituted be liable for the society’s debts.

(2) Members who left the society in the year before or after the petition to institute insolvency proceedings was filed shall be liable for the society’s debts as if they were still members.

Section 51

(1) Any claims for repayment of the members funds shall rank after all the other debts in insolvency. Among these any claims under insurance contracts to which members who were members at the time the insolvency proceedings were instituted or who had left the society in the year preceding of following the petition for the institution of insolvency proceedings are entitled shall rank after the claims of any other creditors.

(2) No supplementary contributions or required contributions may be allowed for the purpose of repayment of the members funds.

Section 52

(1) Any supplementary contributions or required contributions needed for the insolvency proceedings shall be fixed and invited by the receiver. He shall calculate immediately after the balance sheet has been filed with the court (section 153 of the Insolvenzordnung (Insolvency Law)) the amounts to be advanced by the members in accordance with their contributory obligations to cover the deficit shown in the balance sheet. As regards the calculation of any such advance payments and additional payments section 106 (1), second sentence, sub-sections (2) and (3), as well as sections 107 to 113 of the Genossenschaftsgesetz (Cooperative Societies Law) shall apply accordingly.

(2) Soon after final distribution has been started (section 196 of the Insolvenzordnung) the receiver shall calculate the final contributions to be paid by the members. As regards this calculation and any further procedure, section 114 (2) and sections 115 to 118 of the Genossenschaftsgesetz shall apply accordingly.

Section 53

(1) As regards mutual societies with limited operation as to type of business, territory or group of persons (kleinere Vereine) only sections 15, 16 above, second sentence, section 17 (1) above, section 18 (1) above, sections 19, 20, 21 (1) above, sections 22 to 27, 28 (1) above, sections 37, 38 (1) and (2) above, section 39 (1) to (3) above and sections 41 to 44, 48 and 50 to 52 above under part III shall apply. Insurance contracts for fixed premiums may not be written unless the policyholders become members.

(2) Except as otherwise provided in subsection 1 above, “kleinere Vereine” are subject to the general provisions concerning societies of sections 24 to 53 of the Bürgerliches Gesetzbuch. However, in the cases of sections 29 and 37 (2) of the Bürgerliches Gesetzbuch the Local Court will be replaced by the supervisory authority.

(3) If the articles of association provide for a supervisory board, section 34 (1) and (2), first sentence, and (6), section 36 (2) and (3) and sections 37 to 40 of the Genossenschaftsgesetz shall apply accordingly.

(4) The supervisory authority shall decide whether a society is a “kleinerer Verein”.

Section 53a

(repealed)

Section 53b

The supervisory authority may permit that kleinere Vereine intending to operate life insurance need not establish members funds if security is otherwise provided by the particular nature of the business or by special arrangements. It may permit on the same grounds that a loss reserve need not be established.

IV. Management of insurance undertakings

1. Financial resources, investments

Section 53c

(1) To ensure that their liabilities under the insurance contracts can permanently be met the insurance undertakings shall be obliged to establish free uncommitted own funds in an amount not less than the solvency margin which depends on the total volume of business. One third of the solvency margin shall be deemed to be the guarantee fund.

(2) For the purpose of implementing EC Council insurance directives the Federal Finance Minister shall have the power to lay down by way of ordinances provisions on

1. the calculation and amount of the solvency margin,

2. the minimum guarantee fund for the individual classes of insurance,

3. the calculation of own funds not shown in the balance sheet of life insurance undertakings and to what extent they may be taken into account for solvency and guarantee fund purposes.

(2a) As regards undertakings writing life insurance in the form of pension and death benefit funds, subsection 2 above securing an adequate solvency shall apply accordingly. Undertakings which have been authorised by 28th July, 1994, and which do not meet the requirements of the ordinance under subsection 2 above, first sentence, shall meet the solvency requirements not later than by the end of the financial year following 31st December, 1998.

(3) Own funds for the purpose of subsection 1 above shall comprise in particular,

1.

a) as regards public limited companies the share capital less the amount of their own shares and less half of the amount not paid up;

b) as regards mutual societies the members funds less the amount not paid up; if at least 25 percent of the members funds have been paid up only half of the amount not paid up shall be deducted;

c) as regards insurance undertakings under public law the items corresponding to the share capital of public limited companies less the amount not paid; if at least 25 percent have been paid up only half of the amount not paid up shall be deducted;

2. the capital reserves and the revenue reserve;

3. the profit carried forward;

3a. the capital paid up in exchange for the granting of subordinated loans according to subsections3a and 3c below;

3b. the capital paid up due to the incurring of subordinated liabilities according to subsections 3b and 3c below;

4. upon request and with the approval of the supervisory authority hidden reserves resulting from the valuation of the assets, in so far as the hidden reserves in question are not of an exceptional nature;

5. as regards mutual societies and public mutual insurance undertakings, provided they do not operate life insurance, half of the supplementary contributions permissible in a financial year in accordance with the articles of association in so far as they do not exceed half of the total own funds;

6. as regards life insurance undertakings

a) the provision for premium refunds if it may be used to cover losses and to the extent that it does not represent any predetermined bonuses,

b) on request, in accordance with the provisions under subsection 2 above and with the approval of the supervisory authority the value of future surplus and the value of acquisition costs included in the premium to the extent that these have not been taken into account for the mathematical provision.

The total of the amounts as specified in sentence 1, paragraphs 1 to 6, shall be reduced by the loss carried forward and the intangible assets shown in the balance sheet, in particular

1. the capitalised start-up and expansion costs (section 269 of the Handelsgesetzbuch),

2. the capitalised goodwill (section 255 (4) of the Handelsgesetzbuch).

(3a) Capital paid up in exchange for the granting of subordinated loans (subsection 3, first sentence, paragraph 3a above) shall not be included in the own funds under section 1 above unless

1. it is fully applicable to cover losses and the insurance undertaking is obliged in case of loss to defer interest payments,

2. it has been agreed that in the case of the institution of insolvency proceedings or the liquidation of the insurance undertaking it shall not be repaid until all non-subordinated creditors have been satisfied,

3. it has been made available to the insurance undertaking for a period of at least five years and must not be repaid prematurely at the request of the creditor; this five-year period need not be observed in the case of early cancellation of subordinated loans due to changed taxation which would result in additional payments to the holder of subordinated loans and if, before being repaid, the capital has been replaced by other, at least equivalent own funds,

4. the claim for repayment falls due within a period of not less than two years or may fall due within that period under the terms of the contract, and

5. the insurance undertaking has explicitly referred to the legal consequences in the second and third sentences, in writing, when the contract was concluded.

Any subsequent change to the requirement to cover the losses, subsequent limitation of the subordination requirement and subsequent reduction of the above periods of time with respect to maturity and cancellation shall not be permitted. Any early repayment shall be refunded to the insurance undertaking irrespective of any agreement to the contrary, unless the capital has been replaced by the deposit of other at least equivalent own funds. If securities are issued for the subordinated loans reference shall be made to the legal consequences in sentences 2 and 3 in the terms of issue and subscription. The insurance undertaking shall not acquire securities representing its own subordinated loans. The obligation to repay shall not be an obligation within the meaning of subsection 1 above, first sentence.

(3b) Capital which has been paid up due to the incurring of subordinated liabilities (subsection 3, first sentence, paragraph 3b above) shall not be included in the own funds under subsection 1 above unless

1. it is repaid after all non-subordinated creditors have been satisfied in the case of the institution of insolvency proceedings or the liquidation of the insurance in accordance withtaking,

2. it has been made available to the insurance undertaking for a period of at least five years and must not be repaid prematurely at the request of the creditor; this five-year period need not be observed in the case of early cancellation of bonds due to changed taxation which would result in additional payments to the holder of the bonds and if, before being repaid, the capital has been replaced by other, at least equivalent own funds,

3. setting off the repayment claim against claims of the insurance undertakings is excluded and as regards the liabilities no contractual securities are provided by the insurance undertaking or any third parties, and

4. the claim for repayment falls due within a period of not less than two years or may fall due within that period under the terms of the contract.

Any subsequent limitation of the subordination requirement and subsequent reduction of the above periods of time with respect to maturity and cancellation shall not be permitted. Any early repayment shall be refunded to the insurance undertaking irrespective of any agreement to the contrary, unless the insurance undertaking has been wound up or the capital has been replaced by other at least equivalent own funds. On conclusion of the contract the insurance undertaking shall expressly draw attention to the legal consequences in sentences 2 and 3 in writing; if securities are issued for the subordinated liabilities reference shall be made to the legal consequences only in the terms of issue and subscription. The insurance undertaking shall not acquire securities representing its own subordinated liabilities. The obligation to repay shall not be a commitment within the meaning of subsection 1 above, first sentence.

(3c) The total amount of the subordinated loan capital under subsection 3a above and of the subordinated liabilities under subsection 3b above shall be included in the own funds under subsection 1 above only if it does not exceed 25 per cent of the paid-up own funds under subsection 3, sentence 3, paragraphs 1 to 3 above; the supervisory authority may permit a higher percentage which, however, shall not exceed 50 per cent of the solvency margin if the payment of subordinated loan capital or the incurring of subordinated liabilities serve to meet the requirements of a solvency or financial scheme (section 81b below).

(4) The calculation of the solvency margin and a statement of the undertaking’s own funds shall be submitted to the supervisory authority annually, together with the annual accounts and status report required by section 341a, subsection 1 of the Handelsgesetzbuch.

Section 53d

(1) If an insurance undertaking makes use of the services of an affiliated undertaking (section 15 of the Aktiengesetz) which is not an insurance undertaking under a contract for work and services, a tenancy and lease agreement and contracts of a similar nature, remuneration shall be limited to the amount which a manager or director who meets the fit and proper requirement would also negotiate with a non-affiliated undertaking taking into account the interests of the insured. The insurance undertaking shall be informed annually about the expenses under these contracts and the way in which these expenses have been calculated. (2) Contracts under subsection 1 above shall be concluded in writing. (3) Subsections 1 and 2 above shall apply to contracts with non-affiliated companies accordingly if a majority interest is held, either directly or indirectly, by the same person or persons in both parties to the contract (section 16 of the Aktiengesetz).

Section 54

(1) The assets of the Deckungsstock (section 66 below) and the other restricted assets of an insurance undertaking shall, taking into account the type of insurance business carried on and the structure of the undertaking, be invested in a way which ensures maximum security and profitability, while maintaining its liquidity at all times, through adequate diversification and spread.

(2) The supervisory authority shall notwithstanding the provision under section 54d below be informed of

a) the acquisition of real property and equivalent rights;

b) the acquisition of interests in other undertakings, however, if these interests consist of shares and other participations, only if the interest exceeds 10 per cent of the nominal capital of the other undertaking; for the purpose of this provision, the interests of several insurance undertakings belonging to a single group of undertakings within the meaning of section 18 of the Aktiengesetz and of the controlling undertaking in another undertaking are consolidated;

c) investments of an insurance undertaking in an affiliated undertaking within the meaning of section 15 of the Aktiengesetz and investments of a pension or death benefit fund in an undertaking whose staff are insured with the fund;

d) investments in units of special funds managed by an investment company and in units issued by an investment company unless they have been coordinated by Council directive 85/611/EEC of 20th December, 1985, on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (OJ of the EC No. L 375, p.3)

The information shall be given by the end of the month following the acquisition or investment.

Section 54a

(1) The restricted assets (section 54 (1) above) may be invested only in accordance with the following subsections; member states of the EEA shall be treated on an equal footing with EC member states. The other restricted assets comprise assets not included in the Deckungsstock to an amount equal to the technical provisions and the liabilities and deferrals under insurance contracts; the shares of reinsurers shall be disregarded. For the calculation of the other restricted assets amounts of up to 50 per cent of the outstanding premiums, which have become due during the last three months from direct insurance business, reduced by value adjustments, may be disregarded. As regards life insurance, the provision for premium refunds shall be included in the restricted assets only in an amount equal to the profit participations expected to be payable by the end of the following financial year; for the calculation of the other restricted assets amounts up to the incurred and actuarially covered acquisition costs shown in the last annual balance sheet may be disregarded with the consent of the supervisory authority. Liabilities and provisions under reinsurance contracts shall be disregarded for the calculation of the restricted assets if they are matched by claims under the same reinsurance contracts.

(2) The restricted assets may be invested in

1. debts secured by a mortgage on real property or similar rights located in an EC Member State, if the mortgage meets the requirements of sections 11 and 12 of the Hypothekenbankgesetz (Law on Mortgage Banks), and if hereditary building rights meet, in addition, the requirements of section 21 of the Verordnung über das Erbbaurecht (Ordinance regarding hereditary building rights) or the relevant regulations of the other EC Member State;

2. debts secured by a ship mortgage on a ship or ship under construction registered in an EC Member State, if the mortgage meets the requirements of sections 10 to 12 of the Schiffsbankgesetz (Law on Ship Mortgage Banks) or the relevant requirements of the other EC Member State;

3.

a) bearer bonds issued in an EC Member State which are admitted for official trading at a stock exchange or dealt in on another recognised and properly operating regulated market open to the public (regulated market) in an EC Member State,

b) mortgage bonds, municipal bonds and other bearer and registered bonds issued in an EC Member State and meeting the requirements of section 8a (1), third sentence, of the Gesetz über Kapitalanlagegesellschaften (Law on Investment Companies) (special fund of assets existing by virtue of the law),

c) bonds issued in a non-EC Member State which are admitted for official trading at a stock exchange or dealt in on a regulated market in an EC Member State or admitted for official trading at a stock exchange of a non-EC Member State; the percentage of these bonds may not exceed 5 per cent of the restricted assets;

4. debts entered in the debt register of the Federal Republic of Germany, one of its states (Länder) or any similar list of another EC Member State, and liquidity papers (section 42 (1) of the Gesetz über die Deutsche Bundesbank (Law on the German Federal Bank);

5. fully paid-up shares and subordinated loans admitted in an EC Member State for official trading at a stock exchange or dealt in on a regulated market, the other restricted assets may also be invested in fully paid-up shares and subordinated loans admitted for official trading at a stock exchange of a non-EC Member State. Shares and subordinated loans of the same undertaking shall be acquired only to the extent that the capital stock and subordinated loans capital attributable to them together with the shares and subordinated loans of the same undertaking already included in the restricted assets do not exceed 10 per cent of the capital stock of this undertaking. Shares and subordinated loans of undertakings whose head office is not in an EC Member State shall not exceed 20 per cent each of the amount permitted under subsection 4 above, first sentence, for the assets of the Deckungsstock and the other restricted assets.

5a. fully paid-up shares and subordinated loans other than those mentioned under paragraph 5 above and participations in a limited liability company, limited partnership, participations as silent partner within the meaning of the Handelsgesetzbuch and amounts due from subordinated liabilities. This shall be conditional on the undertaking having its head office in an EC Member State and its making available to the insurance undertaking its annual accounts which were established and audited in accordance with the provisions applicable to corporations and its engaging to submit such annual accounts at each balance sheet date also in future. Paragraph 5, second sentence shall apply accordingly on condition that investments pursuant to paragraphs 5 and 5a in the same undertaking shall be added up. If participations are held in an undertaking whose sole object is the holding of shares of another undertaking, the third sentence shall refer to a detailed estimate of the investments of the insurance undertaking in the other undertaking. The provisions of this paragraph shall not apply to investments in undertakings to which the insurance undertaking has transferred its business operations wholly or partly by way of outsourcing (section 5 (3) (4) above) or which carry out activities for the insurance undertaking directly related to insurance business;

6. units of special securities funds managed by an investment company, which has its head office in an EC Member State, if these funds are in accordance with the terms of the contract composed of mainly fully paid-up shares or subordinated loans admitted for official trading at a stock exchange or dealt in on a regulated market in an EC Member State, or bonds mainly issued in an EC Member State within the meaning of paragraph 3 (a) and (b). The other restricted assets may, in addition, be invested in units of special securities funds managed by an investment company, which has its head office in an EC Member State, if these special funds have been invested, in accordance with the terms of the contract, mainly in fully paid-up shares or subordinated loans admitted for official trading at a stock exchange of a non-EC Member State. The portfolio of units under the first and second sentences shall, if the special funds have mainly been invested in shares or subordinated loans of undertakings, whose head office is not in an EC Member State, together with direct investments of this type not exceed 20 per cent each of the amount permitted for the assets of the Deckungsstock and the other restricted assets as per subsection 4 above, first sentence. The first and third sentences shall apply accordingly to units issued by an investment company subject to the laws of another EC Member State and to special public supervision to protect its holders, if the investments are made in accordance with the principles of proper diversification and spread of the risk in compliance with its articles of association and if the holder may require to be paid out the equivalent of any such unit;

7. debts for which have been given as a pledge or transferred by way of security

a) mortgages which meet the requirements of paragraph 1, ship mortgages within the meaning of paragraph 2,b) securities referred to in another provision of this subsection and issued in an EC Member State which are eligible to serve as security for the Deutsche Bundesbank (German Federal Bank) or the central bank of another EC Member State if the limits of section 19 (1), paragraph 3 of the Gesetz über die Deutsche Bundesbank or any relevant law of the other EC Member State are observed,

c) registered bonds for which a special fund of assets exists by virtue of the law;

d) deposits or securities for a loan on collateral securities as per section 9b (1) and (2) of the Gesetz über Kapitalanlagegesellschaften (Law on Investment Companies) or any similar provisions of another EC Member State. Amounts due from loans on collateral securities shall not exceed 15 per cent each of the assets of the Deckungsstock and the other restricted assets;

8. loans

a) to

aa) the Federal Republic of Germany, its states (Länder), communities and associations of local governments,

bb) another EC Member State or its regional governments or local authorities for which the competent authorities prescribed a zero weighting as per article 7 of Council directive 89/647/EEC of 18th December, 1989, on a solvency coefficient for credit institutions (OJ of the EC No. L 386, p. 14), the EC Member State having informed the EC Commission and the Commission having publicised this weighting,

cc) an international organisation of which also the Federal Republic of Germany is a full member;

b) to other regional governments and local authorities of another EC Member State for which the competent authorities fixed a 20 per cent weighting as per article 6 (1) (b) (5) of the directive under a) above, and loans fully guaranteed by one of the above bodies; the percentage of loans, where it is not certain that the privilege under section 77 (4) below will apply, shall not exceed 10 per cent of the assets of the Deckungsstock;

c) whose interest payment and repayment have been fully guaranteed by one of the bodies mentioned under a) above or by a suitable credit institution within the meaning of paragraph 9 (c) whose head office is in an EC Member State;

d) to undertakings whose head office is in an EC Member State excluding credit institutions, if on the basis of the past and expected future development of the profits and assets of the undertaking the contractual interest payment and repayment appear to be guaranteed and if the loans are adequately secured

aa) by first mortgages,

bb) by pledged accounts receivable or claims transferred by way of security or securities admitted for official trading at a stock exchange or dealt in on a regulated market or

cc) in a similar manner. A formal commitment issued by the borrower to the insurance undertaking (negative commitment) shall serve as a security instead only if and to the extent that the mere status of borrower is a guarantee for interest payment and repayment of the loan;

9. with

a) the Deutsche Bundesbank,b) the central bank of another EC Member State,

c) a credit institution whose head office is in an EC Member State which is subject to the requirements of the second Council directive 89/646/EEC of 15th December, 1989, on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the activity of credit institutions and the amendment of directive 77/780/EEC (OJ of the EC no. L 386, p. 14), if the credit institution confirms the insurance undertaking in writing that it observes the own funds and liquidity requirements applicable to credit institutions in its home country (suitable credit institution). Current credit balances shall also be deemed investments;

d) public credit institutions which in accordance with article 2 (2) of the first Council directive 77/780/EEC of 12th December, 1977, on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the activity of credit institutions (OJ of the EC, no. L 322, p. 30) do not come under this directive;

10. in developed real estate, real estate in the process of being built upon or to be built upon in the near future located in an EC Member State, in similar rights located in this EC Member State and in participations in an undertaking the sole object of which is the acquisition, development and management of real estate or similar rights located in such a State. The insurance undertaking shall verify on the basis of the opinion of a sworn expert or in a similar way whether the purchase price is adequate. From the investments in real estate shall be deducted without prejudice to the provision of section 66 (3a) below, fourth sentence, any mortgage charges;

11. in units in special funds made up of real estate managed by an investment company whose head office is in an EC Member State and which mainly comprise in accordance with the terms of the contract real estate or similar rights located in such a State, if the special funds meet at the time of investment the requirements of section 27 (1) (3) and section 28 of the Gesetz über Kapitalanlagegesellschaften or the applicable requirements of the relevant EC Member State. The first sentence shall apply accordingly to units issued by an investment company subject to the legislation or another EC Member State and to special public supervision to protect the holders of such units if the investments are made in accordance with the principles of proper diversification and spread of the risk in compliance with the articles of association and if the holder may require to be paid out the equivalent of any such unit;

12. in advance payments or loans granted by an insurance undertaking on its own insurance policies up to an amount equal to the surrender value;

13. in units of special funds made up of holdings which are managed by an investment company whose head office is in an EC Member State if these special funds comprise in accordance with the terms of the contract in addition to dormant equity holdings mainly fully paid-up shares or subordinated loans admitted for official trading at a stock exchange or dealt in on a regulated market in an EC Member State. The other restricted assets may also be invested in units of special funds made up of holdings which are managed by an investment company whose head office is not in an EC Member State if these special funds comprise in accordance with the terms of the contract in addition to dormant equity holdings mainly fully paid-up shares or subordinated loans admitted for official trading at a stock exchange of a non-EC Member State. The portfolio of units according to the first and second sentences shall, to the extent that the special funds have been invested in addition to dormant equity holdings in shares and subordinated loans of undertakings whose head office is not in a member state, together with direct investments of this kind not exceed 20 per cent each of the portfolio permitted for the assets of the Deckungsstock and the other restricted assets pursuant to subsection 4 above, first sentence. The first and third sentences shall apply accordingly to units issued by an investment company subject to the legislation of another EC Member State and to special public supervision to protect the holders of such units, if the investments are made in accordance with the principles of proper diversification and spread of the risk in compliance with the articles of association and if the holder may require to be paid out the equivalent of any such unit;

14. in investments which have not been mentioned in paragraphs 1 to 13 above, which do not meet the requirements thereunder or exceed the limits of subsections 2 to 4a above, up to an amount equal to 5 per cent each of the assets of the Deckungsstock and of the other restricted assets; the limitation to 10 per cent in paragraphs 5 and 5a shall not be affected. Investments in consumer credits, credits for operating funds, movables or titles to movables and intangible assets shall be excluded; the same shall apply to an investment which in accordance with article 21 or 22 of the third Council non-life directive or article 21 or 22 of Council directive 92/96/EEC of 10th November 1992, on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending directives 79/267/EEC and 90/619/EEC (third life assurance directive) (OJ of the EC No. L 360, p. 1) shall not be permitted.

(3) The restricted assets shall according to part C of the annex be invested in assets expressed in the same currency in which the liabilities under the insurance contracts have to be met (matching rules). Real property and similar rights shall be deemed to have been invested in the currency of the country where they are located. Shares and participations shall be deemed to have been invested in the currency in which they are admitted for official trading at a stock exchange or dealt in on a regulated market; shares and participations not admitted for official trading at a stock exchange or not dealt in on a regulated market shall be deemed to have been invested in the currency of the country where the issuer of the securities or participations has its head office.

(3a) (repealed)

(4) The percentage of investments under subsection 2 (5), (5a), (6) and (13) above taken together shall not exceed 30 per cent each of the assets of the Deckungsstock and the other restricted assets, the percentage of investments under subsection 2 (5a) and (13) above shall not exceed one third each of these percentages; not included are units in funds which are managed by an investment company whose head office is in an EC Member State and which in accordance with the terms of the contract or articles of association only comprise bonds within the meaning of subsection 2 (3) (a) and (b) above. For the purpose of subsection 2 (5a) above, fourth sentence, the indirect investments of the insurance undertaking through investments in the other undertaking shall be included in the percentage for investments in accordance with subsection 2 (5), (5a), (6) and (13) above. The supervisory authority may in the case of new insurance companies reduce this limit and the limit under subsection 2 (5), third sentence, and (6) above, third sentence, to 10 per cent for a maximum period of three years from authorisation to carry on business. The percentage of investments pursuant to subsection 2 (10) and (11) above taken together shall not exceed 25 per cent of the assets of the Deckungsstock and the other restricted assets.

(4a) Bearer bonds within the meaning of subsection 2 (3) (a) and (b) above which are neither admitted for official trading at a stock exchange nor dealt in on a regulated market may be included in the restricted assets in an amount equal to 2.5 per cent each of the assets of the Deckungsstock and the other restricted assets. They may taken together with investments pursuant to subsection 2 (5a) above, in so far as they are securities, not exceed 10 per cent each of the assets of the Deckungsstock and the other restricted assets.

(4b) All investments issued by one and the same issuer (debtor) shall not exceed the sum of 2 per cent of the restricted assets and 25 per cent of the own funds of the insurance undertaking in accordance with section 53c (3), first sentence, paragraphs 1 to 3b and 6 (a) above in conjunction with the second sentence, but in the aggregate not exceed 5 per cent of the restricted assets. Subordinated loans granted by an issuer to an insurance undertaking and claims of the insurance undertaking against the issuer from subordinated liabilities within the meaning of subsection 2 (5a) above shall also be taken into account for the purpose of these percentages. If an issuer has assumed full warranty for an insurance undertaking with respect to liabilities of any third party, also this warranty liability shall be taken into account for the purpose of these percentages. Investments in special funds or in units issued by an investment company shall not be deemed to be investments with one and the same issuer (debtor) if such investments of the special funds or of the investment company are sufficiently spread. Instead of the percentages mentioned in the first sentence, a percentage of 30 per cent of the restricted assets shall apply

a) to bonds placed on the market by one and the same credit institution if they have been secured by special cover funds by virtue of the law pursuant to subsection 2 (3) (b) above,

b) to investments with one and the same issuer according to subsection 2 (8) (a) above, and

c) to investments with one and the same suitable credit institution in accordance with subsection 2 (9) (c) above, whose head office is in an EC Member State if and to the extent that such investments have actually been secured by an extensive bank guarantee of the credit institution or a deposit guarantee scheme; the exclusion of any entitlements under the deposit guarantee scheme in the articles of association shall not exclude that such a guarantee actually exists.

For the calculation of the percentages in accordance with the first to fifth sentences investments with the issuer and the undertakings of the group to which the issuer belongs shall be combined within the meaning of section 18 of the Aktiengesetz.

(4c) Up to 10 per cent each of the assets of the Deckungsstock and the other restricted assets may be invested in a single real estate or similar right or in participations in an undertaking whose sole object is the acquisition, development and management of real estate or similar rights located in an EC Member State. The same limit shall apply to several legally independent real estates taken together if they form an economic unit.

(5) The supervisory authority shall also permit an insurance undertaking to invest in assets which have not been mentioned above or do not meet the requirements as mentioned above, and to exceed the limits stipulated in subsections 2 and 4 to 4c above if the interests of the insured are thereby not impaired and if the EC Member States may allow any such exemptions pursuant to article 21 or 22 of the third non-life insurance directive and article 21 or 22 of the third life insurance directive. If the latter is not the case, the investment may be permitted only in exceptional cases and for a limited period of time. The supervisory authority shall take these exceptional cases on record.

(6) To the extent that the restricted assets represent technical provisions with respect to risks located or life insurance contracts written in the European Community they may, subject to the second sentence, only be located in the European Community or held in safe custody in non-EC Member States in accordance with section 5 (4) of the Depotgesetz (Law on the Deposit and Acquisition of Securities). As regards the assets mentioned in the first sentence, 5 per cent of the assets of the Deckungsstock and 20 per cent of the other restricted assets may be located in non-EC Member States; the investments permitted in accordance with subsection 2 above and located in non-EC Member States shall be counted against these percentages. The supervisory authority may in individual cases grant an insurance undertaking further exemptions from the regulations of this law relating to the location of assets, on request, if this does not impair the interests of the insured. The matching rules under subsection 3 above shall not be affected.

Section 54b

(1) If life insurance contracts provide for insurance benefits in

1. units in a special fund managed by an investment company,

2. units issued by an investment company,

3. assets admitted for the purpose of the special fund of an investment company other than cash,

the relevant investments shall be made for the assets of the separate account of the Deckungsstock (investment fund) to be established for this purpose.

(2) Where the benefits provided by life insurance contracts are directly linked to a share index or some other reference value other than the one mentioned in subsection 1 above, a separate account shall be established for each type of investment. The assets of these separate accounts shall be invested in units representing the reference value or if no units are established in assets which correspond to the assets on which the particular reference value is based and which are sufficiently secure and marketable.

(3) Section 54a above shall not be applicable to the assets of the separate accounts mentioned in subsections 1 and 2 above. If, however, the insurance benefits mentioned in subsections 1 and 2 above include a guaranteed minimum benefit, section 54a above shall be applied to the assets representing the additional technical provisions for this purpose.

(4) The provisions of part C of the annex shall not apply to the assets mentioned in subsections 1 to 3 above.

Section 54c

If insurance contracts are part of a separate portfolio of an insurance undertaking in a non-EC and another non-EEA Member State, sections 54a and 54b above shall be applied to the restricted assets generated under these insurance contracts as appropriate unless otherwise provided for under foreign law.

Section 54d

The insurance undertakings shall report in the forms and within the periods required by the supervisory authority about all their investments broken down into new and existing investments. The obligations under section 66 (6) below, sixth sentence, shall not be affected.

1a. Accounting, auditing

Section 55

(1) The provisions of part 4 (2) in conjunction with the provisions of parts 1 and 2 of the third book of the Handelsgesetzbuch shall apply accordingly to undertakings under public law which operate insurance business and do not write social insurance.

(2) Insurance undertakings shall immediately deposit with the supervisory authority the annual accounts established by the legal representatives and later the certified annual accounts and status report. Insurance undertakings which establish consolidated annual accounts or a consolidated status report shall submit these records to the supervisory authority immediately.

(3) Insurance undertakings shall send every insured, on request, the annual accounts and status report in the financial year following the year under review.

Section 55a

(1) The Federal Finance Minister shall have the power to lay down by way of an ordinance not requiring approval by the Bundesrat regulations for insurance undertakings not subject to supervision by the supervisory authorities of the states (Länder) with respect to

1. bookkeeping, the contents, form and number of copies of the internal report to be submitted to the supervisory authority, comprising the balance sheet broken down for supervisory purposes, profit and loss account broken down by classes and types of insurance and special explanatory notes to the balance sheet and profit and loss account to the extent that this is required for supervisory purposes in accordance with this law;

1a. the contents, form and number of copies of the internal interim report to be submitted to the supervisory authority every three months, comprising a compilation of the latest accounting and portfolio data and information about the number of claims to the extent that this is necessary for supervisory purposes in accordance with this law;

2. the periods available for submitting of the internal reports to the supervisory authority;

3. the contents of the audit reports in accordance with section 341k of the Handelsgesetzbuch to the extent that this is necessary for supervisory purposes in accordance with this law.

The power according to the first sentence may be transferred wholly or partly by ordinance, which is not subject to approval by the Bundesrat, to the BAV for insurance undertakings subject to supervision by the BAV.

(2) Provisions in accordance with subsection 1 above for insurance undertakings subject to supervision by the BAV shall be adopted in consultation with the supervisory authorities of the states (Länder); the Versicherungsbeirat (Insurance Advisory Council) shall be heard before they are adopted.

(3) The governments of the states (Länder) may in consultation with the BAV adopt by way of ordinances provisions in accordance with subsection 1 above applicable to insurance undertakings subject to supervision by the supervisory authorities of the states (Länder). They may transfer this power by ordinance to the supervisory authority of the state (Land).

Section 56

(repealed)

Section 56a

In the case of public limited insurance companies the board of directors shall with the consent of the supervisory board fix the amounts to be set aside for profit participation of the insured. However, amounts which do not have to be set aside because of a legal title of the insured to such amounts shall not be made available for profit participation unless dividends in the amount of at least 4 per cent of the share capital may still be distributed out of the remaining net earnings shown in the balance sheet. The amounts destined for profit participation of the insured shall, provided they have not been directly distributed among the insured, be allocated to a provision for premium refunds. The amounts allocated to the provision for premium refunds may be used only for the purpose of profit participation of the insured. The insurance undertaking shall, however, be entitled with the consent of the supervisory authority to use the provision for premium refunds in certain exceptional cases to avoid an emergency situation in the interest of the insured to the extent that such provision has not yet been destined for profit participation.

Section 56b

(repealed)

Section 57

(1) The auditor shall when auditing the annual accounts ascertain if the insurance undertaking has complied with the disclosure requirements imposed under section 13b (1) and (4), section 13c (1) and (4), section 13d (1) to (5) and the obligations in accordance with section 15 of the Gesetz über das Aufspüren von Gewinnen aus schweren Straftaten (Law Relating to the Tracing of Profits Generated by Serious Criminal Offences). The results shall be included in the auditor’s report. An auditor who audits an undertaking that has close links with the direct insurance undertaking arising from a controlling influence pursuant to section 8 (1), fourth sentence, paragraph 2, and who also audits the direct insurance undertaking shall inform the supervisory authority of any facts pursuant to section 321 (2) of the Handelsgesetzbuch detected at the associated undertaking if such facts are liable to have a considerable negative effect on the activities of the insurance undertaking. The auditor shall at the request of the supervisory authority provide information about any other facts of which he has become aware during auditing and which are an indication of the business of the undertaking not being run properly.

(2) The Federal Finance Ministry shall have the power to lay down by way of ordinance provisions about the contents of the auditor’s reports in accordance with subsection 1 above, first sentence, to the extent that this is required by the supervisory authority to fulfil its duties, in particular to obtain standardised records to judge the insurance business carried out by the insurance undertakings. This power may be transferred by ordinance to the BAV which will stipulate regulations in consultation with the supervisory authorities of the states (Länder).

Section 58

(1) (repealed)

(2) The board of directors shall immediately advise the supervisory authority of any auditor appointed by the supervisory board. The supervisory authority may, if it has any objections to the auditor of the annual accounts, require that another auditor be appointed within a reasonable period of time. If no fresh appointment is made or if it has objections also to the freshly appointed auditor, it shall appoint an auditor itself. In this case section 318 (1), fourth sentence, of the Handelsgesetzbuch shall apply which stipulates that the legal representatives shall immediately require the auditor appointed by the supervisory authority to proceed with the audit.

(3) (repealed)

Section 59

The board of directors shall, immediately after the auditor’s report has been adopted, deposit a copy of the report, which has been provided with its own comments and those of the supervisory board, with the supervisory authority which may discuss the report with the auditor and, if necessary, require additional audits and supplements to the report at the expense of the insurance undertaking.

Section 60

Sections 58 and 59 above shall not apply to insurance undertakings under public law established under the laws and subject to the supervision of the insurance supervisory authorities of the states (Länder). Additional requirements with respect to the auditing of the annual accounts of these undertakings have been imposed under the laws of the relevant states (Länder) in accordance with section 341k of the Handelsgesetzbuch.

Section 61 to 63

(repealed)

Section 64

If in pursuance of section 330 (1), (3) and (4) of the Handelsgesetzbuch and the ordinance delivered in compliance with this power insurance undertakings are not subject to the requirement to have their annual accounts audited, sections 58 and 59 above of this law shall not be applicable. The supervisory authority may determine if and how these undertakings shall be audited.

2. Special provisions on the mathematical provisions and the Deckungsstock in life insurance

Section 65

(1) The Federal Finance Ministry shall for the purpose of calculating the mathematical provisions in accordance with the principles of proper accounting have the power to fix by ordinance

1. for insurance contracts with guaranteed interest rate one or several maximum technical interest rates on the basis of

a) the rate on the bond issues by the State in whose currency the contract is denominated, with this maximum rate not exceeding 60 per cent; unit-linked contracts, single-premium contracts of terms of up to eight years, without-profits contracts and annuity contracts with no surrender value may be excluded or higher maximum values may be fixed for them, or

b) the yield on the assets currently held by the life insurance undertaking and the anticipated yield on future assets with adequate safety loadings having to be made;

2. the maximum amounts for zillmerising;

3. the actuarial calculation bases for the calculation of the mathematical provisions to the extent that this is required for the implementation of the EC Council directives.

This power may be transferred by ordinance to the BAV which shall stipulate the regulations in consultation with the supervisory authorities of the states (Länder).

(2) The ordinances pursuant to subsection 1 above shall be issued in agreement with the Federal Ministry of Justice.

(3) Before a maximum interest rate is fixed in accordance with subsection 1, first sentence, paragraph 1 (a) above and provided the contracts are denominated in the currency of another Member State of the European Community or another Member State of the EEA the supervisory authority of this State shall be consulted.

Section 66

(1) The board of directors of the undertaking shall already during the financial year allocate to the Deckungsstock and lawfully invest amounts which correspond to the expected increase of the minimum Deckungsstock in accordance with subsection 1a below. The supervisory authority may prescribe further details.

(1a) The Deckungsstock shall at least correspond to the sum made up of the balance sheet values of the mathematical provisions taking into account the premium reserve, of the proportionate mathematical provisions of the individual insurance contracts included in the provision for outstanding claims and surrenders, and of the credited profit participations. Balance sheet values within the meaning of the first sentence shall be the gross amounts before the amounts for ceded reinsurance business have been deducted.

(2) If the assets of the Deckungsstock do not meet the minimum requirement under subsection 1a above, the board of directors shall immediately make up for the deficiency.

(3) The supervisory authority may require that further allocations be made to the Deckungsstock in addition to the minimum requirement under subsection 1a above if this is deemed necessary to safeguard the interests of the insured.

(3a) For the purpose of the Deckungsstock, unencumbered real property and similar rights shall be rated at their balance sheet value. If the balance sheet value is higher than the market value the latter shall be used. The supervisory authority may permit an adequate increase in this value if and in so far as it has been proved by an expert opinion that the market value exceeds the balance sheet value by at least 100 per cent. In the case of encumbered real property and similar rights the supervisory authority shall determine the value on a case-by-case basis. The supervisory authority shall be informed about the values used in compliance with the reporting requirement under section 54d above.

(4) There shall not be any allocation requirement with respect to the Deckungsstock only in cases where a special security deposit has to be made abroad for certain insurances out of the premium income.

(5) The Deckungsstock (cash, securities, deeds, etc.) shall be managed separately from all the other assets and kept at the head office of the undertaking; the supervisory authority shall be informed about the manner in which it is kept; it may permit the Deckungsstock to be kept at a different place.

(6) The individual assets of the Deckungsstock shall be entered into a list. The rules regulating the Deckungsstock shall apply to all assets in the list. Any usufruct in connection with the assets of the Deckungsstock shall be deemed to be part of the Deckungsstock even if this has not been entered in the list. Any claims with respect to advances or loans on the policies of an undertaking may, in so far as they are part of the assets of the fund, be entered in aggregate amounts. As regards claims secured by an encumbrance on real property and repayable in instalments the list shall be amended as prescribed by the supervisory authority; the same shall apply to encumbrances on real property not securing any personal claims. At the end of the financial year the supervisory authority shall be submitted a copy of the entries made during that year; the board of directors shall certify the accuracy of the copy. The supervisory authority shall keep the copy.

(7) Separate accounts may be established for the Deckungsstock with the approval of the supervisory authority. The rules regulating the Deckungsstock and the claims against it shall apply to each of the separate accounts accordingly.

Section 67

As regards reinsurance arrangements, the reinsured undertaking shall also keep and manage the assets of the Deckungsstock above for ceded insurance business in accordance with section 66.

Section 68 and 69

(repealed)

Section 70

A trustee and a deputy trustee shall be appointed to control the Deckungsstock. This shall not be applicable to kleinere Vereine (section 53 above) unless otherwise provided by the supervisory authority.

Section 71

(1) The trustee shall be appointed by the supervisory board. If a kleinere Verein does not have a supervisory board the trustee shall be appointed by the board of directors.

(2) Before the appointment the supervisory authority shall be informed about the name of the proposed trustee. If it has objections to the appointment it may require that another person be designated within a reasonable period of time. If this requirement is not met or if the supervisory authority also has objections to the freshly proposed trustee it may appoint the trustee itself.

(3) Subsection 2 above, second and third sentences, shall also be applicable if the supervisory authority has objections to an appointed trustee continuing in office.

Section 72

(1) The Deckungsstock shall be secured in such a way that disposition is possible only with the consent of the trustee; any further details shall be fixed by the supervisory authority.

(2) The trustee shall, in particular, keep the assets of the fund in joint custody with the insurance undertaking. He may not release any assets unless he is permitted to do so under this law; however, section 31 (2) and (3) of the Hypothekenbankgesetz shall apply accordingly.

(3) The trustee may approve any disposition only in writing; if an item is to be cancelled in the list of assets of the Deckungsstock it shall be sufficient for the trustee to write his name beside or underneath the notice of cancellation.

Section 73

The trustee shall certify at the end of the balance sheet that the mathematical provisions have been invested and kept in compliance with the applicable rules without this requirement affecting the responsibility of the bodies representing the undertaking.

Section 74

The trustee shall be authorised to inspect the books and records of the undertaking at any time in so far as they relate to the Deckungsstock.

Section 75

The supervisory authority shall decide disputes between the trustee and the insurance undertaking concerning the trustee’s duties.

Section 76

Sections 71 to 75 above shall also be applicable to the deputy trustee.

Section 77

(1) In addition to the funds required for investments or changes in investments only such amounts may be withdrawn from the Deckungsstock which are released in the case of the occurrence of an insured event, a surrender or any other termination of an insurance contract or changes to the operating plan.

(2) Disposition of the assets of the Deckungsstock by execution or execution of attachment or arrest (Arrestvollziehung) shall not be permitted unless allocations to the Deckungsstock have been prescribed (section 66 (1) to (4) above) and actually been made with respect to the claim for the purpose of which any such execution has been ordered.

(3) Life insurance contracts shall be terminated with the institution of insolvency proceedings; the insured may claim the amounts of the mathematical provision due to them at the time of institution of bankruptcy proceedings; any additional claims arising out of the insurance contracts shall thereby not be affected.

(4) In the case of satisfaction out of the assets of the Deckungsstock (section 66 (6) above) any claims to the mathematical provision shall, to the extent that allocations to the Deckungsstock have been prescribed for them (section 66 (1) to (4) above), rank before the claims of any other creditors. All such claims shall have the same ranking. As regards the insured’s right to satisfaction out of the other assets of the undertaking the provisions of sections 52, 190, and 192 of the Insolvenzordnung relating to the creditors entitled to preferential treatment shall apply accordingly.

(5) Preferential rights in favour of the insured of a life insurance undertaking and of the insured of a health and accident insurance undertaking of the kind specified under section 12 which have their head office in an EC Member State or another EEA Member State shall be recognized for the purpose of domestic insolvency proceedings if the ranking requirement of subsection (4) above has been met and reciprocity has been guaranteed.

Section 78

(1) The bankruptcy court shall appoint a guardian for the insured to protect their rights in accordance with section 77 above. For the purpose of guardianship the insolvency court shall take the place of the guardianship court.

(2) The guardian shall determine the size of the existing Deckungsstock and determine and file claims of the insured.

(3) The guardian shall to the extent that this is feasible consult the insured before filing a claim and notify them after filing and inform them, on request, about any facts relevant to their claims. The right of the individual insured to file himself a claim shall not be affected. If there is a difference between the claim filed by the insured and the claim filed by the guardian the filing which is more favourable to the insured shall be applicable until the difference has been eliminated.

(4) The receiver shall permit the guardian to inspect all books and records of the debtor and disclose to him all the assets of the Deckungsstock on request.

(5) The guardian shall be entitled to a reasonable remuneration for discharging his duties. His recoverable expenses and remuneration shall be charged to the Deckungsstock.

(6) The supervisory authority shall be consulted prior to the appointment of the guardian and the fixing of his remuneration.

Section 79

For the purpose of health insurances of the kinds specified under section 12 above, sections 66 to 78 above shall apply while for the purpose of accident insurances of the kinds specified under section 11d above and pension payments within the framework of accident insurance, sections 65 to 67, 77 and 78 above shall apply accordingly.

Section 79a

Sections 70 to 76 shall not apply to insurance undertakings under public law.

Section 80

(repealed)

V. Supervision of insurance undertakings

1. Duties and powers of the supervisory authorities

Section 81

(1) The supervisory authority shall control all business operations of insurance undertakings within the framework of general legal supervision and specific financial supervision. It shall ensure that the interests of the insured are adequately safeguarded and the laws applicable to the operation of insurance business are observed. It shall perform the duties assigned to it under this law and other laws only in the interest of the public. The objective of legal supervision shall be proper operation of insurance business including observance of the supervisory provisions, provisions concerning the insurance contracts and any other provisions concerning the insured as well as of the legal bases of the operating plan. The supervisory authority shall ensure within the framework of financial supervision that the liabilities under the insurance contracts may be fulfilled at any time and, in particular, adequate technical provisions are established and invested in proper assets, the principles of good business practice including sound administrative and accounting procedures and adequate internal control mechanisms are complied with, the undertakings dispose of an adequate solvency and that the other financial bases of the operating plan are observed.

(2) The supervisory authority may with respect to the undertakings, the members of their board of directors and other managers or directors, or controllers take any orders which are appropriate and necessary to prevent or remedy any irregularities. An irregularity shall be deemed to be any conduct of an insurance undertaking which conflicts with the supervisory objectives under subsection 1 above. The supervisory authority may, in particular, prohibit combinations of loan transactions and insurance contracts to the extent that the sum insured exceeds the loan. It may also prohibit the insurance undertakings or the intermediaries of insurance contracts, either generally or for individual classes of insurance, from granting the policyholders any special allowances in some form or other; it may also prohibit the insurance undertakings, either generally or for individual classes of insurance, from concluding and renewing beneficiary contracts. The orders in accordance with the third sentence shall become effective one month from their publication in the Bundesanzeiger (Federal Gazette); as regards insurance undertakings subject to supervision by the states (Länder) publication in the journal designated for official publications of the governments of the states (Länder) shall be sufficient.

(2a) If in the cases referred to in subsection 2 above and section 89 below the interests of the insured cannot be safeguarded otherwise, the supervisory authority may transfer powers which the bodies of the undertaking hold in accordance with the law or articles of association wholly or partly to a special representative who is suited to execute these powers. The insurance undertaking shall be charged with any costs arising from the appointment of the special representative, including the remuneration to be paid to him. The amount of this remuneration shall be fixed by the supervisory authority. If the insurance undertaking is temporarily not in a position to pay this remuneration, the supervisory authority may make advance payments to the special representative. If the special representative is not entitled to any remuneration for his activities, he shall be liable only for damage caused intentionally or by gross negligence.

(3) (repealed)

(4) The supervisory authority may give orders according to subsection 2 above, first sentence, also directly to other undertakings if they perform on behalf of an insurance undertaking

a) activities which may be the subject matter of an outsourcing contract (section 5 (3) (4) above) or

b) services under contracts according to section 53d above.

The supervisory authority shall have the same power with respect to publishers that took out insurances with an insurance undertaking to cover the subscribers of newspapers or magazines published by them.

Section 81a

The supervisory authority may require that the operating plan be amended before new insurance contracts are entered into. The supervisory authority may amend or annul an operating plan with effect on existing insurance contracts or those not yet terminated if this is considered necessary to safeguard the interests of the insured.

Section 81b

(1) If the own funds of an insurance undertaking fall below the solvency margin the insurance undertaking shall submit, on request, to the supervisory authority a plan for the restoration of a sound financial position (solvency plan) for approval. Are there any indications of the financial position continuing to deteriorate the supervisory authority may notwithstanding the measures permitted under section 81 (2) above restrict or prohibit free disposal of the assets of the undertaking under exceptional circumstances.

(2) If the own funds of an insurance undertaking fall below the assets of the guarantee fund or cannot be allowed for this fund to the required extent the undertaking shall deposit with the supervisory authority, at its request, a plan for the short-term procurement of the necessary own funds (financial plan) for approval. In addition the supervisory authority may notwithstanding the measures permitted under section 81 (2) above limit or prohibit free disposal of the assets of the undertaking.

(3) If there is a risk of an investment jeopardising the solvency of the insurance undertaking the supervisory authority may also give orders in cases where the investment is not part of the restricted assets.

(4) Subsection 2 above, second sentence, shall apply accordingly if an insurance undertaking does not establish adequate technical provisions, not properly represent its technical provisions or if it derogates from the localisation requirement of section 54a (6) above without this having been permitted by the supervisory authority.

Section 81c

(1) In life insurance an irregularity jeopardising the interests of the insured shall also be deemed to exist if no adequate allocations are made to the provision for premium refunds for the purpose of with-profit insurances. This shall particularly be assumed to be the case if the allocations to the provision for premium refunds of a life insurance undertaking, taking into account direct crediting and the technical interests, do not meet the minimum allocation requirement subject to the investment returns. Development of the mortality risk and the solvency requirement of the life insurance undertakings shall be taken into account for this purpose. Notwithstanding the measures permitted under section 81 (2) above, first sentence, and section 87 below the supervisory authority may require that the life insurance undertaking submit a plan which will secure that adequate allocations are made to the provision for premium refunds if the allocations to the provision do not comply with the minimum requirements of the ordinance.

(2) As regards life insurances written before 29th July, 1994, an irregularity jeopardising the interests of the insured shall in particular be deemed to exist notwithstanding subsection 1 above, second sentence, if the average refund rate of a life insurance undertaking in the last three financial years does not correspond with the standard refund rate established on the basis of the average rate for all life insurance undertakings. Notwithstanding the measures permitted under section 81 (2) above, first sentence, and section 87 below the supervisory authority may in this case require the undertaking to submit for approval a plan which will secure that adequate allocations are made to the provision for premium refunds. The refund rate shall correspond to the relation, expressed as a percentage, between the amount made up of the technical interests, directly credited bonuses and allocations to the provision for premium refunds and the amount made up of the normal mortality gain and normal interest earnings.

(3) The Federal Finance Ministry shall have the power for the purpose of safeguarding the interests of the insured while taking into account the market conditions with respect to subsection 1 above to lay down by ordinance provisions concerning allocations to the provision for premium refunds, in particular minimum allocations subject to investment returns, and with respect to subsection 2 above to fix the amount of the standard refund rate and to stipulate provisions concerning the calculation of the normal mortality gain and normal interest earnings. The above power may be transferred by ordinance to the BAV which shall lay down the provisions in consultation with the supervisory authorities of the states (Länder).

(4) Subsections 1 and 3 above shall also apply to pensions funds in accordance with section 156a (3) below, fifth sentence. Otherwise subsections 1 to 3 above shall not be applicable to pension and death benefit funds.

Section 81d

(1) An irregularity jeopardising the interests of the insured shall also be deemed to exist in health insurance treated in the same way as life insurance if no adequate allocations are made to the provision for profit-related premium refunds. This shall, in particular, be deemed to be the case, unless there is no profit participation due to the type of business operated, if the allocations to the provision for profit-related premium refunds of a health insurance undertaking do not comply with the rate stipulated for allocations by ordinance in accordance with subsection 3 above. The rate for such allocations shall be a percentage of the sum made up of the annual profit and the expenditure for profit-related premium refunds. For this purpose any direct crediting and an average solvency requirement of the health insurance undertakings shall be taken into account.

(2) Notwithstanding the measures permitted under section 81 (2) above, first sentence, and section 87 below the supervisory authority may require the health insurance undertaking to submit a plan which will secure adequate allocations to the provision for profit-related premium refunds if the allocations to the provision do not comply with the minimum requirement of the ordinance in accordance with subsection 3 above.

3) The Federal Finance Ministry shall have the power to lay down by ordinance for the purpose of safeguarding the interests of the insured provisions concerning the minimum allocation to the provisions for profit-related premium refunds, in particular the rate of such allocations. This power may be transferred by ordinance to the BAV which shall lay down the provisions in consultation with the supervisory authorities of the states (Länder).

Section 81e

An irregularity within the meaning of section 81 (2) above shall also be deemed to be rate provisions and premium calculations on the basis of the nationality of the policyholder or insured or his belonging to an ethnic group.

Section 82

(1) If an insurance undertaking holds a participation in another undertaking which is not subject to supervision and if the participation is due to its nature and size able to imperil the insurance undertaking, the supervisory authority may prohibit the insurance undertaking from maintaining its participation or permit to maintain it only on condition that the undertaking consents to an inspection being carried out at its own expense or at the expense of the insurance undertaking in accordance with section 341k of the Handelsgesetzbuch and sections 58 and 59 above of this law. If the undertaking refuses to be so inspected or if the inspection gives rise to any objections to holding a participation the supervisory authority shall prohibit the insurance undertaking from maintaining its participation.

(2) A participation within the meaning of subsection 1 above shall also be deemed to exist if a member of the board of directors or supervisory board of the insurance undertaking exercises or is in a position to exercise a decisive influence on the management of another undertaking.

Section 83

1) The supervisory authority shall be authorised

1. to require the insurance undertakings, the members of their boards of directors and other managers or directors or persons controlling the undertakings to supply information about all business matters and submit or forward all business documents such as in particular the general insurance policy conditions, rates, forms and other printed documents which an insurance undertaking uses in its dealings with policyholders, as well as contracts between undertakings and outsourcing contracts (section 5 (3) (3) and (4) above,

2. to carry out inspections of the business operations of the undertakings on their premises, even without any particular reason,

3. also to carry out inspections by way of taking part in an inspection performed by the insurance undertaking in accordance with section 341k of the Handelsgesetz-buch and obtaining itself the information it requires; this shall not apply to insurance undertakings which have been recognised as “kleinere Vereine” (section 53 above),

4. to have persons take part in the inspections according to paragraphs 2 and 3 who may be appointed inspectors according to section 341k in conjunction with section 319 of the Handelsgesetzbuch; the provisions of section 323 of the Handelsgesetzbuch regarding auditors shall apply to these persons accordingly,

5. to send to meetings of the supervisory board and general meetings of shareholders or meetings of the supreme representation representatives who shall be granted the right to speak on request,

6. to require that the meetings under paragraph 5 above are called and certain subjects are put on the agenda on which to take decisions.

The undertakings shall be required to tolerate measures taken in accordance with the first sentence, paragraphs 2 to 4.

(2) If there is reason to assume that a person is carrying on insurance business without permission the supervisory authority may, to clarify the matter, require that any such person and, in case of any legal person, also the members of its executive bodies supply information and submit documents about the business activities. In these cases it may, to clarify the matter, also perform inspections on the premises where the relevant activities are assumed to be carried out.

(3) The staff of the supervisory authority and any persons pursuant to subsection 1 (4) above shall be permitted access to the premises of the insurance undertaking to perform the inspections in accordance with subsection 1 (2) and (3) above and in the cases mentioned in subsection 1 (5) above. The basic right of article 13 of the Grundgesetz (Basic Law) shall be limited accordingly.

(4) The staff of the supervisory authority shall have access to the premises mentioned in subsection 2 above, second sentence, to perform the inspections in accordance with subsection 2 above. Subsection 3 above, second sentence, shall apply accordingly. If the premises mentioned in the first sentence are also used for residential purposes, a judicial search warrant shall be required. This warrant shall be issued by the competent court of the area where the premises to be searched are located. Sentences 2 and 3 shall also apply to the inspections under subsection 3 above if the premises are also used for residential purposes or if the business documents are located at other premises which are used for residential purposes by the persons required to supply information according to subsection 1 (1) above.

(5) If a person

1. intermediates or has intermediated insurance contracts for an insurance undertaking in his capacity as insurance agent or insurance broker, or

2. carries on for an insurance undertaking activities which may be the subject matter of an outsourcing contract (section 5 (3) (4) above), or

3. renders services under contracts in accordance with section 53d above,

subsection 1 (1), (2), and4) above and subsection 3 above shall apply accordingly. As regards the cases under paragraph 1, this shall apply only in so far as it is essential to judge the business operations and financial position of the insurance undertaking.

6) Any person who is required to supply information in accordance with subsections 1, 2 or 5 above may refuse to answer any questions which would subject him or any of his relatives in accordance with section 383 (1) (1) to (3) of the Zivilprozeßordnung (Code of Civil Procedure) to the risk of prosecution or a procedure according to the Gesetz über Ordnungswidrigkeiten (Law on Administrative Offences).

Section 84

(1) The personnel employed or authorised by the supervisory authorities and the members of the Versicherungsbeirat (section 92 below) shall not pass on any confidential information obtained in connection with their activity to any other person or authority. This shall also apply to any other persons who get access to the information mentioned in the first sentence by way of official reporting. The first and second sentences shall not apply to information passed on in summary or aggregate form where it is not possible to identify the individual insurance undertakings.

(2) The secrecy requirement in accordance with subsection 1 above, first sentence, shall not prohibit the exchange of information with the competent authorities of other EC Member States and other EEA Member States and the Commission in compliance with the EC Council directives applicable to the insurance undertakings. The information obtained for the purpose of such exchange shall come under the secrecy requirement of subsection 1 above, first sentence. An exchange of information with the competent authorities of foreign States which are not EC and EEA Member States shall only be permitted if these authorities and the persons authorised by them are subject to secrecy in accordance with subsection 1 above, first sentence.

(3) The supervisory authorities may use information obtained by virtue of subsections 1 and 2 above only for the following purposes:

1. for the examination of an application for authorisation of an insurance undertaking,

2. for the control of the activity of an insurance undertaking,

3. for orders of the supervisory authority and for handling and punishing administrative offences by the supervisory authority,

4. within the framework of an administrative procedure concerning remedies against a decision by the supervisory authority,

5. within the framework of proceedings in administrative courts, insolvency courts, at public prosecutor’s offices or in the competent courts for administrative fine and criminal matters.

(4) The secrecy requirement in accordance with subsection 1 above, first sentence, shall, in particular, not prohibit passing-on of information to

1. public prosecutor’s offices or the competent courts for administrative fine and criminal matters,

2. bodies and persons authorised by them which have been entrusted by virtue of the law or by public order with the control of insurance undertakings, credit institutions and other financial institutions or the financial markets,

2a. central banks,

3. bodies entrusted with the liquidation or insolvency of an insurance undertaking,

4. persons entrusted with the legal auditing of the accounts of insurance undertakings or other financial institutions, or

5. institutions for the management of guarantee funds, to the extent that these bodies require the information to fulfil their duties. The secrecy requirement in accordance with subsection 1 above, first sentence, shall apply to persons employed by them accordingly. If the body in question is situated in another state the information shall not be passed on unless the body in question and the persons authorised by it are subject to the secrecy requirement under subsection 1 above, first sentence.

(5) Confidential information which the supervisory authority obtained from the bodies mentioned in subsection 2 above, first sentence, and subsection 4 (2) to (4) above may not be passed on by way of official reporting (subsection 1 above, second sentence) unless the competent authority which has given the information has approved. The same shall apply to information obtained during on-site inspection of a branch in another EC or EEA Member State (section 13b above); in this case approval by the competent authority of the EC or EEA Member State, where the on-site inspection has been carried out, shall be required.

Section 85

Supervision shall not be limited to domestic business but also cover business carried on in other EC Member States and other EEA Member States through branches or on a freedom of services basis. While financial supervision shall be the sole responsibility of the BAV, any supervisory function other than financial supervision shall be performed in cooperation with the supervisory authority of the other Member State.

Section 86

Supervision shall also extend to the liquidation of an undertaking and the run-off of existing insurance contracts if business operations are prohibited or voluntarily discontinued or if the authorisation to carry on business is withdrawn.

Section 87

(1) The supervisory authority may withdraw authorisation for certain classes of insurance or for the entire business operations if

1. the undertaking no longer meets the authorisation requirements,

2. the undertaking fails seriously in its obligations under the law or its operating plan, or

3. there is evidence of irregularities which are so serious that continuation of business will endanger the interests of the insured,

4. the insurance undertaking does not make use of the authorisation within a period of twelve months or expressly renounces it or ceased doing business more than six months ago.

(2) The supervisory authority shall be authorised to withdraw authorisation for the entire business operations, if the undertaking is not in a position to take within the specified period the measures envisaged in the solvency plan or financing plan in accordance with section 81b (1) or (2) above.

(3) In consequence of the withdrawal of authorisation the undertaking shall be prohibited from writing new business, increasing the insured sums of or renewing existing insurance contracts.

(4) If the authorisation is withdrawn the supervisory authority shall take all the measures necessary to safeguard the interests of the insured. It may, in particular, restrict or prohibit free disposal of the assets of the undertaking and entrust qualified persons with the management of the assets.

(5) For the purpose of mutual societies a withdrawal of authorisation for the entire business activities shall have the same effect as an order to liquidate. The withdrawal of authorisation shall be entered in the commercial register upon notification by the supervisory authority.

(6) If the supervisory authority becomes aware of any facts which would left an authorisation to be refused in compliance with section 8 (1), first sentence, paragraph 1 above it may instead of withdrawing the authorisation require the dismissal of the directors or managers responsible for such facts and also prohibit them from continuing to exercise their functions.

Section 87a

If an insurance undertaking abuses of the possibility under section 111 (2) below to have as leading insurer insurance undertakings from other EC Member States or other EEA Member States participate in co-insurances, the supervisory authority may with respect to this insurance undertaking give any order necessary to remedy the abuse. In serious cases the supervisory authority may also prohibit the insurance undertaking from writing such co-insurances or take the measures specified under section 87 (1) above. Section 87 (3) to (5) above shall apply accordingly. There shall, in particular, be abuse in cases where an insurance undertaking does not fulfil the duties generally attributable to a leading insurer or where it invites insurance undertakings to join the contract which are not entitled to do so in accordance with section 111 (2) below.

Section 88

(1) A petition for the institution of insolvency proceedings against the assets of an insurance undertaking may only be filed by the supervisory authority.

(2) The board of directors shall notify the supervisory authority as soon as the insurance undertaking has become insolvent. This shall apply accordingly if the assets of the insurance undertaking are no longer sufficient to cover its liabilities. This duty to disclose shall supersede the duty of the board of directors in accordance with other legal requirements to file a petition for the institution of insolvency proceedings in the case of insolvency or overindebtedness. If in the case of mutual societies and insurance undertakings under public law operating on the mutuality principle which are subject to the payment of supplementary or required contributions any such payments of supplementary or required contributions have been outstanding for five months after their due date, the board of directors shall determine whether there will be overindebtedness if the supplementary or required contributions not paid in cash are disregarded; if there is overindebtedness the board shall inform the supervisory authority within one month after expiry of the specified period of time. Liquidators shall be subject to the same duties.

Section 89

(1) If it appears from an investigation into the management and financial situation of an undertaking that it will no longer be able to meet its liabilities in the long run but that it seems to be in the best interest of the insured to avoid insolvency proceedings, the supervisory authority may give the necessary orders and also require the representatives of the undertaking to change the bases for carrying on business within a certain period of time or otherwise to remedy any irregularities. All kinds of payments, in particular the payment of insurance benefits, profit distributions and for the purpose of life insurance surrenders or policy loans or advances on same may temporarily be prohibited.

(2) Subject to the conditions under subsection 1 above, first sentence, the supervisory authority may, if necessary, reduce the liabilities of a life insurance undertaking under its insurance contracts in accordance with its financial situation. The supervisory authority may, in doing so, require different reductions if this is justified by the circumstances, in particular if in the case of several groups of insurances the individual groups have contributed differently to the emergency situation of the undertaking. For the purpose of reductions in a first step the mathematical provisions shall be reduced in cases where mathematical provisions are established for the individual insurance contracts, and in a second step the sums insured shall be freshly determined, while in the absence of such provisions there shall be direct reduction of the sums insured. The obligation of the policyholders to continue payment of the agreed premiums shall not be affected by the reduction.

(3) The measures in accordance with subsections 1 and 2 above may be restricted to a separate account of the Deckungsstock (section 66 (7) above).

Section 89a

Any objection to and action to rescind measures in accordance with section 81 (2a) above, section 81b (1), second sentence, subsection 2, second sentence, and subsection 4 above, sections 83, 87 (1) (2) and (3) and subsection 4 above, sections 88 and 89 above shall not have any suspensive effect.

2. Bundesaufsichtsamt für das Versicherungswesen

Section 90

(1) (repealed)

(2) The president of the BAV shall be nominated by the Federal Government and appointed by the Federal President. The Federal President shall also appoint permanent members of the BAV who have been nominated by the Federal Finance Minister. The permanent members shall be appointed for life.

(3) The other officials shall be appointed by the Federal Finance Minister.

(4) The members of the BAV may not be managers or employees of insurance undertakings under public law at the same time.

Section 91

(repealed)

Section 92

(1) A Versicherungsbeirat inside the BAV composed of insurance experts shall assist the BAV with its supervisory functions; the members of the Versicherungsbeirat shall be nominated by the Federal Finance Minister and appointed by the Federal President for a period of five years.

(2) The members of the Versicherungsbeirat shall give expert advice when important decisions are prepared and participate in decisions of the Beschlußkammern (decision taking sections) by exercising a right to vote.

(3) They shall serve in an honorary capacity without remuneration; for the purpose of attendance of the meetings they shall be entitled to daily allowances and reimbursement of their travel expenses the rates of which shall be fixed by the Federal Finance Minister.

Section 93

(1) The BAV may ensure compliance with injunctions which it grants within the scope of its legal powers using the means to enforce administrative acts of which it disposes under the provisions of the Verwaltungs-Vollstreckungsgesetz (Law on Enforcement in Administrative Procedure). It may make use of means to enforce administrative acts also with respect to insurance undertakings which are legal persons under public law.

(2) Administrative fines of up to DM 50,000 may be imposed.

Section 94 to 100

(repealed)

Section 101

(1) The costs with respect to the BAV and its procedures shall be reimbursed to the Federal Government by the insurance undertakings subject to its supervision through the payment of fees in accordance with subsection 2 below; the costs also include the expenses arising from the employment of inspectors in accordance with section 83 (1) (4) above. To the costs shall be added any fees which were not received in the preceding year.

(2) The total amount of the fees shall equal nine tenths of the costs under subsection 1 above. A rate of one thousandth of the premium income subject to the payment of fees shall not be exceeded. The fees shall be determined on the basis of the gross income (gross premiums, contributions, advance and supplementary contributions, required contributions) which the direct insurance undertakings realised in the last financial year under insurance contracts concluded in the EC Member States and other EEA Member States and which undertakings exclusively operating reinsurance business realised under insurance contracts concluded within the country, however, after deduction of any returned surplus or profit participations.

(3) The BAV shall annually determine the rate of the fee as a certain thousandth rate of the premium income subject to fees. In doing so it may round off the income subject to fees and the fees in accordance with principles to be approved by the Federal Finance Minister. The Federal Finance Minister may fix a minimum fee.

(4) The fees shall be determined by the BAV; it shall send to the undertakings a plan showing distribution of the fees and require them to deposit their fees with the Bundeshauptkasse (Federal Chief Cash Office) within a period of one month. After expiration of this period any amounts due may be collected like public charges.

Section 102

The BAV may in the case of a procedure of taking evidence initiated by unfounded petitions or complaints and in the case of an unsuccessful appeal charge any cash expenses wholly or partly to the applicants.

Section 103

(1) The BAV shall annually publish information about the state of affairs of the insurance undertakings subject to its supervision and its observations with respect to the insurance sector.

(2) It shall also regularly publish its legal and administrative principles.

Section 103a

(1) As of 1st January, 1996, at the latest the BAV shall publish general probability tables not linked to special rates and other relevant statistical data for the purpose of health insurance within the meaning of section 12 (1) above.

(2) Insurance undertakings operating health insurance with their head offices within the country shall be required annually to notify to the BAV the data required for publication in pursuance of subsection 1 above on the basis of data obtained from their insurance portfolios. It shall be stipulated in the ordinance under section 12c above the kind of insurance portfolios and data to be taken into account.

Va. Supervision of the holders of qualifying participations in insurance undertakings

Section 104

(1) Any person who intends to hold a qualifying participation (section 7a (2) above, third sentence) in an insurance undertaking shall notify to the supervisory authority the amount of the intended participation without delay. This notice shall contain all the facts necessary to judge whether the requirements under section 7a (2) above, first and second sentences, have been met; the documents mentioned under section 5 (5) (6) (c) and (d) above shall be deposited with the supervisory authority on its request and audited by an auditor to be designated by the supervisory authority at the expense of the prospective holder. If the holder is a legal person or partnership it shall during the entire period it holds such qualifying participation immediately give notice of any newly appointed legal or statutory representative or new personally liable partner including all the facts necessary to judge his good repute. Furthermore, the holder of a qualifying participation shall immediately notify the supervisory authority if it intends to increase its participation by an amount resulting in the limits of 20 per cent, 33 per cent or 50 percent of the voting rights or nominal capital being reached or exceeded or in the insurance undertaking becoming a subsidiary (section 7a (2) above, sixth sentence). The supervisory authority may prohibit the intended acquisition of a qualifying participation or its increase within a period of three months of receipt of the notice if there are facts from which it may be concluded that the prospective holder giving such notice or, if the holder is a legal person or partnership, the legal or statutory representatives or personally liable partners are not of good repute; this shall also apply if there are any other facts which would entitle the supervisory authority not to grant authorisation in accordance with section 8 (1) above, first sentence, paragraph 2 or second sentence. If acquisition is not refused the supervisory authority may determine a period of time after the expiration of which the prospective holder shall notify the supervisory authority without delay if it has not complied with the intention expressed in the first or fourth sentence above.

(2) If there are facts which give reason to doubt that the holder of a qualifying participation meets the requirements under section 7a (2) above, first and second sentences, or that the structure of the affiliation of undertakings (section 15 of the Aktiengesetz) allows an effective supervision of the insurance undertaking the supervisory authority may take the measures permitted under subsection 1 above, second half of the second sentence. The supervisory authority may prohibit the holder of a qualifying participation from exercising its voting rights if

1. there are facts from which it may be concluded that the influence of the participating undertaking exercised by the holder, or by legal or statutory representatives or personally liable partners may be detrimental to the insurance undertaking,

2. there are facts from which it may be concluded that the requirements under section 7a (2) above, first and second sentences, are not complied with,

3. there are facts from which it may be concluded that there is an affiliation between the insurance undertaking and the holder of a qualifying participation and that due to this affiliation of undertakings or the structure of the affiliation of the undertaking holding a qualifying participation with other undertakings an effective supervision of the insurance undertaking is not possible, or

4. any such participation has been acquired or increased notwithstanding an enforceable refusal in accordance with subsection 1 above, fifth sentence.

In the cases of the second sentence exercise of the voting rights may be transferred to a trustee. The trustee shall in executing his voting right take into account the need to ensure a sound and prudent management of the insurance undertaking. The trustee shall be appointed at the request of the insurance undertaking, a holder in the undertaking or the supervisory authority by the competent court of the place where the insurance undertaking has its head office. If the requirements of the second sentence are no longer applicable the supervisory authority shall file an application for cancellation of the appointment of the trustee. The trustee shall be entitled to being refunded his reasonable expenses and to a remuneration for this services. The court shall determine the amount of the expenses and the remuneration at the request of the trustee; the decision shall not be subject to further appeal. The Federal Government shall advance the expenses and remuneration; the holder of the qualifying participation and the insurance undertaking shall be jointly and severally liable for the payments made by the Federal Government.

(3) Any person who intends to give up a qualifying participation in an insurance undertaking or to reduce the amount of a qualifying participation such that it falls below the levels of 20 per cent, 33 per cent or 50 per cent of the voting rights or nominal capital or to change the participation in such a way that the insurance undertaking is no longer a subsidiary, shall notify the supervisory authority accordingly stating the amount of the remaining participation.

(4) The supervisory authority shall provisionally prohibit or limit the acquisition of a direct or indirect participation in an insurance undertaking as a result of which the insurance undertaking would become the subsidiary of an undertaking located outside the EC and the other EEA Member States if a decision has been taken by the Commission or Council of the European Communities to this effect in accordance with article 29b (4) of the first directive 73/239/EEC of 24th July 1973, on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ of the EC no. L 228, p. 3) or article 32b (4) of the first directive 79/267/EEC of 5th March 1979, on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life assurance (OJ of the EC no. L 63, p. 1). Any provisional prohibition or limitation shall not exceed a period of three months from the date the decision was taken. If the EC Council decides to prolong the period mentioned in the second sentence the supervisory authority shall comply with this prolongation.

(5) Any objection to and action to rescind measures in accordance with subsection 1 above, fifth sentence, subsection 2 above, second sentence, and subsection 4 above shall not have any suspensive effect.

(6) The Federal Finance Ministry shall have the power to lay down by way of ordinance any provisions with respect to the nature, extent, and date of submission of the information to be provided in accordance with subsections 1 and 3 above to the extent that this is required for the supervisory authority to fulfil its duties. The above power may be transferred by ordinance to the BAV which shall stipulate the regulations in consultation with the supervisory authorities of the states (Länder).

VI. Insurance undertakings which have their head office abroad

1. Undertakings whose office is not in an EC Member State
or EEA Member State

Section 105

1) Insurance undertakings whose head office is not in an EC Member State or EEA Member State and which carry on direct insurance business within the country through persons acting on behalf of the undertaking shall be subject to authorisation.

(2) The special requirements of sections 106 to 110 below shall apply to these undertakings in addition to the other requirements of this law which shall apply accordingly.

Section 106

(1) (repealed)

2) The undertakings shall establish within the territory of application of this law a branch where they shall keep all records concerning the branch. The provisions of sections 13d to 13f of the Handelsgesetzbuch relating to branches shall be applied accordingly. Separate accounts shall be established for business activities of the branch. Sections 55 and 55a above shall be applicable on condition that

1. also the annual accounts and status report of the principal branch are sent to every insured in German, on request,

2. the internal report comprises the annual accounts and status report published in the home country of the undertaking in the language of the home country and in German and the report submitted to the supervisory authority of the home country in the language of the home country.

(3) An authorised agent shall be appointed for the branch who shall have his domicile and permanent residence in the territory of application of this law. He shall meet the same obligations and personal requirements which this law prescribes for the board of directors of an undertaking whose head office is in the country. He shall be deemed to have power to bind the undertaking in relation to third parties, in particular to write insurance contracts with policyholders in the territory of application of this law and referring to real estates located in the country and to represent the undertaking in relations with the authorities and courts. The authorised agent shall be entered into the commercial register.

(4) If securities have to be provided in accordance with the provisions below the BAV may reserve the right in the repayment conditions to dispose of these securities in the interest of the insured.

Section 106a

(repealed)

Section 106b

(1) The Federal Finance Minister shall decide any proposal to take up insurance business to be submitted to the BAV. The following shall be submitted together with the proposal

1. the operating plan and the information and records mentioned in section 5 (4), third and fourth sentence, and subsection 5 above for the branch including the articles of association of the undertaking; at the same time the members of the body which is the legal representation of the undertaking and of a supervisory body shall be appointed;

2.a certificate of the competent authority in the home country stating

a) that the undertaking may, in its home country, acquire rights and incur liabilities, sue and be sued in court, under its own name,

b) which classes of insurance the undertaking may operate and which types of risks it actually covers;

3. the balance sheet and the profit and loss account for each of the last three financial years; if the undertaking has been in business for less than three years these documents shall be deposited for each of the financial years in which it has been in business.

(2) The financial resources requirements of section 8 above shall be met. The undertaking shall be obliged to establish own funds at least in the amount of a solvency margin which is determined in accordance with the volume of business of the branch. These funds shall be located in an amount equal to the guarantee fund in the territory of application of this law, otherwise in the territory of the EC Member States or another EEA Member State. The minimum amount of the guarantee fund shall not be less than 50 per cent of the amount specified in accordance with section 53c (2) above. Moreover, the undertaking shall be obliged to furnish the required securities (fixed and variable guarantee deposits). The fixed guarantee deposit shall amount to at least 25 per cent of the minimum guarantee fund specified in section 53c (2) above. The fixed guarantee deposit shall be counted towards the own funds.

(3) If business operations are to be extended to other classes of insurance or to another area within the territory of application of this law, subsections 1 and 2 above shall apply accordingly.

(4) Authorisation may be granted if

1. the BAV, after consulting the Versicherungsbeirat, issues an opinion to the effect that none of the grounds of section 8 (1) above for denying the authorisation exists,

2. the requirements of section 106 (2) and (3) above have been met, and

3. the amount required as fixed guarantee has been deposited.

(5) For the purpose of an undertaking which has been authorised or has applied for authorisation to carry on business in another EC Member State or another EEA Member State it may be permitted, upon request and subject to revocation

1. that the solvency margin is calculated on the basis of its total business operations in the EC Member States or the other EEA Member States,

2. that own funds in an amount equal to the guarantee fund may be located in another EC Member State or another EEA Member State in which the undertaking is doing business,

3. that the undertaking is relieved of the obligation to deposit a security guarantee within the territory of application of this law.

The Federal Finance Minister shall grant the authorisation to carry on business while in all the other cases the authorisation shall be granted by the BAV. Authorisation shall be withdrawn by the BAV.

(6) (repealed)

(7) The BAV shall withdraw authorisation if

1. the undertaking has been withdrawn authorisation to do business in its home country,

2. in the case of subsection 5 above the authorisation to do business is withdrawn in another EC Member State or another EEA Member State because of insufficient own funds.

Section 87 above shall not be affected. The Federal Finance Minister may withdraw authorisation if this is deemed to be in the public interest.

(8) If the competent authority which controls the financial resources of the undertaking for its entire business activities in the EC Member States or another EEA Member State has limited the right to dispose of the assets of the undertaking because of insufficient own funds, the BAV shall, at the request of this authority, take appropriate measures with respect to the assets located in the territory of application of this law. Section 81b (4) above shall not be affected.

Section 106c

Insurance undertakings operating life insurance together with other classes of insurance shall not be authorised to operate life insurance business in the territory of application of this law. Whether this provision shall also be applicable to health insurance depends on section 8 (1), first sentence, paragraph 3 above.

Section 107

Foreign insurance undertakings which have been granted authorisation to carry on business according to section 105 above shall be permitted to conclude insurance contracts with policyholders who have their usual residence in the territory of application of this law and insurance contracts covering real estate located there only through authorised agents residing in the territory of application of this law.

Section 108

(1) If the insurance portfolio of a domestic branch (section 106 (2) above) is transferred to the domestic branch of another insurance undertaking which has its head office not in an EC Member State or another EEA Member State, and if the financial resources of the branch of such latter insurance undertaking are controlled by the supervisory authority of another EC Member State or another EEA Member State, availability of the required own funds of the transferee undertaking in accordance with section 105 (2) above, in conjunction with section 14 (1) above, shall be proved by a certificate made out by this authority. The securities furnished by a branch for the transferred portfolio shall be maintained unless the competent authority of the transferee undertaking decides otherwise.

(2) A contract by which the insurance portfolio of a branch (section 106 (2) above) is to be transferred wholly of partly to an undertaking whose head office is in another EC Member State or in another EEA Member State shall be approved by the BAV. This approval shall not be granted unless it has been proved by a certificate made out by the supervisory authority of the home country that the transferee company will dispose of own funds in an amount equal to the solvency margin after the transfer.

(3) Section 14 (1), third and fourth sentences, subsections 2 and 3 above shall apply to contracts pursuant to subsections 1 and 2 above accordingly.

Section 109

(repealed)

Section 110

((1) Sections 54 to 54b, 54d, 65 and 66 (1) to (3a) and (5) to (7) above and sections 67 and 70 to 79a above shall only apply to insurance business written in accordance with section 105 above.

(2) A trustee in pursuance of sections 70 to 76 above shall not be appointed. The Deckungsstock for these insurances shall be secured in accordance with more detailed specifications by the BAV in such a way that it can only be disposed of with its approval.

2. Undertakings which have their head office in an EC Member State or another EEA Member State

Section 110a

(1) Insurance undertakings which have their head office in another EC Member State or another EEA Member State (home Member State) may, with the exception of the undertakings mentioned in section 110d below, carry on direct insurance business in the country via a branch or under the freedom of services provision through persons acting on behalf of the undertaking only according to subsection 2 below. Section 13a (1), second sentence and subsection 2 above shall apply accordingly.

(2) An undertaking shall not be permitted to take up business activity unless

1. the supervisory authority of the home Member State has submitted to the BAV,

a) for the purpose of an undertaking carrying on activities through a branch, the documents mentioned in article 10 (2), (3) (2) and paragraph 6 of the first Council directive of 24th July, 1973 (73/239/EEC) on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ of the EC no. L 228, p. 3) and in article 10 (2), (3) (2) and paragraph 6 of the first directive of 5th March, 1979 (79/267/ EEC) on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (OJ of the EC No. L 63, p. 1) and informed the undertaking accordingly, and unless in the case of the establishment of a branch, two months have elapsed since the undertaking has received any such information provided the BAV has not advised the undertaking of an earlier date,

b) for the purpose of an undertaking carrying on activities by way of provision of services, the documents mentioned in article 16 (1) and article 17 of the second Council directive of 22nd June, 1988 (88/357/EEC) on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending directive 73/239/EEC (OJ of the EC no. L 172, p. 1) and in article 14 (1) and article 17 of the second Council directive of 8th November, 1990 (90/619/EEC) on the coordination of laws, regulations and administrative provisions relating to direct life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending directive 79/267/EEC (OJ of the EC no. L 330, p. 50), and informed the undertaking accordingly, and,

2. for the purpose of an undertaking operating health insurance within the meaning of section 12 (1) above and compulsory insurances, the undertaking has deposited the general insurance policy conditions with the BAV.

(3) Financial supervision of any such business activities shall be the sole responsibility of the supervisory authority of the home Member State, while otherwise supervision shall also be the responsibility of the BAV. The supervisory authority of the home Member State shall, for the purpose of financial supervision, be entitled to perform on the premises of the branch inspections of its business operations either by its own staff or persons who act on its behalf after prior information of the BAV; section 81 (1) above, third sentence, and section 83 (3) and (6) above shall apply accordingly.

(4) For the purpose of supervision by the BAV according to subsection 3 above the following shall apply in addition to the provisions of subsections 1 and 2 above:-

1. concerning the introductory provisions (I.), section 1 (1), (3) and (4) above and section 2 above

2. concerning the provisions on the authorisation to take up business (II.), sections 10 and 10a above, subject to the requirement that the consumer information to be supplied in accordance with part D, section I (1) (h) of the annex shall also contain the address of any other body which the policyholder may contact in case of complaints about the insurer under foreign law, sections 11b, 11c, 12 (1), (4) and (5) above, sections 12a, 12b (1) to (3) above, sections 12c to 12e and 13d (7) above,

3. concerning the provisions on the duties and powers of the supervisory authorities (V.1.),

a) section 81 (1), second, third, and fourth sentences, subsection 2 above, section 83 (1), first sentence, paragraphs 1 to 4, second sentence, subsections 2, 4 and 5, paragraphs 1 and 2, subsection 6 above, sections 89a and 93 above,

b) section 81 (4), first sentence, paragraph a above, and section 83 (3) above, in addition to the above, for an existing branch,

4. concerning the provisions on insurance undertakings which have their head office abroad (VI.), section 106 (3) above, fourth sentence and section 111b (1) above, second and third sentences.

Section 110b

(1) The underwriters of the Lloyd’s association of underwriters may not carry on business unless in the case of an execution against the assets of the underwriters located in the country the association renounces on behalf of the underwriters to derive any right from the fact that this is an execution also against the assets of underwriters to which this title is not applicable; this declaration of renunciation shall be irrevocable until the insurance contracts concluded in the country have been completely run off.

(2) Any claims in connection with insurance business carried on by the underwriters of the Lloyd’s association of underwriters through a branch in the country may only be enforced by legal action by and against the authorised agent. A title obtained according to the first sentence shall have an effect on the individual underwriters taking part in the insurance business, either in their favour or to their disadvantage. Section 727 of the Zivilprozeßordnung has to be applied accordingly. If a title is obtained against the authorised agent, it shall be possible to execute against the assets managed by him and located in the country of all underwriters of the Lloyd’s association of underwriters.

Section 110c

(repealed)

Section 110d

(1) Insurance undertakings which have their head office in another EC Member State or another EEA Member State and which are not subject to the EC Council insurance directives and wish to operate direct insurance business through a branch shall require an authorisation. The BAV shall decide the application of the undertaking.

(2) The provisions of sections 1 to 104 above shall be applied to these undertakings accordingly subject to the following:

1. the articles of association of the undertaking, and the balance sheet and profit and loss account for each of the last three financial years shall also be deposited; if the undertaking has been in business for less than three years, these documents shall be deposited for each of the financial years in which it has been in business;

2. the names of the members of the body authorised to legally represent the undertaking shall be disclosed;

3. the documents concerning the branch shall be kept there;

4. the requirements with respect to the financial resources are those defined in section 8 (1), first sentence, paragraph 3 above; section 53c (2a) above shall not be affected;

5. section 14 (1a) above shall not be applied.

In addition, section 106 (3) above and sections 106c and 110 (1) above shall apply accordingly. (3) Subsections 1 and 2 above shall also apply if business is to be carried on by way of the freedom of services provision through persons entitled to act on behalf of the undertaking; the provisions of subsection 2 above shall, however, not apply as they require the existence of a branch.

Sections 110e to 110i

(repealed)

Section 111

(1) Undertakings which only write the classes of insurance mentioned in part A (4) to (7) and (12) and the types of risks mentioned under 10 (b) shall not be subject to the provisions of this law.

(2) Further shall not be subject to the provisions of this law any undertakings which participate in insurance business in accordance with article 10 (1) of the Einführungs-gesetz zu dem Gesetz über den Versicherungsvertrag to be covered by co-insurance if they carry on business within the territory of application of the present law only through the leading insurer and not from the head office or a branch and if such co-insurance does not refer to compulsory third party liability insurance in connection with damage caused by nuclear energy or drugs. (3) The Federal Finance Minister shall have the power by way of an ordinance which is not subject to approval by the Bundesrat

1. to declare that subsections 1 and 2 above shall be applicable to insurance undertakings which have their head office not in an EC Member State or another EEA Member State if the interests of the insured are adequately safeguarded and the interests of the Federal Republic of Germany are not affected,

2. to rule that the provisions with respect to foreign undertakings which have their head offices in an EC or EEA Member State shall also be applicable to undertakings whose head offices are not in an EC or EEA Member State to the extent that this is necessary under agreements concluded between the European Community and non-Community Member States by virtue of the freedom of establishment or freedom of services legislation.

(4) If the requirements of subsection 3 (1) above have been met the Federal Finance Minister may also grant exemptions in individual cases by means of an administrative act.

VIa. Cooperation of the Bundesaufsichtsamt für das Versicherungswesen with the competent authorities of the other EC Member States or another EEA Member State in the field of direct insurance

Section 111a

(1) The BAV shall permanently inform the supervisory authorities of the other EC or EEA Member States about such legal provisions which the insurance undertakings having their head office in these States have to observe, when they carry on business in accordance with section 110a (1) above and the observance of which it controls within the framework of its supervisory duties excluding financial supervision (section 110a (3) above, first sentence, section 81 (1) above, first sentence). Provisions which the BAV has not disclosed pursuant to the first sentence shall be communicated to the supervisory authority of the home Member State within a period of two months from receipt of the information mentioned under section 110a (2) (1).

(2) The BAV shall disclose the information about health insurance published in accordance with section 103a (1) above to the supervisory authorities of the home Member States.

Section 111b

(1) If in the case of business activity according to section 110a (1) above, the undertaking does not comply with the requirements or orders of the BAV in accordance with section 81 (2) above, the BAV shall inform the supervisory authority of the home Member State about measures it intends to take in compliance with the second sentence and ask it for its cooperation. If this request does not show any results and if attempts to enforce orders by administrative acts or fines are futile or unsuccessful, the BAV may prohibit the undertaking from continuing to do business in the country wholly or partly if other measures are inadequate to reach the objective or impracticable (section 81 (2) above, section 110a (4) (3) above). In urgent cases the orders mentioned in the second sentence may be taken without informing the supervisory authority of the home Member State.

(2) If the supervisory authority of the home Member State intends to inspect a branch in accordance with section 110a (3) above, second sentence, the BAV shall provide administrative assistance on request. It may take part in the inspection; section 83 (3) and (6) above shall apply accordingly.

(3) If the BAV has reasons to believe that financial security of an undertaking carrying on activities in accordance with section 110a (1) above could be impaired it shall inform the competent authority performing financial supervision of the home Member State.

(4) If the supervisory authority of the home Member State imposes on an undertaking any limitations of free disposal in accordance with article 20 (1), (2) (2) or paragraph 3 (2) of the first Council directive of 24th July 1973 (73/239/EEC) on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (OJ of the EC no. 228, p. 3) or article 24 (1), (2) (2) or paragraph 3 (2) of the first Council directive (79/267/EEC) of 5th March, 1979 on the coordination of the laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (OJ of the EC no. L 63, p. 1), the BAV shall, at the request of this authority, take the same measures with respect to the assets of the undertaking located in the country and covered by the request.

(5) If the authorisation of an undertaking, which carries on business in the country according to section 110a (1) above, is withdrawn the BAV shall, after it has been informed by the supervisory authority of the home Member State, take the adequate measures required to prevent any further business activities in the country.

Section 111c

(1) Before limiting disposal of the assets of the undertaking in accordance with section 81b (4) above and after limiting disposal of such assets pursuant to section 81b (1), second sentence, or subsection 2 above, second sentence, the BAV shall inform the supervisory authorities of the EC or EEA Member States in which the undertaking has a branch or carries on business by way of freedom to provide services. It may request these authorities to submit the assets located in their territory and specified in the request to the same limitations.

(2) If the BAV intends within the framework of financial supervision to perform inspections by its own personnel or persons whom it has so authorised on the premises of a branch it shall inform the supervisory authority of the other EC or EEA Member State accordingly. The same shall apply if it takes orders with respect to a business activity carried out in accordance with subsection 1 above, first sentence. If the supervisory authority of another EC or EEA Member State seeks cooperation of the BAV for the purpose of supervision the BAV shall take the adequate measures in pursuance of sections 81, 83, 84 and 93 above and shall inform the authority seeking such cooperation accordingly.

(3) If the supervisory authority of another EC or EEA Member State intends to send an undertaking, which carries on business in such other EC or EEA Member State and has its head office in the country, a document for the purpose of proceedings in accordance with the insurance supervisory provisions applicable in such other EC or EEA Member State it shall be permitted to send such document by post in compliance with the rules applicable to postal relations with such other EC or EEA Member State. Sending the document by registered letter to which has been added “personal” and “advice of receipt” shall be sufficient to prove that the document has been delivered. If the document cannot be directly delivered by post or if this should not be expedient due to the nature and content of the document, the BAV shall take care of its delivery.

(4) The BAV shall inform the supervisory authorities of all EC or EEA member states about any withdrawal of authorisation according to section 87 above. It shall also contact the supervisory authorities of the Member States in which business is carried on with respect to any necessary measures pursuant to section 87 (4) above.

Section 111d

Any contract by which an insurance undertaking, which has its head office in another EC or EEA Member State, intends to transfer its portfolio of insurance contracts, which it concluded in accordance with section 110a (1) above through a branch or on a services basis, wholly or partly to an undertaking whose head office is in an EC Member State or another EEA Member State shall for the purpose of obtaining approval by the competent supervisory authority of the transferor undertaking in the home Member State be approved by the BAV. Section 8 (1), first sentence, paragraph 3 above, section 14 (1), fourth sentence, and subsection 3 above, first sentence, shall apply accordingly. If the portfolio of insurance contracts of a branch does not cover any risks located in the country, the BAV shall only give its opinion on the contract. If the BAV does not comment on the request for approval or for an opinion within a period of three months this shall be deemed a tacit approval or positive statement.

Section 111e

(1) If a request according to section 106b (5) above is to be granted the competent authorities of the EC and EEA Member States in which the undertaking has been authorised or an authorisation procedure is under way shall be required to give their approval.

(2) The BAV shall control the financial resources for all business activities in the territory of the EC and EEA Member States which approved of the request provided this has been envisaged in the request.

(3) If the BAV controls the financial resources it shall inform the competent authorities of the EC and EEA Member States concerned of the measures taken in compliance with section 81b (2) above, second sentence. It may request these authorities to take the same measures.

VIb. Notifications to the EC Commission

Section 111 f

(1) The supervisory authority shall notify the EC Commission of

1. the granting of an authorisation in accordance with section 5 (1) above to an undertaking, the subsidiary (section 7a (2) above, sixth sentence) of a parent undertaking (section 7a (2) above, seventh sentence) whose head office is not in the EC Member States and the other EEA Member States; the structure of the group of undertakings shall be stated in the notice;

2. the acquisition of a participation in an insurance undertaking by which the insurance undertaking becomes the subsidiary of a parent undertaking which does not have its head office in the EC Member States and the other EEA Member States;

3. the number and nature of the cases in which the establishment of a branch or operation of direct insurance business on a services basis in another EC Member State or the other EEA Member States could not be realised because the supervisory authority did not pass on the documents according to section 13b (1) above, second sentence, or section 13c (1) above, second and third sentences, to the supervisory authority of the other EC or EEA Member State;

4. the number and nature of the cases in which measures in accordance with section 111b (1) above, second and third sentences, were taken;

5. general difficulties which insurance undertakings face with the establishment of branches, foundation of subsidiaries or in any other way with the operation of insurance business in a State which is not an EC or EEA Member State;

6. at the request of the Commission, the application for permission of an undertaking which is the subsidiary of a parent undertaking which has its head office not in the EC Member States or the other EEA Member States;

7. at the request of the Commission, the intention disclosed in accordance with section 104 above to acquire a participation in an insurance undertaking by which the insurance company will become a subsidiary of an undertaking whose head office is not in the EC Member States or the other EEA Member States;

8. the maximum interest rates fixed pursuant to section 65 (1), first sentence, paragraph 1 above.

(2) The obligations to notify in accordance with subsection 1 (6) and (7) above shall only exist if the EC Commission finds that insurance undertakings whose head office is in one of the EC Member States or other EEA Member States are actually not permitted access to the market of the State which is not an EC or EEA Member State which is comparable to the access the EC permits undertakings of this State, or if the Commission finds that the insurance undertakings which have their head office in one of the EC Member States or other EEA Member States are not treated like domestic undertakings in this State. The obligations to notify in accordance with subsection 1 (6) and (7) above in conjunction with the first sentence shall no longer exist if an agreement has been negotiated with this State with respect to access to the market and treatment like domestic undertakings of insurance undertakings which have their head office in one of the EC Member States or other EEA Member States or if decisions on applications for permission of undertakings whose head office is in this State no longer need to be deferred in accordance with section 8 (3) above.

VII. Building societies

(repealed)

VIII. Transitional provisions

Section 122

Insurance undertakings which on 1st January, 1902, were authorised to carry on business under state (Land) law in one or more states (Länder) need no authorisation under this law if they have continued business operations within the boundaries to which they had restricted operations until 1st January, 1902, or to which in the case of their permission to do business having been based on a special authorisation their operations had been restricted under this authorisation.

Section 123

Any assets acquired until 29th December, 1974, in accordance with legal provisions and orders of the supervisory authority applicable until that time and individual approvals granted by the supervisory authority may be kept as part of the restricted assets but not as part of the Deckungsstock unless they had already been allocated to the Deckungsstock and entered into the Deckungsstock list.

Sections 124 to 127

(repealed)

Section 128

For the purpose of societies which on 1st January, 1902, had written insurances for their members on the mutuality principle and had legal capacity, the provisions of the present law with respect to mutual societies (section III) excluding the provisions concerning the members funds and loss reserve shall apply accordingly. They shall, however, establish a loss reserve by 31st December, 1983; section 53b above shall not be affected.

Sections 129 to 133e

(repealed)

Section 133f

(1) For the purpose of a public limited company with head office within the territory of application of this law which was granted authorisation to carry on life insurance before 14th March, 1989, and in which an insurance undertaking with head office in an EC Member State or another EEA Member State operating life insurance together with other classes of insurance holds a share of at least 95 per cent, a financial guarantee of the latter of up to one half of the minimum amount of the guarantee fund (section 53c (2) above) shall be considered as own funds, provided the solvency margin (section 53c (1) above) does not exceed the minimum amount of the guarantee fund, for a period ending at the end of the seventh financial year after authorisation to carry on business had been granted. In this case, not paid-up share capital shall, beyond the provision under section 53c (3), first sentence, paragraph 1 (a) above, also not be regarded as own funds to the extent that it exceeds together with the guaranteed amount half of the minimum amount of the guarantee fund. The guarantee shall be irrevocable pending its complete replacement by other own funds (subsection 3 below).

(2) Subsection 1 above shall only be applicable if the undertaking holding a share with head office in an EC Member State or EEA Member State does not have a branch within the territory of application of this law operating classes of insurance other than life insurance and if it disposes of the necessary own funds prescribed for both operation of life insurance and classes of insurance other than life insurance. For this purpose own funds in the amount of the guarantee shall not be taken into account.

(3) The public limited company shall starting with the third financial year after authorisation to carry on business gradually replace the guarantee by other own funds. For this purpose a plan to be approved by the supervisory authority shall be submitted together with the application for authorisation to carry on business.

Section 133g

Any existing outsourcing contracts (section 5 (3) (4) above) shall be deposited with the supervisory authority if this was not done previously.

IX. Provisions concerning offences and administrative fines

Section 134

A person who makes false statements to the supervisory authority for the purpose of obtaining the authorisation of an insurance undertaking to carry on business, the renewal of such authorisation or the approval of a change to the operating plan or a transfer of a portfolio of insurance contracts (sections 14, 108 above) shall be liable to imprisonment for a term not exceeding three years, or to a fine.

Sections 135 and 136

(repealed)

Section 137

(1) A person who as auditor or assistant to an auditor reports falsely on the results of the audit or does not disclose material facts in the report shall be liable to imprisonment for a term not exceeding three years, or to a fine.

(2) If the offender acts for a consideration or with the intent to enrich himself or another person or to harm another person he shall be liable to imprisonment for a term not exceeding five years, or to a fine.

Section 138

(1) A person who except for the cases under section 333 of the Handelsgesetzbuch or section 404 of the Aktiengesetz discloses any secret of the insurance undertaking without being authorised to do so, in particular any business or trade secret which has come to his knowledge in his capacity as

1. auditor or assistant to an auditor in accordance with section 341k in conjunction with section 319 of the Handelsgesetzbuch,

2. member of the board of directors or supervisory board or liquidator,

shall be liable to imprisonment for a term not exceeding one year, or to a fine.

(2) If the offender acts for a consideration or with the intent to enrich himself or another person or to harm another person he shall be punished with imprisonment for a term not exceeding two years or by imposing a fine. Subject to punishment shall also be any person who makes use of a secret of the kind described under subsection 1 above, in particular any business or trade secret which came to his knowledge as specified under subsection 1 above.

(3) The offence shall only be prosecuted at the request of the insurance undertaking. If a member of the board of directors or a liquidator has committed the offence the supervisory board shall be entitled to make the request, if a member of the supervisory board has committed the offence the board of directors or the liquidator shall be entitled to make the request.

Section 139

(1) A person who as responsible actuary submits a false actuarial certification as per section 11a (3) (2), first sentence, also in conjunction with an ordinance pursuant to subsection 5 above or with sections 11d, 11e or 110d (2) or (3) above, or under section 12 (3) (2) above, first sentence, also in conjunction with section 110d (2) or (3) above, shall be liable to imprisonment for a term not exceeding three years, or to a fine.

(2) Subject to punishment shall also be any person who as trustee appointed to control a Deckungsstock or as deputy trustee (section 70 above) submits a certificate in accordance with section 73 above, also in conjunction with section 110d (2) and (3) above, which is false.

Section 140

(1) A person who in the country

1. carries on insurance business without authorisation in accordance with section 5 (1) above, section 105 (1) above or section 110d (1) above, first sentence,

2. takes up business operations contrary to section 110a (2) above, or

3. contravenes an enforceable order in accordance with section 111b (1) above, second sentence, also in conjunction with the third sentence,

shall be liable to imprisonment for a term not exceeding one year, or to a fine.

(2) If the offender acts negligently he shall be liable to imprisonment for a term not exceeding six months, or to a fine of up to one hundred and eighty daily rates.

Section 141

(1) A person who as member of the board of directors, as authorised agent (section 106 (3) above) or as liquidator of an insurance undertaking contrary to section 88 (2) above does not give the required notice to the supervisory authority, shall be liable to imprisonment for a term not exceeding three years, or to a fine.

(2) If the offender acts negligently he shall be liable to imprisonment for a term not exceeding one year, or to a fine.

Section 142

(repealed)

Section 143

A person who as member of the board of directors or the supervisory board, authorised agent (section 106 (3) above) or liquidator of a mutual society

1. in descriptions or surveys of the financial situation of the society or in oral statements or information to the supreme representation misrepresents or conceals the actual situation of the mutual society, or

2. in explanations or statements to be made available to the auditor of a mutual society in accordance with the provisions of this law gives false information or misrepresents or conceals the actual situation of the mutual society,

shall be liable to imprisonment for a term not exceeding three years, or to a fine, however, only if in the case of (1) above no penalty has been envisaged under section 331 (1), and in the case of (2) above no penalty has been envisaged under section 331 (4) of the Handelsgesetzbuch.

Section 144

(1) An administrative offence shall be deemed to be committed by any person who as member of the board of directors or of the supervisory board, as authorised agent (section 106 (3) above) or as liquidator of an insurance undertaking

1. proposes or authorises the distribution of profits determined in violation of the requirement of the law or the approved operating plan with respect to the establishment of provisions and reserves,

2. violates a provision with respect to the investment of the assets of the Deckungsstock or the calculation, entry in the books, keeping or management of the mathematical provisions or the Deckungsstock (sections 54a to 54c, 65 to 67, 77, 79, 110d (2) and (3) above) or fails to issue, or issue correctly, a certificate in accordance with section 66 (6) above, sixth sentence, also in conjunction with section 110d (2) and (3) above,

3. violates the approved operating plan with respect to the investment of money,

4. carries on business not envisaged in the approved operating plan or permits the carrying on of such business, or

5. violates an ordinance in pursuance of section 55a (1) above, also in conjunction with section 106 (2) above, fourth sentence, to the extent that for the purpose of a certain offence reference is made to the present administrative fines provision.

(1a) An administrative offence shall be deemed to be committed by a person who

1. violates intentionally or negligently an ordinance in accordance with section 5 (6) above, section 12c above, also in conjunction with section 110a (4) (2) above or section 65 (1) above to the extent that for the purpose of a certain offence reference is made to the present administrative fines provisions,

2. intentionally or negligently fails to give notice in accordance with section 13b (1) or (4) above, first sentence, section 13c (1) also in conjunction with subsection 4 above, section 13d (1) to (6), (7) above, also in conjunction with section 110a (4) (2) or (8) above, section 58 (2) above, first sentence, or section 104 (1), first sentence, first half of the second sentence, third or fourth sentence, or subsection 3 each also in conjunction with an ordinance in accordance with subsection 6 above, fails to give it correctly, completely or in due time,

3. intentionally or negligently contrary to section 59 above, first sentence, fails to submit, or submit in due time, a copy of the auditor’s report,

4. intentionally or negligently violates an enforceable ordinance in accordance with section 81b (1), second sentence, or subsection 2, second sentence also in conjunction with subsection 4 above, or section 104 (1) above, fifth or sixth sentence, or an enforceable requirement under section 8 (2) above,

5. intentionally or negligently contrary to section 83 (1), first sentence, paragraph 1, or subsection 2 above, first sentence, each also in conjunction with section 110a (4) (3) (a) above, fails to supply information, or supply it correctly, completely, or in due time,

6. contrary to section 83 (1), first sentence, paragraph 5 above does not grant the right to speak,

7. contrary to section 83 (1), first sentence, paragraph 6 above does not call or announce meetings,

8. intentionally or negligently contrary to section 83 (1) above, second sentence, also in conjunction with section 110a (4) (3) (a) above does not tolerate a measure,

9. violates an enforceable order under section 87 (6) above, or

10. intentionally or negligently contrary to section 103a (2) above in conjunction with an ordinance pursuant to section 12c above fails to give notice, or give it correctly, completely, or in due time.

(2) An administrative offence may in the cases of subsection 1 (1) to (4) and subsection 1a above be punished with a fine not exceeding 100,000 Deutsche Mark, in the cases of subsection 1 (5) above with a fine not exceeding 50,000 Deutsche Mark.

Section 144a

(1) An administrative offence shall be deemed to be committed by a person who intentionally or negligently

1. concludes in the country an insurance contract for an undertaking which does not dispose of the authorisation required to carry on such insurance business, has taken up business contrary to section 110a (2) above or continues such business contrary to section 111b (1) above, second or third sentence, or

2. intermediates the conclusion of an insurance contract for such an undertaking on a commercial basis, or

3. violates an order issued pursuant to section 81 (2) above, third and fourth sentences, also in conjunction with section 110a (4) (3) (a) above. (2) An administrative offence may be punished with a fine not exceeding 50,000 Deutsche Mark.

Section 144b

(1) An administrative offence shall be deemed to be committed by a person who

1. contrary to section 8a (3) above, second sentence, also works for an insurance undertaking which operates other insurance business in addition to legal expenses insurance,

2. contrary to section 8a (3) above carries on an activity comparable to a loss adjustment activity for an insurance undertaking specified under paragraph 1 above,

3. contrary to section 8a (4) above, first sentence, gives instructions, or

4. contrary to section 8a (4) above, second sentence, supplies information.

(2) An administrative offence may be punished with a fine not exceeding 20,000 Deutsche Mark.

Section 145

The threat to be punished in compliance with sections 141 and 143 above and to be fined in compliance with sections 144 and 144b above shall also apply to members of the board of directors or supervisory board and liquidators of a society to be treated as a mutual society in accordance with section 128 above. The threat to be fined in compliance with section 144b (1) (3), subsection 2 above shall also be applicable to the authorised agent (section 106 (3) above).

Section 145a

The administrative authority within the meaning of section 36 (1) (1) of the Gesetz über Ordnungswidrigkeiten shall be the Bundesaufsichtsamt für das Versicherungswesen to the extent that the Bundesaufsichtsamt is authorised to supervise insurance undertakings.

Section 145b

(1) The court, the authorities for the prosecution of criminal offences or the execution of sentences shall in criminal proceedings against managers and directors of insurance undertakings or their legal deputies or personally liable partners for infringement of their professional obligations or other criminal offences while carrying on or in connection with the carrying on of a trade or another economic activity, and also in criminal proceedings for criminal offences pursuant to sections 134, 137 to 141 and 145 of the present law, in the case of a public action being brought, submit to the Bundesaufsichtsamt für das Versicherungswesen,

1. the charge or the application in place thereof,

2. the application for an order imposing punishment without previous trial, and

3. the decision taken at the end of proceedings including the reasons;if an appeal has been lodged from a decision,

the decision shall be submitted referring to the appeal lodged. As regards proceedings for negligently committed offences the submissions under nos. 1 and 2 above shall only be made if from the point of view of the body making the submission the Bundesaufsichtsamt für das Versicherungswesen is required to take decisions or other measures immediately.

(2) If during legal proceedings any facts should be disclosed suggesting that there are irregularities regarding the insurance undertaking’s business activities including its field force and if knowledge of these facts is from the point of view of the body making the submission essential for the supervisory authority to take measures, the court, the authorities for the prosecution of criminal offences or the execution of sentences shall also notify these facts, unless the body making the submission is aware of any prevailing interests of those concerned that warrant protection. In this context the reliability of the information to be submitted shall be considered.

(3) If a notification pursuant to subsections 1 or 2 above refers to an insurance undertaking which according to the present law is supervised by the competent authority of a state (Land) the Bundesaufsichtsamt shall transmit such notification to this authority immediately.

X. Final provisions

Section 146

The Federal Finance Minister shall have the power to determine by way of an ordinance not requiring approval by the Bundesrat that all the insurance business or certain kinds of insurance business carried on with the group of persons specified under article I (1) (a) to (c) of the agreement of 19th June, 1951, between the parties to the North Atlantic Treaty relating to the legal status of their troops (BGBl. 1961 II, pp. 1183, 1190) shall not be subject wholly or partly to the provisions of this law in so far as the interests of other insured and the requirement to meet obligations under the other insurance contracts as they arise are thereby not endangered within the territory of application of this law.

Sections 147 to 149

(repealed)

Section 150

All insurance undertakings subject to supervision under this law shall deposit with the BAV the statistical data about their business operations required by it. The Versicherungsbeirat shall be consulted with respect to the nature of these data.

Section 151

Insurance undertakings under public law not subject to supervision under this law shall deposit with the BAV on request the same statistical data about their business operations as insurance undertakings subject to supervision under this law..

Section 152

The BAV and the supervisory authorities of the states (Länder) shall be required to exchange information about their legal and administrative principles. This shall also apply to principles established by the authorities of the states (Länder) for the supervision of insurance undertakings under public law.

Section 153

(repealed)

Section 154

(1) The provisions of the states (Länder) with respect to the supervision by the police of fire insurance contracts after they have been concluded and of the payment of damages in the case of fire under these contracts shall not be affected.

(2) (repealed)

(3) Neither shall be affected the requirements existing on 1st January, 1901 for fire insurance undertakings to write certain insurances in a state (Land) under the law of that state (Land) or on the basis of agreements with the authorities of that state (Land), if the undertaking has continued or is continuing business operations in that state (Land) or if it has been authorised to carry on business under this law. Fulfilment of these requirements shall be supervised by the supervisory authority.

Section 155

(repealed)

Section 156

(1) Section 34 above, first sentence, and section 39 (3) above shall apply to public limited insurance companies accordingly.

(2) With respect to the management and supervisory bodies of insurance undertakings under public law section 80 of the Aktiengesetz shall apply accordingly.

Section 156a

(1) Section 5 (4) above and sections 53c and 81b (1) and (2) above shall not apply to kleinere Vereine, if

a) supplementary contributions or reductions in claims payments are permitted under their articles of association, and

b) the annual contributions do not exceed the amount fixed by ordinance in accordance with subsection 2 below,

unless they operate third party liability insurance, credit and suretyship insurances or life insurance as pension or death benefit funds. For the purpose of the undertakings mentioned in the first sentence the amount of the required financial means shall be determined in accordance with section 8 (1), first sentence, paragraph 3 above.

(2) The Federal Finance Minister shall have the power for the purpose of implementing the EC Council insurance directives to fix by way of an ordinance not requiring approval by the Bundesrat the amount of the annual contributions for the purpose of subsection 1 (1) (b) above.

(3) Section 5 (3) (2) above, second half of the sentence, shall not be applicable to pension funds having considerable economic importance if the undertakings comply with the solvency requirements under section 53c (2a) above. In this case, notwithstanding section 53 above, also sections 29, 58 and 59 above of this law and sections 341j and 341k of the Handelsgesetzbuch shall apply if kleinere Vereine are concerned; the responsible actuary shall, notwithstanding section 11a (3) (2) above, submit an actuarial certification also in the case of a kleinerer Verein. Section 11c above shall be applicable on condition that it shall also apply to insurance contracts concluded after 28th July, 1994, if they are based on an operating plan approved by the supervisory authority which includes the elements under section 5 (3) (2) above, second half of the sentence; in these cases section 11b above shall not apply. The articles of association shall stipulate that the board of directors shall be appointed by the supervisory board or the supreme body. The provisions mentioned in the first to fourth sentences shall be applied to the individual pension funds as soon as the supervisory authority determines that the pension fund meets the requirements of the first sentence. For the purpose of pension funds which were granted authorisation to carry on business before 28th July, 1994, the supervisory authority may postpone application of the requirements of the first to fourth sentences until 31st December, 1999.

(4) Subsection 3 above shall not apply to pension funds which are joint institutions established under a generally applicable collective agreement within the meaning of section 4 (2) of the Tarifvertragsgesetz (Law on Collective Agreements).

(5) For the purpose of public health care schemes of the Bundeseisenbahnvermögen, the Postbeamtenkrankenkasse and the Versorgungsanstalt des Bundes und der Länder, the Bahnversicherungsanstalt – Abteilung B and the Versorgungsanstalt der Deutschen Bundespost this law shall not be applicable.

(6) The Federal Finance Ministry shall have the power to determine by way of an ordinance when a pension fund shall be deemed to be an undertaking of considerable economic importance.

Section 157

(1) The supervisory authority may for the purpose of authorisation to carry on business and for the purpose of management of kleinere Vereine permit deviations from sections 11, 11a, 12, 55a and 66 above. The same shall apply to deviations from section 10a (1) above with respect to death benefit and pension funds where conformity with section 156a (3) above, fifth sentence, was not established. The supervisory authority may also permit deviations for pension funds other than kleinere Vereine.

(2) If the deviations relate to management they may in particular be granted on condition that business operations and the financial situation are audited by an expert at the expense of the Verein at intervals of several years and that the audit report is deposited with the supervisory authority.

Section 157a

(1) The supervisory authority may exempt from on-going supervision under this law mutual societies which need not be registered if the nature of the business operated and other circumstances are such that supervision does not appear to be necessary to safeguard the interests of the insured. These requirements may in particular be met by societies whose business operations are restricted to a limited geographical area, which have a small number of members and low premium income.

(2) The exemption under subsection 1 above may be limited to a certain period of time and subject to certain requirements; it shall be revoked if it comes to the attention of the supervisory authority that the requirements for an exemption are no longer met.

(3) If the supervisory authority has granted an exemption in accordance with subsection 1 above the provisions under sections 13, 14, 22 (4) above and sections 37 and 53c to 104 above shall not apply with the exception of the provisions under section 83 (1) (1) and (2), subsections 3, 5 and 6 above and sections 89a and 93 above if the requirements under subsection 2 above or the powers of the supervisory authority under section 83 above are to be enforced; a transformation in accordance with the Umwandlungsgesetz shall not be permitted.

Section 158

The provisions of this law with respect to mergers and transfers of assets effective from 1st January, 1983, shall not apply to transactions in preparation of which the contract relating to such merger or transfer had been authenticated or a meeting of the supreme representation or shareholders’ meeting had been called before that date.

Section 159

(1) Decisions of representatives’ meetings relating to institutions of the kind specified under section 140 (1) of the Siebtes Buch Sozialgesetzbuch (Seventh Book of the Code of Social Law) and to their articles of association and operating plans shall be approved by the supervisory authority; section 5 (1) to (3) above and section 8 above shall apply accordingly. Otherwise section 13 (1) above, sections 14, 54 (2) above, first sentence, (a) and second sentence, section 55 (1) and (2) above, section 55a above and sections 81, 81a, 82 to 84, 86, 88 and 89 above shall apply to these institutions accordingly.

(2) (repealed)

(3) If there are other provisions stipulating that provisions of this law shall be applied in the same way to undertakings no longer subject to subsection 1 above, such provisions shall not be affected.

Section 160

(1) to (4) (repealed)

(5) Undertakings which under a comprehensive contract cover risks attributable to the classes of insurance listed under nos. 1 and 19 of part A of the annex may transfer to another undertaking the accident insurance portion of such contracts. Section 14 above shall apply accordingly.

Section 161

Where the ordinance specifies for the purpose of section 53c (2) amounts in ECU, the equivalent amount in Deutsche Mark after 31st December of a year for annual accounts as per 31st December 1998 shall be the amount valid on the last day of October preceding that date, at which time the equivalent amounts in all currencies of the EU Member States will be available.

XI. Transitional provisions for the implementation of the monetary, economic and social union with the German Democratic Republic

(repealed)


Annex

A. Classification of risks according to classes of insurance

1. Accident

a) fixed pecuniary benefitst
b) benefits in the nature of indemnity
c) combinations of the two
d) injury to passengers

2. Sickness

a) Sickness
b) Sickness
c) combinations of the two

3. Land vehicles (other than railway rolling stock)

All damage to or loss of

a) land motor vehicles
b) land vehicles other than motor vehicles

4. Railway rolling stock

All damage to or loss of railway rolling stock

5. Aircraft

All damage to or loss of aircraft

6. Ships (sea, lake and river and canal vessels)

All damage to or loss of

a) river and canal vessels
b) lake vessels
c) sea vessels

7. Goods in transit

All damage to or loss of goods in transit, irrespective of the form of transport

8. Fire and natural forces

All damage to or loss of property (other than property included in classes 3 to 7) due to

a) fire
b) explosion
c) storm
d) natural forces other than storm
e) nuclear energy
f) land subsidence

9. Hail, frost and other damage to property

All damage to or loss of property (other than property included in classes 3 to 7) due to hail or frost, and any event such as theft, other than those mentioned under class 8

10. Liability arising out of the use of motor vehicles operating on the land

a) motor vehicle liability
b) liability arising out of transports by motor vehicles operating on the land
c) other

11. Aircraft liability

All liability arising out of the use of aircraft (including carrier’s liability)

12. Liability for ships (sea, lake and river and canal vessels)

All liability arising out of the use of ships, vessels or boats on the sea, lakes, rivers or canals (including carrier’s liability)

13. General liability

All liability other than those forms mentioned under classes 10 to 12

14. Credit

a) insolvency (general)
b) export credit
c) instalment credit
d) mortgages
e)agricultural credit

15. Suretyship

16. Miscellaneous financial losses

a) employment risks
b) insufficiency of income (general)
c) bad weather
d) loss of benefits
e) continuing general expenses
f) unforeseen trading expenses
g) loss of market value
h) loss of rent or revenue
i) indirect trading losses other than those mentioned above
j) other financial loss (non-trading)
k) other forms of financial loss

17. Legal expenses

18. Assistance in favour of persons in difficulties

a) on journeys or during absence from their domicile or permanent place of residence,
b) in other circumstances unless such risks are covered by other classes of insurance

19. Life

(unless listed under classes 20 and 24)

20. Marriage and birth insurance

21. Unit-linked life insurance

22. Tontines

23. Capital redemption operations

24. Operations relating to the management of pension schemes

B. Description of authorisations granted for more than one class of insurance

Where the authorisation simultaneously covers:

a) nos. 1(d), 3, 7 and 10(a), it shall be named ‘Motor Vehicle Insurance’;

b) nos. 1(d), 4, 6, 7 and 12, it shall be named ‘Marine and Transport Insurance’;

c) nos. 1(d), 5, 7 and 11, it shall be named ‘Aviation Insurance’;

d) nos. 8 and 9, it shall be named ‘Insurance against Fire and other

e) nos. 14 to 13, it shall be named ‘Liability Insurance’;

f) nos. 14 and 15, it shall be named ‘Credit and Suretyship Insurance’;

g) nos. 1, 3 to 13, and 16, it shall be named ‘Property and Accident Insurance’.

Annex C. Matching Rules

1. Where the cover provided by a contract is expressed in terms of a particular currency, the insurer’s commitments shall be considered to be payable in that currency.

2. Where the cover provided by a contract is not expressed in terms of a particular currency, the insurer’s commitments shall be considered to be payable in the currency of the country in which the risk is situated. The insurer may choose the currency in which the premium is expressed if there are justifiable grounds for exercising such a choice, in particular if, from the time the contract is entered into, it appears likely that a claim will be paid in this currency.

3. The currency which the insurer in accordance with experience acquired considers to be the one in which he must most likely provide cover or, in the absence of such experience, the currency of the country in which he is established, may, if there are no special reasons against such a choice, be taken as a basis for the following risks:

a) for contracts covering risks classified under classes 4 to 7, 11 to 13 (producers’ liability only) of part A of the annex,

b) for contracts covering the risks classified under other classes where, in accordance with the nature of the risks, the cover is to be provided in a currency other than that which would result from the application of the above rules.

4. Where a claim has been reported to an insurer and where it is payable in a currency other than the currency resulting from application of the above rules, the insurer’s commitments shall be considered to be payable in that currency, and particularly in the currency which has been determined by court judgement or by agreement between the insurer and the insured as the currency in which the compensation is to be paid by the insurer.

5. Where a claim is assessed in a currency which is known to the insurer in advance but which is different from the currency resulting from application of the above rules, the insurer may consider his commitments to be payable in that currency.

6. The restricted assets need not be matched in the currency in which the insurer’s commitments are payable if

a) it is not the currency of an EC or another EEA member State and if it is not suitable for investments in particular because of transfer restrictions,

b) the assets representing the Deckungsstock and the other restricted assets to be matched do not exceed 20 per cent of the commitments payable in a particular currency, or

c) application of the rules under (1) to (5) above would result in assets having to be held in a certain currency which amount to not more than 7 per cent of the assets of the undertaking existing in other currencies.

7. If under the above rules the other restricted assets have to be expressed in the currency of an EC member State whose currency is not the euro or another EEA member State up to 50 per cent of the assets may be in euro to the extent that this is justified in accordance with the care of a prudent businessman.

Annex D Consumer Information

Section 1

Consumer information to be supplied by insurance undertakings in accordance with section 10a (1) above before insurance contracts are concluded:

1. Consumer information required for all classes of insurance

a) Name, address, legal form and seat of the insurer and, where appropriate, any branch which concludes the contract;

b) General insurance policy conditions including the premium rate provisions and law applicable to the contract;

c) Nature and extent of the insurer benefits and when they are payable if no general insurance policy conditions or premium rate provisions are applied;

d) Term of the contract;

e) Amount of the premiums with an indication of the individual premiums if several independent insurance contracts are to be concluded and an indication of how the premiums are to be paid; information about any additional fees and expenses, and about the total sum to be paid;

f) Period during which the proposer shall be bound by his proposal;

g) Information about the cooling-off period;

h) Address of the responsible supervisory authority which the policyholder may contact in the case of complaints about the insurer.

2. Additional consumer information required for life and accident insurances with premium refunds

a) Information about the calculation bases and criteria for determining the profit and profit participation;

b) Surrender values;

c) Information about the minimum sum insured for transformation into a paid-up insurance and about the benefits under a paid-up insurance;

d) Extent to which the benefits under (b) and (c) are guaranteed;

e) For unit-linked policies, definition of the units to which the insurance is linked and indication of the nature of the underlying assets;

f) General information on the tax arrangements applicable to the type of policy.

3. Additional consumer information required for health insurances in accordance with section 12a above

a) information about the effects of increasing health care costs on future development of the premiums;

b) reference to possible limitation of premiums to be paid at old age;

c) reference to the fact that as a rule, it is impossible in old age to obtain health insurance cover in the public health insurance system.

Section 2

Consumer information to be supplied by the insurance undertaking during the term of the insurance contract in accordance with section 10a (1) above

1. Change of name, address, legal form and seat of the insurer and any branch which concludes the contract;

2. Changes in the consumer information supplied in accordance with section I (1) (c) to (e) and (2) (a) to (e) above, if such changes result from amendments of legal provisions;

3. Annual information about the situation regarding profit participation in life insurance and accident insurance with premium refunds.

4. In health insurance in accordance with section 12 (1), at each premium increase, information on the right to change tariffs, including the text of the relevant legal provision. Where insured who have attained the age of 60 are concerned, the policyholder shall be made aware of tariffs which include equal classes of benefit as do the previously agreed ones and which would result in a premium reduction in the event of a change of tariff. The information shall refer to tariffs which in sensibly assessing the interests of the insured are considered particularly appropriate; however, not more than 10 tariffs may be indicated. In respect of each tariff, the premium which would have to be paid for the insured person if they opted for this tariff shall be indicated. Moreover, the possibility to opt for the standard tariff shall be indicated. The conditions under which the tariff can be changed and the premium that would have to be paid in the standard tariff shall be indicated.

The above translation was published by Bundesaufsichtsamt für das Versicherungswesen (Federal Insurance Supervisory Office). Reproduced with kind permission. This HTML edition by Lawrence Schäfer and © 2000 Gerhard Dannemann. The contents of this page may be downloaded and printed out in single copies for individual use only. Making multiple copies without permission is prohibited.

Bundesbank Act (Bundesbankgesetz, BBankG)

Long title: Gesetz über die Deutsche Bundesbank

In the wording of the announcement of October 22, 1992 (Federal Law Gazette I, page 1782), as amended by the Sixth Act Amending the Bundesbank Act of December 22, 1997 (Federal Law Gazette, page 3274). This (revised) translation has been prepared by the Bundesbank for the convenience of English-speaking readers. It is not official; the only authentic text is the German one as published in the Federal Law Gazette (Bundesgesetzblatt).

Translation provided by the Deutsche Bundesbank and reproduced with kind permission.


Table of Contents 

Part I Establishment, legal form and duties

1. Establishment of the Deutsche Bundesbank
2. Legal form, capital and domicile
3. Duties
4. Participating interests

Part II Organisation

5. Governing bodies
6. Central Bank Council
7. Directorate
8. Land Central Banks
9. Advisory Boards at Land Central Banks
10. Branch offices
11. Representation

Part III Federal Cabinet and Bundesbank

12. Relations between the Bank and the Federal Cabinet
13. Cooperation

Part IV Monetary powers

14. Note issue
15. (repealed)
16. (repealed)
17. (repealed)
18. Collection of statistics

Part V Scope of business

19. Transactions with credit institutions
20. Transactions with public authorities
21. Open market operations
22. Transactions with the general public
23. Certification of cheques
24. Lending against and purchase of equalisation claims
25. Other transactions

Part VI Annual accounts, distribution of profit and Return

26. Annual accounts
27. Distribution of profit
28. (repealed)

Part VII General provisions

29. Special status of the Deutsche Bundesbank
30. Notarial officials
31. Legal status of the civil servants, other salaried staff and wage earners of the Deutsche Bundesbank
32. Pledge of secrecy
33. Public announcements
34. By-laws

Part VIII Provisions on penalties and on the detention of counterfeit money

35. Unauthorised uttering and use of monetary tokens
36. Detention of counterfeit currency and of monetary tokens or debt securities that have been uttered without authority
37. Confiscation

Part IX Transitional and final provisions

38. Restructuring the central banking system
39. Transitional provisions for the Executive Boards of Land Central Banks and for Advisory Boards
40. Changes in the terms of service
41. Legal status of persons coming within the provisions of article 131 of the Basic Law
42. Issue of liquidity paper
43. (Repeal of and amendments to legislation)
44. Dissolution
45. Transitional provision
46. (repealed)
47. (Entry into force)


Part I Establishment, legal form and duties

1. Establishment of the Deutsche Bundesbank

The Land Central Banks and the Berlin Central Bank shall amalgamate with the Bank deutscher Länder. The Bank deutscher Länder shall become the Deutsche Bundesbank.

2. Legal form, capital and domicile

The Deutsche Bundesbank is a Federal corporation under public law. Its capital, amounting to five billion Deutsche Mark, is held by the Federal Government. The Bank is domiciled in Frankfurt am Main.

3. Duties

The Deutsche Bundesbank, being the central bank of the Federal Republic of Germany, is an integral part of the European System of Central Banks (ESCB). It shall participate in the performance of the ESCB’s tasks with the primary objective of maintaining price stability, and shall arrange for the execution of domestic and international payments. In addition, it shall discharge the duties assigned to it under this Act or other legislation.

4. Participating interests

Without prejudice to Article 6 (2) of the Statute of the European System of Central Banks and of the European Central Bank, the Deutsche Bundesbank is entitled to participate in the Bank for International Settlements and, subject to the approval of the Federal Cabinet, in other institutions serving the purposes of supranational monetary policy or international payment and lending operations, or otherwise apt to assist it in discharging its duties.

Part II Organisation

5. Governing bodies

The governing bodies of the Deutsche Bundesbank comprise the Central Bank Council (Zentralbankrat) (section 6), the Directorate (Direktorium) (section 7) and the Executive Boards (Vorstände) of the Land Central Banks (section 8).

6. Central Bank Council

(1) The Central Bank Council determines the Bank’s business policy. In the performance of tasks to be carried out through the European System of Central Banks, it shall act in accordance with the guidelines and instructions issued by the European Central Bank. It shall discuss the implications of monetary policy, without prejudice to the President’s independence of instructions in his capacity as a Member of the Governing Council of the European Central Bank and the secrecy provisions applying to the European Central Bank. It draws up general guidelines governing the conduct of business and administration, and defines the responsibilities of the Directorate and the Executive Boards of the Land Central Banks, in accordance with the provisions of this Act. In specific cases it may also issue instructions to the Directorate and the Executive Boards of the Land Central Banks.

(2) The Central Bank Council is composed of the President and Vice-President of the Deutsche Bundesbank, the other members of the Directorate and the Presidents of the Land Central Banks.

(3) The Central Bank Council deliberates under the chairmanship of the President or Vice-President of the Deutsche Bundesbank. It takes its decisions by a simple majority of votes. For the rest, the conditions for taking decisions are governed by by-laws. The by-laws may provide that members of the Central Bank Council who are durably unable to attend meetings be represented by deputies.

7. Directorate

(1) The Directorate is responsible for implementing the decisions taken by the Central Bank Council. It manages and administers the Bank, except in matters within the responsibility of the Executive Boards of the Land Central Banks. The following transactions, in particular, are reserved for the Directorate:

1. transactions with the Federal Government and its special funds,

2. transactions with credit institutions that perform central functions throughout Germany,

3. foreign exchange transactions and transactions with non-residents,

4. open market operations.

(2) The Directorate is composed of the President and Vice-President of the Deutsche Bundesbank and up to six other members. Members of the Directorate must have special professional qualifications.

(3) The President, the Vice-President and the other members of the Directorate are nominated by the Federal Cabinet and appointed by the President of the Federal Republic. Before making such nominations, the Federal Cabinet shall consult the Central Bank Council. Members of the Directorate are appointed for eight years, or in exceptional cases for a shorter term of office, but not for less than five years. Appointments and retirements shall be published in the Federal Gazette (Bundesanzeiger).

(4) Members of the Directorate hold office under public law. Their legal status relative to the Bank, and particularly their salaries, retirement pensions and surviving dependants’ pensions, are regulated by contracts with the Central Bank Council. These contracts are subject to the approval of the Federal Cabinet.

(5) The Directorate deliberates under the chairmanship of the President or VicePresident of the Deutsche Bundesbank. It takes its decisions by a simple majority of votes. In the event of a tie, the chairman has a casting vote. For the rest, the conditions for taking decisions are governed by by-laws. The by-laws may provide that certain decisions must be taken unanimously, or by some other majority of votes.

8. Land Central Banks

(1) The Deutsche Bundesbank maintains a Main Office (Hauptverwaltung) known as a Land Central Bank (Landeszentralbank) in each of the following areas:

1. the Land of Baden-Württemberg,

2. the Free State of Bavaria,

3. the Länder of Berlin and Brandenburg,

4. the Free Hanseatic City of Bremen and the Länder of Lower Saxony and SaxonyAnhalt,

5. the Free and Hanseatic City of Hamburg and the Länder of MecklenburgWestern Pomerania and Schleswig-Holstein,

6. the Land of Hesse,

7. the Land of North Rhine-Westphalia,

8. the Länder of Rhineland-Palatinate and Saarland,

9. the Free States of Saxony and Thuringia.

(2) The Executive Board of each Land Central Bank carries out the transactions and administrative duties occurring in the area for which it is responsible. The following transactions, in particular, are reserved for Land Central Banks:

1. transactions with the Land Government or Länder Governments, and with public authorities in the Land or Länder,

2. transactions with credit institutions in their area, other than transactions which are reserved for the Directorate under section 7 (1) 2 above.

(3) The Executive Board of each Land Central Bank is composed of the President and Vice-President and, in the cases referred to in subsection (1) numbers 4 and 5 above, of one other member. The by-laws may authorise the appointment of one or two further members to an Executive Board, and may contain provisions governing decision-making by Executive Boards. Members of Executive Boards must have special professional qualifications.

(4) Presidents of Land Central Banks are nominated by the Bundesrat (the chamber of Parliament representing the Länder) and appointed by the President of the Federal Republic. The Bundesrat submits its nomination on the basis of a proposal by the authority appropriate under the laws of the Land or Länder concerned, and after having consulted the Central Bank Council. Vice-Presidents and other members of Executive Boards are nominated by the Central Bank Council and appointed by the President of the Deutsche Bundesbank. Members of Executive Boards are appointed for eight years, or in exceptional cases for a shorter term of office, but not for less than five years. Appointments and retirements shall be published in the Federal Gazette.

(5) Members of Executive Boards hold office under public law. Their legal status relative to the Bank, and particularly their salaries, retirement pensions and surviving dependants’ pensions, are regulated by contracts with the Central Bank Council. These contracts are subject to the approval of the Federal Cabinet.

9. Advisory Boards at Land Central Banks

(1) At every Land Central Bank there is an Advisory Board (Beirat), which confers with the President of the Land Central Bank on questions of monetary policy, and with the Executive Board of the Land Central Bank on the performance of that Board’s duties in its area.

(2) The Advisory Board is composed of not more than 14 members, who should have special expertise in the field of banking. Not more than half of its members should be chosen from the various areas of banking, while the other members should be selected from trade and industry, distribution, the insurance sector, the professions, agriculture, and from among the ranks of wage and salary earners.

(3) The members of the Advisory Board are nominated by the Land Governments concerned and, after the Executive Board of the Land Central Bank has been consulted, appointed by the President of the Deutsche Bundesbank for a term of office of three years.

(4) Meetings of the Advisory Board are chaired by the President of the Land Central Bank or his deputy. The appropriate Land Ministers shall be given an opportunity of attending such meetings. They may request the convening of the Advisory Board. For the rest, the proceedings of an Advisory Board are governed by by-laws.

10. Branch offices

The Deutsche Bundesbank is entitled to maintain branch offices (i. e. branches (Hauptstellen) and sub-branches (Zweigstellen)). The branches are managed by two managers (Direktoren), who report to the appropriate Land Central Bank. The sub-branches are managed by one manager, who reports to the superordinate branch.

11. Representation

(1) The Deutsche Bundesbank is represented in and out of court by the Directorate, in the area of a Land Central Bank also by the Executive Board of that Bank, and in the area of a branch also by the managers of that branch. The provisions of section 31 (2) and section 41 (4) below are unaffected.

(2) Declarations are binding upon the Deutsche Bundesbank if they are made by two members of the Directorate or of the Executive Board of a Land Central Bank or by two managers of a branch. They may likewise be made by authorised representatives appointed by the Directorate or, in the area of a Land Central Bank, by the Executive Board of that Bank. A declaration made to the Bank has full legal effect if made to one person authorised to represent the Bank.

(3) Authority to represent the Bank may be evidenced by a certificate signed by a notarial official (Urkundsbeamter) of the Deutsche Bundesbank.

(4) Proceedings against the Deutsche Bundesbank relating to the business operations of a Land Central Bank or a branch may likewise be instituted at the court having jurisdiction at the domicile of that Land Central Bank or branch.

Part III Federal Cabinet and Bundesbank

12. Relations between the Bank and the Federal Cabinet

In exercising the powers conferred on it by this Act, the Deutsche Bundesbank is independent of instructions from the Federal Cabinet [Government]. As far as is possible without prejudice to its tasks as part of the European System of Central Banks, it shall support the general economic policy of the Federal Cabinet.

13. Cooperation

(1) The Deutsche Bundesbank shall advise the Federal Cabinet on monetary policy issues of major importance, and shall furnish it with information on request.

(2) Members of the Federal Cabinet are entitled to attend the meetings of the Central Bank Council. They have no right to vote, but may propose motions.

(3) The Federal Cabinet should invite the President of the Deutsche Bundesbank to attend its deliberations on important monetary policy issues.

Part IV Monetary powers

14. Note issue

(1) Without prejudice to Article 105 a (1) of the EC Treaty, the Deutsche Bundesbank has the sole right to issue banknotes in the area in which this Act is law. Its notes are denominated in Deutsche Mark. They alone are legal tender for any amount. Notes in denominations smaller than ten Deutsche Mark may be issued only by agreement with the Federal Cabinet. The Deutsche Bundesbank shall announce publicly the denominations and distinguishing features of the notes it issues.

(2) The Deutsche Bundesbank may call in notes. Recalled notes become invalid on the expiry of the period for exchange announced at the time of recall.

(3) The Deutsche Bundesbank is not required to replace destroyed, lost, counterfeit or falsified notes or notes that have become invalid. It shall replace mutilated notes if the bearer either presents parts of a note which together make up more than one-half of the note, or furnishes proof that the remainder of the note of which he presents only one-half or some smaller part has been destroyed.

15. (repealed)

16. (repealed)

17. (repealed)

18. Collection of statistics

In order to discharge its duties, the Deutsche Bundesbank is entitled to order and collect statistics in the fields of banking and the monetary system from all credit institutions. Sections 9, 15 and 16 of the Federal Statistics Act (Bundesstatistikgesetz) apply as appropriate. The Deutsche Bundesbank may publish these statistics for general purposes. Figures relating to individual institutions may not be disclosed in such publications. Persons entitled to information under section 13 (1) above may be supplied with such figures only if, and insofar as, this is provided for in the order under which the statistics are collected.

Part V Scope of business

19. Transactions with credit institutions

(1) The Deutsche Bundesbank is entitled to conduct the following transactions with credit institutions in the area in which this Act is law:

1. buy and sell bills of exchange and cheques backed by three parties known to be solvent; the need for the third signature may be dispensed with if the security of the bill or cheque is ensured in some other way; the bills must fall due within three months of the date of purchase; they should be fine trade bills;

2. buy and sell Treasury bills issued by the Federal Government, one of the Federal special funds specified in section 20 (1) 1 below or a Land Government, and falling due within three months of the date of purchase;

3. grant loans at interest (lombard loans) for a period not exceeding three months against the collateral of

(a) bills of exchange satisfying the requirements of number 1 above,

(b) Treasury bills satisfying the requirements of number 2 above,

(c) debt securities and Debt Register claims in the form of Treasury discount paper issued by the Federal Government, a Federal special fund or a Land Government,

(d) other debt securities and Debt Register claims issued or payable by the Federal Government, a Federal special fund or a Land Government,

(e) other debt securities and Debt Register claims specified by the Bank,

(f) equalisation claims as defined in section 1 of the Act on the Redemption of Equalisation Claims (Gesetz über die Tilgung von Ausgleichsforderungen) and entered in the Debt Register.

If the debtor defaults on a lombard loan, the Bank has the right to sell the collateral by auction through one of its officials or through an official authorised to sell by auction, or, if the asset provided as collateral has a stock market or market price, to sell it at the current price through one of those officials or a broker, and to indemnify itself for expenses, interest and principal out of the proceeds; the Bank retains this right relative to other creditors and relative to the insolvent party’s estate;

4. accept non-interest-bearing deposits on giro accounts;

5. accept assets, especially securities, for safe custody and administration; the Bank is debarred from exercising any voting rights in respect of the securities in its safe custody or under its administration;

6. accept cheques, bills of exchange, payment orders, securities and interest coupons for collection and, after cover has been provided, pay out the proceeds, except as the Bank may otherwise provide regarding the crediting of the proceeds of cheques and payment orders;

7. execute other banking transactions on behalf of third parties, after cover has been provided;

8. buy and sell payment media denominated in foreign currencies, including bills of exchange and cheques, claims and securities, and gold, silver and platinum;

9. carry out all banking transactions with non-residents.

(2) The discount and lombard rates shall be used for the transactions specified under numbers 1 to 3 of subsection (1) above.

20. Transactions with public authorities

(1) The Deutsche Bundesbank is entitled to conduct the transactions specified in section 19 (1) 4 to 9 above with the Federal Government, Federal special funds, Länder Governments and other public authorities; for this purpose, the Bank may grant intra-day credit. For such transactions the Bank may not charge the Federal Government or Federal special funds (with the exception of the Deutsche Bundespost POSTBANK and the Länder Governments) any expenses or fees.

(2) The Federal Government, Federal special funds and Länder Governments should issue debt securities and Treasury bills primarily through the Deutsche Bundesbank; failing this, such securities shall be issued in consultation with the Deutsche Bundesbank.

21. Open market operations

In order to regulate the money market, the Deutsche Bundesbank is entitled to buy and sell in the open market at market prices

1. bills of exchange satisfying the requirements of section 19 (1) 1 above;

2. Treasury bills issued by the Federal Government, a Federal special fund or a Land Government;

3. debt securities and Debt Register claims payable by the Federal Government, one of its special funds or a Land Government;

4. other debt securities specified by the Bank.

22. Transactions with the general public

The Deutsche Bundesbank is entitled to conduct the transactions specified in section 19 (1) 4 to 9 above with natural persons and corporations at home and abroad.

23. Certification of cheques

(1) The Deutsche Bundesbank may certify cheques drawn on it only after cover has been provided. Such certification makes the Bank liable to the bearer for payment; it is also liable to the drawer and the endorser for payment.

(2) Payment of the certified cheque may not be refused, not even if the drawer has been adjudged insolvent in the meantime.

(3) The liability arising from the certification lapses if the cheque is not presented for payment within eight days of the date of drawing. As regards proof of presentation, article 40 of the Cheque Act (Scheckgesetz) applies.

(4) The claim arising from the certification is barred by the statute of limitations two years after the expiry of the period for presentation.

(5) The jurisdictional and procedural provisions applicable to bill-of-exchange cases apply as appropriate to the assertion in court of claims arising from the certification.

24. Lending against and purchase of equalisation claims

(1) Notwithstanding the qualifications contained in section 19 (1) 3 above, the Deutsche Bundesbank is entitled to grant credit institutions and insurance enterprises loans against the collateral of equalisation claims

1. as defined in section 1 of the Act on the Redemption of Equalisation Claims, or

2. pursuant to Annex I article 8 section 4 of the Treaty of May 18, 1990 between the Federal Republic of Germany and the German Democratic Republic Establishing a Monetary, Economic and Social Union, read in conjunction with article 1 of the Act of June 25, 1990 (Federal Law Gazette 1990 II, p. 518, 550) insofar, and as long, as this is necessary to maintain the solvency of the party providing the collateral.

(2) The Deutsche Bundesbank is entitled to buy equalisation claims of the type specified in subsection (1) 1 above, subject to the provisions of section 9 (1) of the Act on the Redemption of Equalisation Claims, insofar, and as long, as the resources of the Fund for the Purchase of Equalisation Claims are insufficient for the purpose.

25. Other transactions

The Deutsche Bundesbank should conduct transactions other than those authorised by sections 19 to 24 above or on the basis of the Statute of the European System of Central Banks and of the European Central Bank only for the purpose of carrying out and completing authorised transactions, or for its own operations, or for its staff.

Part VI Annual accounts, distribution of profit and Return

26. Annual accounts

(1) The financial year of the Deutsche Bundesbank is the calendar year.

(2) The accounting system of the Deutsche Bundesbank shall comply with generally accepted accounting principles. The annual accounts shall be drawn up with due regard to the duties of the Deutsche Bundesbank, in particular those deriving from its being an integral part of the European System of Central Banks, and shall be published with appropriate notes thereon; the liability structure need not be disclosed. To the extent that the provisions of sentence 2 above do not necessitate any deviations, valuation shall be governed accordingly by the provisions of the Commercial Code relating to corporations. In the course of establishing the profit or loss, the creation of liability items for general risks associated with domestic and foreign business, such as is considered warranted in the light of reasonable commercial judgement and after due consideration of the duties of the Deutsche Bundesbank, remains unaffected.

(3) The Directorate shall draw up the annual accounts as soon as possible. The accounts shall be audited by one or more auditors appointed by the Central Bank Council in agreement with the Federal Court of Auditors (Bundesrechnungshof). The Central Bank Council then approves the annual accounts, which are thereupon to be published by the Directorate.

(4) The report of the auditors serves as the basis for the audit which the Federal Court of Auditors carries out. The report of the auditors, together with the comments of the Federal Court of Auditors thereon, shall be communicated to the Federal Ministry of Finance.

27. Distribution of profit

The net profit shall be distributed in the following order:

1. 20 per cent of the Bundesbank’s profit, but at least DM 500 million, shall be transferred to the statutory reserves until they equal DM 5 billion. The statutory reserves may only be used to offset falls in value and to cover other losses;

2. (repealed)

3. forty million Deutsche Mark, and from the financial year 1980 onwards thirty million Deutsche Mark, shall be transferred to the Fund for the Purchase of Equalisation Claims set up under the Act on the Redemption of Equalisation Claims until that Fund’s dissolution;

4. the balance shall be paid over to the Federal Government.

28. (repealed)

Part VII General provisions

29. Special status of the Deutsche Bundesbank

(1) The Central Bank Council and the Directorate of the Deutsche Bundesbank have the status of supreme Federal authorities (oberste Bundesbehörden). The Land Central Banks and branches have the status of Federal authorities. Effective from January 1, 1999 35

(2) The Deutsche Bundesbank and its staff enjoy the privileges granted to the Federal Government and its staff in the fields of construction, housing and rent. (3) The provisions of the Commercial Code concerning entries in the Commercial Register and the provisions concerning membership of Chambers of Industry and Commerce are not applicable to the Deutsche Bundesbank.

30. Notarial officials

The President of the Deutsche Bundesbank may appoint notarial officials for the purposes of section 11 (3) above. They must be qualified to hold the office of judge.

31. Legal status of the civil servants, other salaried staff and wage earners of the Deutsche Bundesbank

(1) The Deutsche Bundesbank employs civil servants (Beamte), other salaried staff (Angestellte) and wage earners (Arbeiter).

(2) The President of the Deutsche Bundesbank appoints the civil servants of the Bank, those of the Higher Service after nomination by the Central Bank Council. In the case of civil servants of the Upper Intermediate, Intermediate and Ordinary Services, he may delegate this power to the Presidents of the Land Central Banks. The President of the Deutsche Bundesbank is the supreme institutional authority (oberste Dienstbehörde), and in this capacity he represents the Bank in and out of court. He disciplines civil servants, except in matters within the jurisdiction of the disciplinary courts, and is the authority instituting formal disciplinary proceedings (section 35 of the Federal Disciplinary Code (Bundesdisziplinarordnung)).

(3) The civil servants of the Deutsche Bundesbank are indirect Federal civil servants. Except as otherwise provided by this Act, the regulations generally applicable to Federal civil servants apply to them. The entry into force of this Act takes the place of the entry into force of the Federal Civil Service Act (Bundesbeamtengesetz).

(4) Subject to the approval of the Federal Cabinet, the Central Bank Council may regulate the legal status of the civil servants and other salaried staff of the Deutsche Bundesbank through staff regulations if the requirements of orderly and efficient banking operations necessitate it. The staff regulations may provide only

1. that, for civil servants of the Bank, the following provisions of the legislation regulating the status of Federal civil servants be departed from:

(a) sentence 2 of section 21, sentence 3 of section 24 and section 26 (1), section 30 (2), section 66 (1) 2 and 5, and section 116 (1) 3 of the Federal Civil Service Act;

(b) section 15 of the Civil Service Pay Act (Besoldungsgesetz) of December 16, 1927 (Reich Law Gazette I, page 349) as amended, insofar as a revocable, non-pensionable Bank Allowance not exceeding nineteen per cent of the basic salary, an allowance for expenses incurred on official business and a bonus for exceptional performance are granted as a bonus and/or a one-off payment;

(c) the provisions on the granting of maintenance allowances to civil servants undergoing preparatory training;

2. that the civil servants and other salaried staff of the Bank are required to notify the Bank of any gainful employment on the part of their spouses;

3. that the other salaried staff of the Bank

(a) like the civil servants, require prior permission to engage in any of the sidelines specified in section 66 (1) 2 and 5 of the Federal Civil Service Act,

(b) receive the payments specified under letter (b) of number 1 above.

4. that the wage earners receive the bonus for exceptional performance specified under letter (b) of number 1 above.

(5) The bonuses for exceptional performance and allowances for expenses incurred on official business specified in subsection (4) 1 (b) above may not, in the aggregate, exceed one-twentieth of the expenditure on the remuneration of the civil servants and other waged and salaried staff of the Deutsche Bundesbank.

(6) Subject to the approval of the Federal Cabinet, the Central Bank Council issues regulations on the educational background and careers of civil servants of the Deutsche Bundesbank. It may depart from the provisions of the legislation regulating the status of Federal civil servants with respect to the duration of the preparatraining, the duration of the probationary period and the duration of the period of experience required for promotion in the Upper Intermediate Service and for qualifying for admission to the Higher Service.

32. Pledge of secrecy

All persons in the service of the Deutsche Bundesbank are pledged to secrecy about the affairs and facilities of the Bank, as well as the transactions it conducts. Without permission, they may not testify or make statements in or out of court about matters of these kinds which have come to their notice in the course of their activities, not even after they have left the service of the Bank. Where the interests of the Bank are involved, such permission is granted to members of the Central Bank Council by that Council, and to other members of the Bank’s staff by the President, who may delegate this power to the Presidents of the Land Central Banks; for a court hearing, permission may be refused only if this is necessary for the good of the Federal Government or in the public interest.

33. Public announcements

The Deutsche Bundesbank shall publish announcements intended for the general public particularly the calling-in of banknotes, the setting of interest rates, discount rates and minimum reserve ratios, and the ordering of statistics in the Fed eral Gazette.

34. By-laws

The by-laws of the Deutsche Bundesbank are adopted by the Central Bank Council. They are subject to the approval of the Federal Cabinet, and shall be published in the Federal Gazette. The same applies to amendments of the by-laws.

Part VIII Provisions on penalties and on the detention of counterfeit money

35. Unauthorised uttering and use of monetary tokens

(1) A term of imprisonment not exceeding five years or a fine will be imposed on anybody who

1. utters without authority monetary tokens (stamps, coins, notes or other instruments capable of being used in payments in place of the coins or banknotes authorised by law) or non-interest-bearing bearer debt securities, even if they are not denominated in Deutsche Mark;

2. uses for payments objects of the type specified in number 1 above that have been uttered without authority.

(2) The attempt is punishable.

(3) If the offence described in number 2 of subsection (1) above has been committed through negligence, the punishment shall be a term of imprisonment not exceeding six months or a fine not exceeding one hundred and eighty daily rates.

36. Detention of counterfeit currency and of monetary tokens or debt securities that have been uttered without authority

(1) The Deutsche Bundesbank and all credit institutions shall detain forged or falsified banknotes or coins (counterfeit currency), banknotes and coins suspected of being counterfeit currency, and objects of the type specified in section 35 above that have been uttered without authority. A receipt shall be given to the party concerned.

(2) Counterfeit currency and objects of the type specified in section 35 above shall be handed over to the police together with a report. Credit institutions shall notify the Deutsche Bundesbank of having done so.

(3) Banknotes and coins suspected of being counterfeit currency shall be submitted to the Deutsche Bundesbank for examination. If the Bank finds that the banknotes or coins are false, it shall hand over the counterfeit currency to the police, together with an experts’ report, and inform the detaining credit institution accordingly.

37. Confiscation

(1) Objects of the type specified in section 35 above that have been uttered without authority may be confiscated.

(2) Objects confiscated under subsection (1) above and counterfeit currency confiscated under section 150 of the Penal Code shall be preserved by the Deutsche Bundesbank. They may be destroyed, if the offender has been found, ten years after the judgement ordering confiscation becomes effective or, if the offender has not been found, twenty years thereafter.

Part IX Transitional and final provisions

38. Restructuring the central banking system

(1) On the entry into force of this Act, the assets of the Land Central Banks and the Berlin Central Bank, together with their liabilities, pass in their entirety to the Bank deutscher Länder. No charge is made for the amendment of the Land Register. The Land Central Banks and the Berlin Central Bank cease to exist without going into liquidation.

(2) With effect from January 1, 1957 the obligations of the Länder Governments in respect of equalisation claims held by the Land Central Banks in accordance with the provisions of the currency reform pass to the Federal Government, and the obligation of the Land of Berlin in respect of the debt securities held by the Federal Government in accordance with sentence 2 of section 23 (2) of the First Act Transferring Financial Burdens and Cover to the Federal Government (Erstes Gesetz zur Überleitung von Lasten und Deckungsmitteln auf den Bund), as amended up to August 21, 1951 (Federal Law Gazette I, page 779), lapses; if the conversion account of a Land Central Bank is adjusted after this Act has come into force, the Federal Government assumes all the consequent rights and obligations. The Bank pays the Land of North Rhine-Westphalia fifteen million Deutsche Mark and the Land of Berlin five million Deutsche Mark, plus interest at the rate of six per cent each from January 1, 1957 onwards, out of the balance of its profit payable to the Federal Government under number 4 of section 27 above. This is deemed to settle all the claims of the Länder Governments arising from the extinction of their shares in the Land Central Banks and the Berlin Central Bank.

(3) The Bank refunds to the Länder Governments out of the balance of its profit payable to the Federal Government under number 4 of section 27 above, and after the payments provided for in subsection (2) above have been made, the interest those Governments have paid since January 1, 1957 on the equalisation claims of the Land Central Banks.

(4) The consequences arising from sentence 2 of section 2 above, read in conjunction with section 27 above, become operative with effect from January 1, 1957. The opening balance sheet of the Deutsche Bundesbank shall be approved as at that date, the provisions of section 26 above applying as appropriate.

(5) The notes of the Bank deutscher Länder that are valid when this Act comes into force will remain valid as notes of the Deutsche Bundesbank until they are called in by the Directorate. Stocks of unissued notes may continue to be issued.

39. Transitional provisions for the Executive Boards of Land Central Banks and for Advisory Boards

(1) The members of the Executive Boards of Land Central Banks existing on November 1, 1992, whose areas will change pursuant to section 8 (1) 4, 5, and 8 above, shall retire from office on November 1, 1992. They will receive their salaries as retirement pensions for the remainder of their contractual term of office, and thereafter the contractual standard retirement pension.

(2) The Advisory Boards of Land Central Banks existing on November 1, 1992 will be dissolved.

40. Changes in the terms of service

(1) On the entry into force of this Act, the civil servants, other salaried staff and wage earners of the Bank deutscher Länder, the former Land Central Banks and the Berlin Central Bank will become civil servants, other salaried staff and wage earners of the Deutsche Bundesbank. Permanent civil servants or civil servants on probation will receive the legal status of permanent civil servants or civil servants on probation under the Federal Civil Service Act; civil servants on revocable appointments will receive the legal status of civil servants on revocable appointments under the Federal Civil Service Act, unless, where the requirements of section 5 (1) 2 of the Federal Civil Service Act are satisfied, they are appointed to be civil servants on probation; the difference between a higher previous salary and the salary due after this Act has come into force will be made good by a non-pensionable compensatory allowance payable until it has been offset by salary increases; increases due to changes in civil status or changes in locality category and general salary increases resulting from changes in economic conditions will be disregarded.

(2) For the rest, the provisions of part III of chapter II of the General Act Regulating Civil Servants’ Rights and Duties (Beamtenrechtsrahmengesetz) apply. In this connection, the pension of a civil servant of the Deutsche Bundesbank who has been temporarily retired may not, for a period of five years, amount to less than fifty per cent of his pensionable salary, calculated on the basis of the final level of his salary grade. This does not apply to the calculation of surviving dependants’ pensions.

(3) On the entry into force of this Act, the retired civil servants, widows, orphans and other pensioners of the Bank deutscher Länder, the former Land Central Banks and the Berlin Central Bank will become pensioners of the Deutsche Bundesbank. Section 180 of the Federal Civil Service Act applies as appropriate; the entry into force of this Act takes the place of the entry into force of the Federal Civil Service Act. Section 180 (4) of the Federal Civil Service Act applies to former civil servants of the Bank deutscher Länder, the former Land Central Banks and the Berlin Central Bank and their surviving dependants.

(4) Subsection (3) above applies as appropriate to the civil servants of the Deutsche Reichsbank who were re-employed in accordance with their former legal status at an office of the Deutsche Reichsbank in the Federal territory after May 8, 1945 and who retired without having passed into the service of the Bank deutscher Länder, a former Land Central Bank or the Berlin Central Bank, and to their surviving dependants.

(5) Any claims under the Federal Act Regulating the Indemnification of Government Employees for National Socialist Injustice (Bundesgesetz zur Regelung der Wiedergutmachung nationalsozialistischen Unrechts für Angehörige des öffentlichen Dienstes) and the Federal Act Regulating the Indemnification of Government Employees Living Abroad for National Socialist Injustice (Bundesgesetz zur Regelung der Wiedergutmachung nationalsozialistischen Unrechts für die im Ausland lebenden Angehörigen des öffentlichen Dienstes) of persons

1. who were wronged in the area of the Deutsche Reichsbank or

2. who, being members or former members of the staff of the Bank deutscher

Länder, the former Land Central Banks or the Berlin Central Bank, satisfy the requirements of section 22 (3) of the Act Regulating the Indemnification of Government Employees for National Socialist Injustice become claims on the Deutsche Bundesbank.

In the cases coming under number 1 above, this does not apply if another employer is required to provide indemnification under section 22 (3) of the above Act.

(6) Section 41 of this Act applies to persons who received or could have received pensions under the Act Regulating the Legal Status of Persons Coming within the Provisions of Article 131 of the Basic Law (Gesetz zur Regelung der Rechtsverhältnisse der unter Artikel 131 des Grundgesetzes fallenden Personen).

(7) (no longer valid transitional provision)

41. Legal status of persons coming within the provisions of article 131 of the Basic Law

(1) The Deutsche Bundesbank is a “corresponding institution” within the meaning of section 61 of the Act Regulating the Legal Status of Persons Coming within the Provisions of Article 131 of the Basic Law in relation to the Deutsche Reichsbank, the Nationalbank für Böhmen und Mähren and foreign central banks (number 19 of schedule A to section 2 (1) of the Act).

(2) Section 62 of the Act specified in subsection (1) above applies as appropriate to civil servants, other salaried staff and wage earners of the Deutsche Reichsbank who were employed at offices of the Deutsche Reichsbank in the Federal territory and the Land of Berlin on May 8, 1945 and who

1. lost their post for reasons unconnected with the legislation regulating the status of civil servants, other salaried staff and wage earners, and have not yet been re-employed in accordance with their former legal status or

2. reached the age of sixty-five, or became incapacitated for work, before the Act specified in subsection (1) above came into force, and are not receiving a corresponding, or any, pension for reasons unconnected with the legislation regulating the status of civil servants, other salaried staff and wage earners.

(3) For retired civil servants of the Deutsche Reichsbank who retired before September 1, 1953 (section 5 (1) 1, section 6 (2), section 35 (1) and section 48 of the Act specified in subsection (1) above), the previous basis of assessment in accordance with the Federal Civil Service Act (pensionable salaries, pension rates) is retained, subject to the modifications resulting from sections 7, 8, 29 (2) and (3) and sections 30, 31 and 35 (3) of the Act specified in subsection (1) above and sections 108, 112, 117 (1), section 140 (2) and sentences 1 and 2 of (3), section 156 (1), sections 181a and 181b of the Federal Civil Service Act; if the calculation of the pensionable period of service is based on a provision corresponding to section 117 (2) of the Federal Civil Service Act or to section 181 (5) of the Federal Civil Service Act as amended up to June 30, 1975, section 117 (3) of the Federal Civil Service Act applies as appropriate. The pension shall not exceed seventy-five per cent of the pensionable salary. The same applies as appropriate to surviving dependants. The second clause of sentence 6 of section 64 (1) of the Act specified in subsection (1) above applies.

(4) The President of the Deutsche Bundesbank is the supreme institutional authority for the persons to whom the provisions of subsections (1) and (2) above apply.

In this capacity he represents the Bank in and out of court. In the cases coming under subsection (1) above, he takes the place of the Federal Ministry of Finance insofar as the participation of that Ministry is prescribed in the Act specified therein and in the provisions of the legislation regulating the status of officials applicable under that Act.

42. Issue of liquidity paper

(1) The Federal Government shall supply the Deutsche Bundesbank on request with Treasury bills or Treasury discount paper in denominations and on terms of the Bank’s choice (liquidity paper) up to the maximum amount of 50 billion Deutsche Mark. The liquidity paper is payable at the Bank. The Bank is liable to the Federal Government for meeting all obligations arising from the liquidity paper.

(2) The par value of the liquidity paper issued shall be entered in a special account by the Deutsche Bundesbank. The funds may be used only to redeem liquidity paper that has fallen due or been repurchased by the Bank prior to maturity.

(3) The Federal Ministry of Finance is entitled to issue liquidity paper pursuant to subsection (1) above.

43. (Repeal of and amendments to legislation)

44. Dissolution

The Deutsche Bundesbank may be dissolved only by an Act of Parliament. The Dissolution Act will determine how the assets shall be applied.

45. Transitional provision

(1) Section 2 sentence 2 and section 27 (1), both as amended by the Sixth Act Amending the Bundesbank Act1, are to be applied to the annual accounts for the first time on the reference day immediately preceding the start of the first year of the Federal Republic of Germany’s participation in the third stage of monetary union in accordance with Article 109j of the EC Treaty.

Section 26 (2) sentences 2 and 3, as amended by the Sixth Act Amending the Bundesbank Act, are to be applied for the first time to the following accounting year.

(2) The reserves formed hitherto pursuant to section 27 (2), as amended up to the day before the entry into force of the Sixth Act Amending the Bundesbank Act 1 as specified in Article 2 sentence 2 of the Act, and the statutory reserves exceeding the amount of DM 5 billion, will be dissolved on the reference date immediately preceding the start of the first year of the Federal Republic of Germany’s participation in the third stage of monetary union pursuant to Article 109j of the EC Treaty. The funds arising from the dissolution of the reserves will be added to the capital until this amounts to DM 5 billion. The excess amount will be transferred to the net profit.

46. (repealed)

47. (Entry into force)


Footnote

1 Article 2 of the Sixth Act Amending the Bundesbank Act states:

Article 1 numbers 5, 6 and 8 shall enter into force on the day after promulgation. All other parts of this Act shall enter into force on the date from which the Federal Republic of Germany participates in the monetary union pursuant to Article 109j of the EU Treaty; that date is to be announced in the Federal Law Gazette.

The above translation was published by the Deutsche Bundesbank. Reproduced with kind permission. This HTML edition by Lawrence Schäfer and © 2001 Gerhard Dannemann. The contents of this page may be downloaded and printed out in single copies for individual use only. Making multiple copies without permission is prohibited.

Banking Act (Kreditwesengesetz, KWG )

Long title: Gesetz über das Kreditwesen

In the amended text of the Announcement of September 9, 1998 (Federal Law Gazette I, page 2776), as last amended by Article 3 of the Act amending insolvency and banking law provisions (Gesetz zur Änderung insolvenzrechtlicher und kreditwesenrechtlicher Vorschriften*) of December 8, 1999 (Federal Law Gazette I No. 54, page 2384).

* This Act serves to implement Directive 98/26/EC of the European Parliament and Council of May 19, 1998 on settlement finality in payment and securities settlement systems (Official Journal of the European Communities No. L 166 page 45)

Translation provided by the Deutsche Bundesbank and reproduced with kind permission.


Table of Contents

Part I General Provisions

Division 1. Credit institutions, financial services institutions, financial holding companies and financial enterprises

Section 1 Definitions
Section 2 Exceptions
Section 2a Legal form
Section 2b Holders of qualified participating interests
Section 3 Prohibited business
Section 4 Decision by the Federal Banking Supervisory Office

Division 2. Federal Banking Supervisory Office

Section 5 Organisation
Section 6 Functions
Section 7 Cooperation with the Deutsche Bundesbank
Section 8 Cooperation with other bodies
Section 8a Responsibility for supervision on a consolidated basis
Section 9 Secrecy

Part II Provisions for Institutions

Division 1. Own funds and liquidity

Section 10 Provision with own funds
Section 10a Own funds of groups of institutions and financial holding groups
Section 11 Liquidity
Section 12 Limitation of qualified participating interests
Section 12a Establishment of corporate ties

Division 2. Lending business

Section 13 Large exposures of non-trading book institutions
Section 13a Large exposures of trading book institutions
Section 13b Large exposures of groups of institutions and financial holding groups
Section 14 Loans of three million Deutsche Mark or more
Section 15 Loans to managers, etc.
Section 16 (Rescinded)
Section 17 Liability
Section 18 Information required of borrowers
Section 19 The concepts of “exposure” in sections 13 to 14, and of “borrower”
Section 20 Exceptions to the requirements of sections 13 to 14
Section 21 The concept of “exposure” in sections 15 to 18
Section 22 Authority to issue regulations on exposures

Division 3. (Repealed)

Division 4. Advertising, and information requirements of institutions

Section 23 Advertising
Section 23a Guarantee scheme

Division 5. Special duties of institutions, their managers, financial holding companies and mixed-activity holding companies

Section 24 Reports
Section 24a Establishment of a branch and provision of cross-border services in other states of the European Economic Area
Section 24b Participation in payment and securities transfer and settlement systems
Section 25 Monthly returns and other particulars
Section 25a Particular organisational duties of institutions

Division 5a. Submission of accounting records

Section 26 Submission of annual accounts, management report and auditor’s reports

Division 6. Audits and the appointment of auditors

Section 27 (Rescinded)
Section 28 Appointment of the auditor in special cases
Section 29 Special duties of the auditor
Section 30 (Rescinded)

Division 7. Exemptions

Section 31 Exemptions

Part III Provisions on the Supervisions of Institutions

Division 1. Licence to conduct business

Section 32 Granting the licence
Section 33 Refusing the licence
Section 33a Deferring or qualifying the licence in the case of enterprises domiciled outside the European Communities
Section 33b Consultation of the appropriate authorities of another state of the European Economic Area
Section 34 Substitution and continuation in the event of death
Section 35 Expiry and revocation of the licence
Section 36 Dismissal of managers
Section 37 Action to stop unlawful business
Section 38 Consequences of the revocation and expiry of the licence; measures in the event of liquidation

Division 2. Protection of certain designations

Section 39 The terms “bank” and “banker”
Section 40 The term “savings bank”
Section 41 Exceptions
Section 42 Decision by the Federal Banking Supervisory Office
Section 43 Registration provisions

Division 3. Information and audits

Section 44 Information from and audits of institutions, ancillary banking services enterprises, financial holding companies and enterprises included in supervision on a consolidated basis
Section 44a Cross-border information and audits
Section 44b Information from and audits of the holders of qualified participating interests
Section 44c Prosecution of unauthorised banking business and financial services

Division 4. Measures in special cases

Section 45 Measures in cases of inadequate own funds or inadequate liquidity
Section 45a Measures relating to financial holding companies
Section 46 Measures in cases of danger
Section 46a Measures in cases of a danger of insolvency; appointment of persons authorised to represent the institution
Section 46b Insolvency petition
Section 46c Calculation of prescribed periods
Section 47 Moratorium, suspension of banking and stock market business
Section 48 Resumption of banking and stock market business

Division 5. Enforceability, sanctions, costs and charges

Section 49 Immediate enforceability
Section 50 Sanctions
Section 51 Costs and charges

Part IV Special Provisions

Section 52 Special supervision
Section 53 Branches of enterprises domiciled abroad
Section 53a Representative offices of institutions domiciled abroad
Section 53b Enterprises domiciled in another state of the European Economic Area
Section 53c Enterprises domiciled in a non-EEA state
Section 53d Reports to the Commission of the European Communities

Part V Provisions on Penalties and Fines

Section 54 Prohibited business, operating without a licence
Section 55 Violation of the duty to report insolvency or overindebtedness
Section 55a Unauthorised use of data on loans of three million Deutsche Mark or more
Section 55b Unauthorised public disclosure of data on loans of three million Deutsche Mark or more
Section 56 Provisions governing fines
Section 57 (Repealed)
Section 58 (Repealed)
Section 59 Fines imposed on enterprises
Section 60 Appropriate administrative authority
Section 60a Notifications in cases of criminal prosecution

Part VI Transitional and Final Provisions

Section 61 Licence for existing credit institutions
Section 62 Transitional provisions
Section 63 (Legislation rescinded and amended)
Section 63a Special provisions relating to the territory specified in Article 3 of the Unification Treaty
Section 64 Successor enterprises to Deutsche Bundespost
Section 64a Limits on investments by existing credit institutions
Section 64b Capital of existing credit institutions
Section 64c Transitional arrangement for asset-side balances
Section 64d Transitional arrangement for large exposures
Section 64e Transitional provisions for the Sixth Act Amending the Banking Act

Entry into force


Part I General Provisions

Division 1. Credit institutions, financial services institutions, financial holding companies and financial enterprises

1. Definitions

(1) Credit institutions are enterprises which conduct banking business commercially or on a scale which requires a commercially organised business undertaking. Banking business comprises

1. the acceptance of funds from others as deposits or of other repayable funds from the public unless the claim to repayment is securitised in the form of bearer or order debt certificates, irrespective of whether or not interest is paid (deposit business),2. the granting of money loans and acceptance credits (lending business),

3. the purchase of bills of exchange and cheques (discount business),

4. the purchase and sale of financial instruments in the credit institution’s own name for the account of others (principal broking services),

5. the safe custody and administration of securities for the account of others (safe custody business),

6. the business specified in section 1 of the Act on Investment Companies (Gesetz über Kapitalanlagegesellschaften) (investment fund business),

7. the incurrence of the obligation to acquire claims in respect of loans prior to their maturity,

8. the assumption of guarantees and other warranties on behalf of others (guarantee business),

9. the execution of cashless payment and clearing operations (giro business),

10. the purchase of financial instruments at the credit institution’s own risk for placing in the market or the assumption of equivalent guarantees (underwriting business),

11. the issuance of prepaid cards for payment purposes, unless the card issuer is also the service provider and hence the recipient of the payment made using the card (prepaid card business), and

12. the creation and administration of units of payment in computer networks (network money business).

(1a) Financial services institutions are enterprises which provide financial services to others commercially or on a scale which requires a commercially organised business undertaking, and which are not credit institutions. Financial services are

1. the brokering of business involving the purchase and sale of financial instruments or their documentation (investment broking),2. the purchase and sale of financial instruments in the name of and for the account of others (contract broking),

3. the administration of individual portfolios of financial instruments for others on a discriminatory basis (portfolio management),

4. the purchase and sale of financial instruments on an own-account basis for others (own-account trading),

5. the brokering of deposit business with enterprises domiciled outside the European Economic Area (non-EEA deposit broking),

6. the execution of payment orders (money transmission services), and

7. dealing in foreign notes and coins (foreign currency dealing).

(1b) For the purpose of this Act, “institutions” are credit institutions and financial services institutions.

(2) For the purposes of this Act, managers (Geschäftsleiter) are those natural persons who are appointed by law, articles of association or partnership agreement to manage the business of and represent an institution organised in the form of a legal person or partnership. In exceptional cases the Federal Banking Supervisory Office may also revocably designate as manager another person entrusted with the management of an institution’s business and authorised to represent it if that person is trustworthy and has the necessary professional qualifications; section 33 (2) applies. If the institution is operated by a sole proprietor, a person whom the proprietor has entrusted with the management of the institution’s business and authorised to represent it may be revocably designated as manager in exceptional cases on the conditions specified in sentence 2. If a person is designated as manager by virtue of an application by the institution, the designation shall be revoked upon the application of the institution or the manager.

(3) Financial enterprises are enterprises which are not institutions and whose main activities comprise

1. acquiring participating interests,2. acquiring money claims against payment,

3. concluding leasing contracts,

4. issuing or administering credit cards or travellers’ cheques,

5. trading in financial instruments for their own account,

6. advising others on investing in financial instruments (investment advice),

7. advising enterprises on their capital structure, their industrial strategy and associated issues; advising them and offering them services in the event of corporate mergers and acquisitions, or

8. arranging loans between credit institutions (money-broking business).

The Federal Ministry of Finance, after having consulted the Deutsche Bundesbank, may designate by regulation other enterprises as financial enterprises, whereby the list in the appendix to Council Directive 89/646/EEC of December 15, 1989 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of credit institutions and amending Directive 77/780/EEC (Official Journal of the European Communities No. L 386, page 1) (Second Banking Coordination Directive) is extended.

(3a) Financial holding companies are financial enterprises whose subsidiaries are exclusively or primarily institutions or financial enterprises, with at least one subsidiary being a deposit-taking credit institution or a securities trading firm.

(3b) Mixed-activity holding companies are enterprises which are neither financial holding companies nor institutions, with at least one subsidiary being a deposit-taking credit institution or a securities trading firm.

(3c) Ancillary banking services enterprises are enterprises which are neither institutions nor financial enterprises and whose main activity comprises administering real estate, operating computer centres or performing other activities which are ancillary activities relative to the main activity of one or more institutions.

(3d) Deposit-taking credit institutions are credit institutions which receive deposits or other repayable funds from the public and conduct lending business. Securities trading firms are institutions which are not deposit-taking credit institutions and which conduct banking business within the meaning of subsection (1) sentence 2 numbers 4 or 10 or which provide financial services within the meaning of subsection (1a) sentence 2 numbers 1 to 4 unless the banking business or financial services are confined to foreign exchange, units of account or derivatives within the meaning of subsection (11) sentence 4 number 5. Securities trading banks are credit institutions which are not deposit-taking credit institutions and which conduct banking business within the meaning of subsection (1) sentence 2 numbers 4 or 10 or provide financial services within the meaning of subsection (1a) sentence 2 numbers 1 to 4.

(3e) Stock exchanges or financial futures exchanges within the meaning of this Act are stock markets or financial futures markets which are regulated and supervised by publicly approved agencies, are held regularly and are accessible to the general public either directly or indirectly, including their systems for safeguarding settlement of the trades in these markets (clearing houses) that are regulated and supervised by publicly approved agencies.

(4) The home state is the state in which the head office of an institution is registered.

(5) The host state is the state in which an institution maintains a branch or provides cross-border services outside its home state.

(5a) The European Economic Area (EEA) within the meaning of this Act designates the states of the European Communities and the contracting states to the Agreement on the European Economic Area. Non-EEA states within the meaning of this Act are all other states.

(5b) Zone A comprises all states of the European Economic Area, the full member states of the Organisation for Economic Cooperation and Development, unless they have rescheduled their external debt within the past five years or faced comparable balance of payments difficulties, and the states which have concluded special lending arrangements with the International Monetary Fund under the Fund’s General Arrangements to Borrow. Zone B comprises all other states.

(6) Parent enterprises are enterprises which are deemed to be parent enterprises for the purposes of section 290 of the German Commercial Code (Handelsgesetzbuch) or which can exercise a dominant influence, irrespective of their legal form and domicile.

(7) Subsidiaries are enterprises which are deemed to be subsidiaries for the purposes of section 290 of the Commercial Code or on which a dominant influence can be exercised, irrespective of their legal form and domicile. Affiliated enterprises are enterprises which have a common parent company.

(8) Control is deemed to exist if an enterprise is considered to be a parent enterprise relative to another enterprise, or if a similar relationship obtains between a natural person or a legal person and an enterprise.

(9) A qualified participating interest is deemed to exist if at least ten per cent of the capital of, or the voting rights in, an enterprise is held directly or indirectly through one or more subsidiaries or a similar relationship or through collaboration with other persons or enterprises, or if a significant influence can be exercised on the management of the enterprise in which a participating interest is held. For calculating the share of the voting rights, section 22 (1) and (3) of the Securities Trading Act (Wertpapierhandelsgesetz) applies. Participating interests which are held indirectly are to be attributed in full to the persons and enterprises holding the indirect participating interest.

(10) A close association is deemed to exist if an institution and another natural person or another enterprise are linked

1. through the direct or indirect holding of at least twenty per cent of the capital or the voting rights, or2. as parent enterprise and subsidiary, through a similar relationship or as affiliated enterprises.

(11) Financial instruments within the meaning of this Act are securities, money market instruments, foreign exchange or units of account and derivatives. Securities are the following, irrespective of whether they are evidenced by certificates:

1. shares, certificates representing shares, debt securities, participation certificates, warrants, and2. other securities that are comparable to shares or debt securities if they can be traded on a market; securities also comprise share certificates issued by an investment company or a foreign collective investment company. Money market instruments are claims that are not covered by sentence 2 and which are customarily traded in the money market.

Derivatives are outright forward transactions or option contracts whose price depends directly or indirectly on

1. the stock exchange or market price of securities,2. the stock exchange or market price of money market instruments,

3. the exchange rate of foreign exchange or units of account,

4. interest rates or other income streams, or

5. the stock exchange or market price of commodities or precious metals.

(12) For the purposes of determining the trading book risk positions and calculating the relevant capital charges, the following shall be deemed to be part of the trading book within the meaning of this Act:

1. financial instruments, marketable assets and equities which the institution holds as proprietary positions with a view to reselling them or which are taken on by the institution with the intention of profiting in the short term from existing or expected differences between buying and selling prices or variations in prices or interest rates, 2. portfolios and transactions which serve the purpose of hedging market risk arising from the trading book, and any associated refinancing transactions,3. name-to-follow deals, and

4. assets in the form of fees, commissions, interest, dividends and margin payments that are directly associated with the trading book positions.

The trading book shall further be deemed to include securities repurchase agreements, loan transactions and comparable transactions relating to positions of the trading book. It shall not include foreign exchange, units of account and derivatives within the meaning of subsection (11) sentence 4 number 5. The banking book comprises all an institution’s transactions that do not form part of the trading book. Positions are to be assigned to the trading book according to internal, verifiable criteria of which the Federal Banking Supervisory Office and the Deutsche Bundesbank must be notified; any changes to these criteria must be reported immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank, stating the reasons. The reclassification and transfer of positions to the trading book or the banking book shall be verifiably documented and substantiated in the institution’s documents. Compliance with the internal classification criteria shall be checked and confirmed by the external auditors as part of their audit of the annual accounts.

2. Exceptions

(1) Subject to the provisions of subsections (2) and (3), the following are deemed not to be credit institutions:

1. the Deutsche Bundesbank;2. the Reconstruction Loan Corporation (Kreditanstalt für Wiederaufbau – KfW);

3. the social security funds and the Federal Labour Office (Bundesanstalt für Arbeit);

4. private and public insurance enterprises;

5. enterprises engaged in pawnbroking, insofar as they conduct this business by granting loans against pledges;

6. enterprises recognised under the Act Concerning Risk Capital Investment Companies (Gesetz über Unternehmensbeteiligungsgesellschaften) as risk capital investment companies;

7. enterprises which conduct banking business solely with their parent enterprise or with their subsidiaries or with affiliated enterprises;

8. enterprises which provide brokerage services solely on a stock exchange, on which exclusively derivatives are traded, for other members of that exchange and whose liabilities are covered by a system that guarantees the settlement of trades on that exchange.

(2) The Reconstruction Loan Corporation is subject to section 14 and to action taken by virtue of section 47 (1) 2 and section 48; the social security funds, the Federal Labour Office, insurance enterprises and risk capital investment companies are subject to section 14.

(3) Enterprises of the types specified in subsection (1) 4 to 6 are subject to the provisions of this Act insofar as they conduct banking business which is not part of their characteristic business.

(4) The Federal Banking Supervisory Office may rule in particular cases that an institution is not subject to the provisions of sections 10 to 18, 24, 24a, 25 to 38, 45, 46 to 46c and 51 (1) of this Act, taken as a whole, as long as the enterprise does not require supervision, given the nature of the business it conducts. Such a ruling shall be published in the Federal Gazette (Bundesanzeiger).

(5) The Federal Banking Supervisory Office may rule in particular cases, in consultation with the Deutsche Bundesbank, that an enterprise which solely conducts prepaid card business is not subject to the provisions of sections 10 to 18, 24, 32 to 38, 45, 46 to 46c and 51 (1) of this Act or of section 112 (2) of the Composition Code (Vergleichsordnung), taken as a whole, if the prepared cards have a limited use and dissemination which suggests that they are unlikely to pose a threat to the payment system. Such a ruling shall be published in the Federal Gazette. The Federal Ministry of Finance may, through a regulation to be issued in consultation with the Deutsche Bundesbank, specify detailed provisions for qualifying for exemption under sentence 1. The Federal Ministry of Finance may delegate this authority by regulation to the Federal Banking Supervisory Office provided that the regulation is issued in consultation with the Deutsche Bundesbank.

(6) The following are deemed not to be financial services institutions:

1. the Deutsche Bundesbank;2. the Reconstruction Loan Corporation;

3. the public debt administration of the Federal Government, of one of its special funds, of a Land Government or of another state of the European Economic Area and its central banks;

4. private and public insurance enterprises;

5. enterprises which provide financial services solely for their parent enterprise or for their subsidiaries or for affiliated enterprises;

6. enterprises whose financial service consists solely in the administration of a system of employee participations in themselves or their affiliated enterprises;

7. enterprises which solely provide financial services within the meaning of both number 5 and number 6;

8. enterprises which provide financial services within the meaning of section 1 (1a) sentence 2 numbers 1 to 4 that consist solely of investment broking and contract broking between customers and

(a) an institution,(b) an enterprise operating in accordance with section 53b (1) sentence 1 or (7),

(c) an enterprise that is treated as an EEA enterprise or that is granted exemption from the provisions by means of a regulation pursuant to section 53c, or

(d) a foreign collective investment company, as long as these financial services are confined to share certificates of investment companies or to foreign investment fund certificates whose distribution is permitted under the Foreign Investment Fund Act (Auslandinvestment-Gesetz) and the enterprises are not authorised to acquire ownership or possession of funds, certificates or shares of customers in providing such financial services;

9. enterprises which provide financial services solely on a stock exchange, on which exclusively derivatives are traded, for other members of that exchange and whose liabilities are covered by a system that guarantees the settlement of trades on that exchange;10. members of free professions who provide financial services only occasionally within the framework of their professional activities and who belong to a professional chamber having the legal form of a public corporation whose professional rules do not exclude the performance of financial services;

11. enterprises whose main business is trading in commodities with similar enterprises, with producers or commercial users of the commodities and which perform financial services only for these persons and only to the extent necessary for their main business;

12. enterprises whose sole financial service is dealing in foreign notes and coins unless their main business is foreign currency dealing.

The provisions of this Act shall apply to institutions and enterprises within the meaning of sentence 1 numbers 3 and 4 insofar as they provide financial services which do not form part of their characteristic business.

(7) The provisions of section 2a (2), sections 10 to 18 and 24 (1) 10, sections 24a and 33 (1) sentence 1 number 1, section 35 (2) 5 and sections 45 and 46 to 46c shall not apply to financial services institutions which provide no financial services apart from non-EEA deposit broking, money transmission services and dealing in foreign notes and coins. (8) The provisions of section 2a (2), sections 10, 11 and 12 (1), sections 13, 13a, 14 to 18 and 24 (1) 10 and sections 45 and 46 to 46c shall not apply to investment brokers and contract brokers who in the course of providing financial services are not authorised to obtain ownership or possession of funds or securities of customers and who do not trade in financial instruments for their own account.

(9) The provisions of section 24a on the establishment of a branch and on cross-border services shall not apply to investment brokers and contract brokers who, instead of the initial capital, can demonstrate that they have taken out suitable insurance pursuant to section 33 (1) sentence 2.

(10) An enterprise shall be deemed not to be a financial services institution if it conducts the investment broking or contract broking solely for the account and under the liability of a deposit-taking credit institution or securities trading firm domiciled in Germany, or of an enterprise operating in accordance with section 53b (1) sentence 1 or (7), or if it conducts such business under the joint and several liability of such institutions or enterprises, without providing any other financial services and if this is reported to the Federal Banking Supervisory Office by one of these liable institutions or enterprises. Its activities shall be regarded as forming part of those of the institutions or enterprises for whose account and under whose liability it operates. If there is any change in the circumstances reported by the liable institutions or enterprises, the new circumstances shall be reported immediately to the Federal Banking Supervisory Office. The Federal Banking Supervisory Office will forward the reports pursuant to sentences 1 and 3 to the Deutsche Bundesbank and the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für den Wertpapierhandel).

(11) An institution is not required to apply the provisions of this Act concerning trading book business if

1. the share of the institution’s trading book activities as a rule does not exceed five per cent of the aggregate total of its on and off-balance-sheet business,2. the aggregate total of the individual trading book positions as a rule does not exceed the equivalent of ECU 15 million, and

3. the share of its trading book business at no time exceeds six per cent of the aggregate total of its on and off-balance-sheet business and the aggregate total of the trading book positions at no time exceeds the equivalent of ECU 20 million. For the purpose of determining the share of the trading book business, derivatives shall be valued according to the nominal value or the market price of the respective underlying instruments, and the other financial instruments at their nominal value or market price; short and long positions shall be aggregated irrespective of whether they are positive or negative. Further details shall be defined by means of a regulation pursuant to section 22. The institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if it makes use of the option provided for in sentence 1, if it has exceeded one of the limits laid down in sentence 1 number 3, or if it applies the provisions concerning trading book business even though it meets the exemption conditions laid down in sentence 1.

2a. Legal form

(1) Credit institutions requiring a licence in accordance with section 32 (1) may not be operated in the form of a sole proprietorship.

(2) In the case of securities trading firms in the form of a sole proprietorship or partnership, the risk assets of the proprietor or general partners shall be included in the assessment of the institution’s solvency pursuant to section 10 (1); however, the personal assets of the proprietor or partners shall be excluded for the purpose of calculating the institution’s own funds. If such an institution is operated in the form of a sole proprietorship, the proprietor shall take appropriate precautions to protect his customers in the event that the institution ceases trading owing to his death, his incapacity to continue the business or other reasons.

2b. Holders of qualified participating interests

(1) Anyone who intends to acquire a qualified participating interest in an institution shall report the amount of the intended participating interest immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank in accordance with sentences 2 and 4. In his report pursuant to sentence 1 he shall state the facts germane to assessing his trustworthiness, which facts shall be specified in more detail by regulation in accordance with section 24 (4) sentence 1, and name the i ndividuals and enterprises from whom or from which he intends to acquire the corresponding shares. At the request of the Federal Banking Supervisory Office, the records specified in section 32 (1) sentence 3 number 6 (d) and (e) shall be submitted. If the purchaser is a legal person or partnership, the report pursuant to sentence 1 must contain the facts germane to assessing the trustworthiness of its legal representatives or general partners. As long as the qualified participating interest is held, every newly appointed legal representative or new general partner shall be reported immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank, together with the facts germane to assessing his trustworthiness.

The holder of a qualified participating interest shall, moreover, notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if he intends to increase the amount of the qualified participating interest in such a way that the thresholds of twenty per cent, thirty-three per cent or fifty per cent of the voting rights or capital are reached or exceeded, or that the institution comes under his control. The Federal Banking Supervisory Office will forward one copy of each report pursuant to sentences 1 and 6 to the Federal Supervisory Office for Securities Trading.

(1a) Within three months of the receipt of the full report pursuant to subsection (1) sentence 1 or 6, the Federal Banking Supervisory Office may prohibit the intended acquisition of, or increase in, the qualified participating interest if facts are known which warrant the assumption that

1. the party submitting the report or, if it is a legal person, a legal representative, or, if it is a partnership, a partner is not trustworthy or for any other reason does not meet the demands required in the interest of ensuring a sound and prudent management of the institution,2. the acquisition of, or increase in, the qualified participating interest would integrate the institution into a corporate association with the holder of the qualified participating interest which would hamper effective supervision of the institution, or

3. the acquisition of, or increase in, the qualified participating interest would make the institution a subsidiary of an institution domiciled abroad that is not effectively supervised in the state where it is registered or has its head office or whose appropriate supervisory body is not prepared to cooperate satisfactorily with the Federal Banking Supervisory Office.

If such acquisition is not prohibited, the Federal Banking Supervisory Office may set a period after the expiry of which the person or partnership who has submitted the report pursuant to subsection (1) sentence 1 or 6 shall inform that Office whether or not the intended acquisition has been carried out. After the expiry of this period, the person or partnership shall submit the report to the Federal Banking Supervisory Office immediately.

(2) The Federal Banking Supervisory Office may prohibit the holder of a qualified participating interest and the enterprises he controls from exercising his voting rights and stipulate that the shares may be used only with the Office’s assent if

1. the prerequisites exist for a prohibition pursuant to subsection (1a) sentence 1,2. the holder of the qualified participating interest has not fulfilled his duty pursuant to subsection (1) to notify the Federal Banking Supervisory Office and the Deutsche Bundesbank beforehand and has not subsequently made such notification after a period of time set by the Federal Banking Supervisory Office, or

3. if the participating interest has been acquired or increased notwithstanding an en- forceable prohibition pursuant to subsection (1a) sentence 1. In the cases specified in sentence 1, the exercise of voting rights may be transferred to a trustee; in exercising the voting rights, the trustee shall take due account of the interests of a sound and prudent management of the institution. In the cases specified in sentence 1 numbers 1 and 3, the Federal Banking Supervisory Office may, over and above the measures specified in sentence 1, charge a trustee to sell the shares where they constitute a qualified participating interest if the holder of the qualified participating interest does not furnish proof of a trustworthy buyer to the Federal Banking Supervisory Office within an appropriate period to be set by that Office; the holders of the shares shall cooperate in the sale to the extent necessary. The trustee is appointed by the court having jurisdiction at the domicile of the institution at the request of the institution, the holder of a participating interest in it or the Federal Banking Supervisory Office. If the prerequisites specified in sentence 1 no longer exist, the Federal Banking Supervisory Office shall apply for the revocation of the appointment of the trustee. The trustee is entitled to the reimbursement of reasonable expenses and to remuneration for his activities. The court determines such expenses and remuneration at the request of the trustee; no further appeal is permissible. The Federal Government advances such expenses and remuneration; the holder of the qualified participating interest concerned and the institution are jointly and severally liable to the Federal Government i n respect of its outlays.

(3) Before taking measures in accordance with subsection (1a) sentence 1, the Federal Banking Supervisory Office shall consult the appropriate authorities of the other state of the European Economic Area if the purchaser of the qualified participating interest is a deposit-taking credit institution or securities trading firm licensed in the other state, a parent enterprise of a deposit-taking credit institution or securities trading firm licensed in the other state or a person controlling a deposit-taking credit institution or securities trading firm licensed in the other state, and if, as a result of the acquisition, the institution in which the purchaser intends to hold a participating interest would come under the control of the purchaser. The Federal Banking Supervisory Office shall inform the appropriate authorities of the other state of measures taken in accordance with subsection (2) sentence 1 in relation to purchasers within the meaning of sentence 1; it is to consult them beforehand if there are no grounds for fearing that such delay will nullify or significantly impair the efficacy of the measures.

(4) Anyone who intends to relinquish a qualified participating interest in an institution or to reduce the amount of his qualified participating interest below the thresholds of twenty per cent, thirty-three per cent or fifty per cent of the voting rights or the capital, or to change the participating interest in such a way that the institution is no longer a controlled enterprise, shall report this to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. The intended residual level of the participating interest shall be indicated in the report. The Federal Banking Supervisory Office may set a period after the expiry of which the person or partnership who has submitted the report pursuant to sentence 1 shall notify that Office whether or not the intended reduction or change has been carried out. After the expiry of this period, the person or partnership who has submitted the report pursuant to sentence 1 shall submit the notification to the Federal Banking Supervisory Office immediately.

(5) The Federal Banking Supervisory Office shall temporarily prohibit or limit the acquisition of a direct or indirect participating interest in an institution, through which the institution would become a subsidiary of an enterprise domiciled outside the European Communities, if the Commission or Council of the European Communities has passed a corresponding decision in accordance with Article 22 (2) of the Second Banking Coordination Directive or Article 7 (5) of Council Directive 93/22/EEC of May 10, 1993 on investment services in the securities field – Official Journal of the European Communities No. L. 141 page 27 – (Investment Services Directive). The temporary prohibition or limitation may not last longer than three months from the date of the decision. If the Council of the European Communities decides to prolong the period pursuant to sentence 2, the Federal Banking Supervisory Office shall take due account of this prolongation and prolong the temporary prohibition or limitation accordingly.

3. Prohibited business

The following are prohibited:

1. the conduct of deposit business if the majority of the depositors are persons employed by the enterprise (employee savings banks – Werksparkassen), unless other banking business is conducted which exceeds the scale of such deposit business;2. the acceptance of sums of money if the majority of the lenders have a legal right to loans being granted to them or objects being supplied to them on credit out of these sums of money (savings enterprises for specific purposes – Zwecksparunternehmen); this does not apply to building and loan associations; 3. the conduct of lending business or deposit business if, by agreement or in line with normal business practice, it is impossible or very difficult to withdraw the amount of the loan or the deposits in cash.

4. Decision by the Federal Banking Supervisory Office

In doubtful cases, the Federal Banking Supervisory Office decides whether an enterprise is subject to the provisions of this Act. Its decisions are binding upon the administrative authorities.

Division 2. Federal Banking Supervisory Office

5. Organisation

(1) The Federal Banking Supervisory Office (Bundesaufsichtsamt für das Kreditwesen) is established as an independent superior Federal authority (Bundesoberbehörde). It is domiciled in Bonn.

(2) The President of the Federal Banking Supervisory Office is nominated by the Federal Government and appointed by the President of the Federal Republic; the Federal Government shall consult the Deutsche Bundesbank regarding such nomination.

6. Functions

(1) The Federal Banking Supervisory Office exercises supervision over institutions in accordance with the provisions of this Act.

(2) The Federal Banking Supervisory Office shall counteract undesirable developments in the banking and financial services sector which may endanger the safety of the assets entrusted to institutions, impair the proper conduct of banking business or provision of financial services or involve serious disadvantages for the national economy, except in cases for which the Federal Supervisory Office for Securities Trading has responsibility under the Securities Trading Act.

(3) The Federal Banking Supervisory Office may, as part of its brief, issue instructions to the institution and its managers that are appropriate and necessary to prevent or overcome undesirable developments at the institution which could endanger the safety of the assets entrusted to the institution or could impair the proper conduct of its banking business or provision of financial services.

(4) The Federal Banking Supervisory Office performs the functions assigned to it under this Act and under other Acts in the public interest only.

7. Cooperation with the Deutsche Bundesbank

(1) The Federal Banking Supervisory Office and the Deutsche Bundesbank cooperate as provided in this Act. The Deutsche Bundesbank and the Federal Banking Supervisory Office shall communicate to each other any observations and findings which are necessary for the performance of their respective functions. To this end, the Deutsche Bundesbank shall make available to the Federal Banking Supervisory Office the information it obtains from statistics collected in accordance with section 18 of the Bundesbank Act (Gesetz über die Deutsche Bundesbank). Before ordering the collection of such statistics, the Deutsche Bundesbank shall consult the Federal Banking Supervisory Office; section 18 sentence 5 of the Bundesbank Act applies as appropriate.

(2) The cooperation and communications pursuant to subsection (1) include the communication of personal data. The Federal Banking Supervisory Office and the Deutsche Bundesbank are authorised to automatically access one another’s database maintained for the purpose of performing their functions under this Act. Every tenth time that the Federal Banking Supervisory Office calls up data from the Deutsche Bundesbank’s database, the Deutsche Bundesbank shall, for the purpose of safeguarding data protection, log the time, the details which enable the data records called up to be ascertained and the identity of the person calling up the data. The data so logged are to be used solely for the purpose of safeguarding data protection, data security or for ensuring the proper functioning of the data processing system. The log files are to be deleted at the end of the calendar year following that in which the data were stored. Sentences 3 to 5 apply as appropriate to data retrievals by the Deutsche Bundesbank from the database of the Federal Banking Supervisory Office.

(3) The President of the Federal Banking Supervisory Office or, if he is unable to attend, his deputy is entitled to take part in the deliberations of the Central Bank Council of the Deutsche Bundesbank whenever matters within his field of responsibility are being discussed. He has no right to vote, but may propose motions.

8. Cooperation with other bodies

(1) The Federal Banking Supervisory Office may enlist the services of other persons and institutions to assist it in the performance of its functions.

(2) If tax evasion proceedings are instituted against proprietors or managers of institutions, section 30 of the Tax Code (Abgabenordnung) does not preclude communication of the proceedings and the underlying facts to the Federal Banking Supervisory Office; the same applies if the proceedings are directed against persons who committed the offence while in the employment of an institution.

(3) When supervising institutions which conduct banking business or provide financial services in another state of the European Economic Area and when supervising institutions as provided in Council Directive 92/30/EEC of April 6, 1992 on the supervision of credit institutions on a consolidated basis – (Journal of the European Communities No. L 110, page 52) – (Consolidation Directive), the Federal Banking Supervisory Office and – insofar as it is acting under this Act – the Deutsche Bundesbank cooperate with the appropriate authorities of the state concerned. Communications from the appropriate authorities of the other state may be used for the following purposes only:

1. for checking an institution’s licence to conduct business,2. for supervising the operations of institutions on an individual basis or a consolidated basis,

3. for orders by the Federal Banking Supervisory Office and for the prosecution and punishment by the Federal Banking Supervisory Office of breaches of administrative regulations,

4. in the context of administrative proceedings regarding legal remedies against a decision by the Federal Banking Supervisory Office, or

5. in the context of proceedings before administrative courts, insolvency courts, public prosecutors’ offices or courts having jurisdiction in criminal cases or administrative fine cases.

If an institution’s licence to conduct banking business or provide financial services is revoked, the Federal Banking Supervisory Office informs the appropriate authorities of the other states of the European Economic Area in which the institution has established branches or has been providing cross-border services.

(4) The Federal Banking Supervisory Office notifies the appropriate authorities of the host state of the measures it will take to terminate infringements by an institution of legal provisions issued by the host state of which the Federal Banking Supervisory Office has been informed by the appropriate authorities of the host state. 8a.Responsibility for supervision on a consolidated basis

(1) The Federal Banking Supervisory Office may abstain from supervising a group of institutions or a financial holding group within the meaning of section 10a (2) to (5), and revocably exempt the parent enterprise from the provisions of this Act governing supervision on a consolidated basis, if,

1. in the case of groups of institutions, the parent enterprise is a subsidiary of a deposit- taking credit institution or a securities trading firm domiciled in another state of the European Economic Area and, in that other state, is included in supervision on a consolidated basis in accordance with the Consolidation Directive, or if,2. in the case of financial holding groups, these groups are supervised on a consolidated basis in accordance with the Consolidation Directive by the appropriate authorities of another state of the European Economic Area.

A precondition of such exemption is an agreement of the Federal Banking Supervisory Office with the appropriate authorities of the other state. The Commission of the European Communities is to be informed of the existence and contents of such agreements.

(2) In addition to the cases regulated by section 10a (3), the Federal Banking Supervisory Office may rule a group of enterprises to be a financial holding group and an institution of the group to be the parent enterprise, as provided in Article 4 (2) to (4) of the Consolidation Directive; in that case, the provisions of this Act governing supervision on a consolidated basis apply as appropriate.

9. Secrecy

(1) Persons employed by the Federal Banking Supervisory Office and persons com- missioned under section 8 (1), supervisors appointed under section 46 (1) sentence 2 number 4, the liquidators appointed under section 37 sentence 2 and section 38 (2) sentences 2 and 4 and persons employed by the Deutsche Bundesbank, insofar as they are acting to implement this Act, may not disclose or use without authorisation facts which have come to their notice in the course of their duties and which should be kept secret in the interests of the institution or a third party (especially business and trade secrets), not even after they have left such employment or their duties have ended. The same applies to other persons who learn of the facts specified in sentence 1 as a result of official reports. In particular, it is deemed not to be such disclosure or use without authorisation within the meaning of sentence 1 if facts are passed on

1. to public prosecutors’ offices or courts having jurisdiction in criminal cases and administrative fine cases,2. to agencies which, by virtue of an act of parliament or by official order, are entrusted with the supervision of institutions, collective investment companies, financial enterprises, insurance enterprises, the financial markets or the payments system, and to persons commissioned by such agencies,

3. to agencies dealing with an institution’s liquidation or the initiation of insolvency proceedings over its assets,

4. to persons entrusted with the statutory auditing of the accounts of institutions or financial enterprises and to agencies which supervise such persons,

5. to a deposit guarantee scheme or an investor compensation scheme, or

6. stock markets or financial futures exchanges, insofar as these agencies require the information for the performance of their functions. Secrecy in accordance with sentence 1 applies as appropriate to persons employed by these agencies. If the agency is located in another state, the facts may be passed on only if that agency and the persons commissioned by it are subject to secrecy requirements corresponding to those specified in sentence 1. The foreign agency is to be informed that it may use information solely for the purpose for which it has been passed on to it. The agencies specified in sentence 3 numbers 3 to 6 which directly or indirectly obtain information from appropriate authorities in other states may forward such information only with the express permission of the agencies passing on the information.

(2) Sections 93, 97, 105 (1), section 111 (5), read in conjunction with section 105 (1), and section 116 (1) of the Tax Code do not apply to the persons specified in subsection (1) insofar as they are acting to implement this Act. This does not apply if the fiscal authorities require the information for instituting proceedings for tax evasion and the associated tax assessment proceedings in the prosecution of which there is a pressing public interest, or if the person required to provide information or the persons acting on his behalf have intentionally supplied incorrect information. Sentence 2 does not apply if the facts involved were communicated to the persons specified in subsection (1) sentence 1 or 2 by the appropriate supervisory agency of another state or by persons commissioned by that agency.

Part II Provisions for Institutions

Division 1. Own funds and liquidity

10. Provision with own funds

(1) In order to meet their obligations to their creditors, and particularly in order to safeguard the assets entrusted to them, institutions must have adequate own funds. The Federal Banking Supervisory Office, acting in agreement with the Deutsche Bundesbank, draws up Principles by which it assesses in the normal case whether the requirements of sentence 1 have been satisfied; the central associations of the institutions shall be con- sulted beforehand. The Principles shall be published in the Federal Gazette. Institutions shall submit to the Federal Banking Supervisory Office and the Deutsche Bundesbank at monthly intervals the data required in accordance with the Principles for monitoring the ad- equacy of their own funds. They shall set up a proper organisation and appropriate internal monitoring procedures to ensure that the data required pursuant to sentence 4 are duly processed and passed on. If the provisions of this Act require a position to be backed by liable capital or tier 3 capital, the relevant amount of the own funds is not available for the backing of other positions; in particular, this amount of the own funds may not be included for the purpose of determining the adequacy of the own funds according to the Principles pursuant to section 10 (1) sentence 2 and section 10a (1) sentence 2. Own funds made available by third parties may be included only if they have actually been transferred to the institution. The acquisition of own funds of the institution by a third party acting for the institution’s account, by a subsidiary of the institution or by a third party acting for the account of a subsidiary of the institution shall be deemed for the purpose of inclusion to be equivalent to an acquisition by the institution unless the institution can prove that the own funds were actually transferred to it; this rule applies as appropriate to receipts of collateral pledged as security.

(1a) In determining the adequacy of the own funds pursuant to section 10 (1) and section 10a (1), a counterparty-related weighting of zero per cent may be assigned to loans constituting claims on, or carrying the explicit guarantee of,

1. a central government, central bank, regional government or local authority in another state of the European Economic Area, or2. a central government or central bank in a non-EEA state if enterprises domiciled in that non-EEA state are exempted in full or in part from the provisions of section 53 by virtue of a regulation pursuant to section 53c, as long as the Federal Banking Supervisory Office has not announced a different applicable weighting and the loans are given a zero weighting by the appropriate authority of the other state or non-EEA state. Loans granted prior to the announcement of a different applicable weighting may continue to be given a weighting of zero per cent until the end of the term of the loan.

(2) The own funds consist of liable capital and tier 3 capital. The liable capital is the sum of core capital and additional capital less the positions listed in subsection (6) sentence 1.

(2a) The following shall be regarded as core capital after deducting the positions listed in sentence 2:

1. in the case of sole proprietorships (Einzelkaufleute), general partnerships (offene Handelsgesellschaften) and limited partnerships (Kommanditgesellschaften): the paid-up capital and the reserves, less withdrawals by the proprietor or the general partners and loans granted to them, and less any net debt in the proprietor’s unencumbered personal assets;2. in the case of public limited companies (Aktiengesellschaften), limited companies with one or more general partners (Kommanditgesellschaften auf Aktien) and private limited companies (Gesellschaften mit beschränkter Haftung): the paid-up capital, less the cumulative preferential shares, and the reserves; in the case of limited companies with one or more general partners: also assets contributed by the general partners but not paid into the capital, less withdrawals by the general partners and loans granted to them;

3. in the case of registered cooperative societies (eingetragene Genossenschaften): the amounts paid up on members’ shares and the reserves; amounts paid up on the shares of members who are retiring at the end of the financial year and their rights to the outpayment of a share in the cooperative society’s revenue reserves, as shown separately in the balance sheet by registered cooperative societies in accordance with section 73 (3) of the Act Concerning Industrial and Trading Cooperative Societies (Gesetz betreffend die Erwerbs- und Wirtschaftsgenossenschaften), shall be deducted;

4. in the case of public savings banks and private savings banks recognised as public savings banks: the reserves;

5. in the case of public credit institutions not coming under the provisions of number 4: the paid-up endowment capital (Dotationskapital) and the reserves;

6. in the case of credit institutions organised in any other form: the paid-up capital and the reserves;

7. the special items for general banking risks pursuant to section 340g of the Commercial Code;

8. the contributions to capital by silent partners within the meaning of subsection (4).

The positions to be deducted in accordance with sentence 1 are

1. the loss for the financial year,2. the intangible fixed assets,

3. the adjustment item pursuant to subsection (3b),

4. loans to limited partners, to shareholders in a private or public limited company or a limited company with one or more general partners, or to shareholders in a public in- stitution who own more than twenty-five per cent of the capital (nominal capital, total amount of capital shares) of the institution, or who hold more than twenty-five per cent of the voting rights, if they have not been granted on market terms or if they are not adequately secured in line with banking practice, and

5. loans to silent partners within the meaning of subsection (4) whose contribution to the capital amounts to more than twenty-five per cent of the core capital, excluding the capital contributions of silent partners, if they have not been granted on market terms or if they are not adequately secured in line with banking practice. Section 16 (2) to (4) of the Companies Act (Aktiengesetz) applies as appropriate to the calculation of the percentages pursuant to sentence 2 numbers 4 and 5.

(2b) The additional capital consists of the following, after deducting the adjustment items pursuant to subsection (3b):

1. contingency reserves in accordance with section 340f of the Commercial Code,2. preferential shares,

3. reserves pursuant to section 6b of the Income Tax Act (Einkommensteuergesetz) up to the amount of forty-five per cent, insofar as these reserves were formed by the transfer of the profits from the sale of land, rights equivalent to land, and buildings,

4. liabilities represented by participation rights within the meaning of subsection (5),

5. longer-term subordinated liabilities within the meaning of subsection (5a),

6. the unrealised reserves shown in the notes to the last set of approved annual accounts pursuant to subsections (4a) and (4b) in the case of land, rights equivalent to land, and buildings up to the amount of forty-five per cent of the difference between the book value and the loan value,

7. the unrealised reserves shown in the notes to the last set of approved annual accounts pursuant to subsections (4a) and (4c) in the case of banking book positions up to the amount of thirty-five per cent of the difference between the book value, including contingency reserves, and

(a) the market price of securities which are tradeable on a stock exchange,(b) the value to be ascertained pursuant to section 11 (2) of the Valuation Act (Bewertungsgesetz) of unlisted securities evidencing shares in incorporated enterprises with a balance sheet total of at least twenty million Deutsche Mark and belonging to the association of credit cooperatives or savings banks, (c) the published repurchase price of shares in a special fund within the meaning of the Act on Investment Companies, or of shares in a special securities fund issued by a collective investment company domiciled in another state of the European Economic Area in accordance with the provisions of Council Directive 85/611/EEC of December 20, 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (Official Journal of the European Communities No. L 375, page 3) (UCITS Directive), and

8. in the case of registered cooperative societies, the additional sum to be set by regulation by the Federal Ministry of Finance, after having consulted the Deutsche Bundesbank, to take account of the uncalled commitments of members. For the purpose of calculating the liable capital, additional capital may only be included up to the level of the core capital. Moreover, the amount of additional capital included in the calculation consisting of longer-term subordinated liabilities and the uncalled commitments of members may not exceed fifty per cent of the core capital. The Federal Ministry of Finance may by regulation transfer its authority under sentence 1 number 8 to the Federal Banking Supervisory Office.

(2c) Tier 3 capital is

1. the pro rata profit that would arise from the notional closing of all trading book positions, less all identifiable expenses and disbursements and less the probable losses from banking book business in the event of a liquidation of the enterprise, unless these are already included in the adjustment items in accordance with subsection (3b) (net profit), and2. the short-term subordinated liabilities within the meaning of subsection (7). The net profit and the short-term subordinated liabilities may only be included as tier 3 capital up to an amount which, together with that part of the additional capital which is not needed to back the risk arising from banking book business under the provisions of this Act (free additional capital), does not exceed two hundred and fifty per cent of the core capital not needed to back the risk arising from banking book business under the provisions of this Act (free core capital). Insofar as the institution does not exhaust the limit of two hundred and fifty per cent through short-term subordinated liabilities, it can replace the latter by positions which cannot be included as additional capital solely because of capping pursuant to subsection (2b) sentences 2 and 3. For securities trading firms the limit stipulated in sentence 2 is two hundred per cent of the free core capital, unless the illiquid assets within the meaning of sentence 5, where these have not been deducted from the liable capital in accordance with subsection (6) sentence 1 number 1, and the losses of its subsidiaries are deducted from the tier 3 capital.

Illiquid assets are

1. tangible fixed assets,2. shares and claims arising from capital contributions of silent partners, participation rights or subordinated liabilities, if they are not evidenced by securities that are tradeable on a stock exchange and if they do not form part of trading book business,

3. loans and non-marketable debt securities with a remaining period to maturity of more than ninety days, and

4. stocks of commodities, if they do not have to be backed by own funds in accordance with the Principles pursuant to subsection (1) sentence 2 and section 10a (1) sentence 2; margin payments on forward or futures transactions concluded on a stock market or financial futures exchange are not deemed to be illiquid assets.

(3) If an institution draws up a set of interim accounts that satisfy the requirements of the annual accounts, those interim accounts shall be deemed comparable to the annual accounts for the purpose of calculating the own funds; interim profits shall be assigned to the core capital insofar as they are not earmarked for anticipated profit distributions or tax payments. Losses arising from interim accounts are to be deducted from the core capital. An institution which assigns interim profits to its core capital must draw up a set of interim accounts for at least five consecutive years. If an institution ceases to draw up interim accounts, it may not restart assigning interim profits to its core capital until after five years, at the earliest. The institution shall submit the interim accounts immediately to both the Federal Banking Supervisory Office and the Deutsche Bundesbank. The external auditors shall submit their audit report on the interim accounts (interim audit report) to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after concluding the audit. A truncated set of annual accounts covering a period of less than twelve months and drawn up in the wake of a merger does not constitute a set of interim accounts within the meaning of this subsection.

(3a) Reserves within the meaning of subsection (2a) sentence 1 comprise only the amounts designated as such in the balance sheet in the last approved annual accounts for the end of a financial year, with the exception of liability-side items that will be liable to tax only after they have been released. Amounts designated as reserves that have been formed from income which will become liable to tax only after a future event occurs may be counted only up to the level of forty-five per cent. Reserves which are formed as a result of premium income obtained through a share issue or through some other inflow of external resources can be included from the time of their inflow.

(3b) The Federal Banking Supervisory Office may decide to adjust the liable capital by an adjustment item, particularly in order to take account of losses which have not yet affected the balance sheet. Such adjustment shall be rendered null and void by the next approved balance sheet covering the end of a financial year. Upon the institution’s request, the Federal Banking Supervisory Office shall rescind its adjustment insofar as the reasons for it no longer apply.

(4) Assets contributed by silent partners shall be counted as part of the liable capital if

1. they share fully in any loss and the institution is entitled to defer interest payments in the event of a loss,2. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution’s assets or of the institution’s liquidation, they will not be repaid until all creditors have been satisfied,

3. they have been made available to the institution for a period of at least five years,

4. the claim to repayment does not, or, under the terms of the partnership agreement, cannot, fall due within less than two years,

5. the partnership agreement contains no debtor warrant clauses according to which the reduction in the repayment claim caused by losses during the period to maturity of the capital contribution can be offset by profits which arise more than four years after the repayment claim has matured, and

6. the institution, when establishing the silent partnership, referred explicitly and in writing to the legal consequences specified in sentences 2 and 3. Subsequently, participation in any loss cannot be changed to the detriment of the institution, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Any premature repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment.

(4a) Unrealised reserves may be counted as part of the liable capital only if the core capital makes up at least four point four per cent of the institution’s risk assets, weighted in ac- cordance with the Principles of the Federal Banking Supervisory Office pursuant to subsection (1) sentence 2; unrealised reserves may be counted as part of the liable capital only up to one point four per cent of such risk-weighted assets. For the purpose of these calculations, trading book positions may be considered banking book positions. Unrealised reserves may be included only if all assets pursuant to subsection (2b) sentence 1 number 6 or 7 are incorporated in the calculation of the difference. The calculation of the unrealised reserves is to be disclosed to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after its completion, indicating the relevant valuations.

(4b) Section 12 (1) and (2) of the Mortgage Bank Act (Hypothekenbankgesetz) applies as appropriate to the calculation of the loan values of land, rights equivalent to land, and buildings. These values shall be determined by means of expert valuations at least every three years. The institution shall appoint a committee of experts consisting of at least three members for calculating the loan values. Section 32 (2) and (3) of the Act on Investment Companies applies as appropriate. If the loan value is below the book value, this negative difference shall be deducted from the unrealised reserves.

(4c) The market value of securities defined in subsection (2b) sentence 1 number 7 (a) depends on the price on the balance sheet date. If the average of that price and the prices ascertained on the previous three balance sheet dates is below that price, the average price applies. If no price is available on a balance sheet date, the last price ascertained within thirty days before the balance sheet date applies. If securities are treated in accordance with the principles for fixed assets, the difference between the relevant market value and the higher book value shall be deducted from the unrealised reserves. The pro- cedure described in sentences 1, 2 and 4 shall be applied as appropriate to the deter- mination of the value of securities defined in subsection (2b) sentence 1 number 7 (b) pursuant to section 11 (2) of the Valuation Act, and to the determination of the repurchase price of shares in a special fund.

(5) Capital paid up against the issue of participation rights (liabilities represented by participation rights) shall be counted as part of the liable capital if

1. it shares fully in any loss, and if the institution i s entitled to defer interest payments in the event of a loss,2. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution’s assets or of the institution’s liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,

3. it has been made available to the institution for a period of at least five years,

4. the claim to repayment does not, or, under the terms of the agreement, cannot, fall due within less than two years,

5. the agreement governing the contribution of capital in the form of participation rights contains no debtor warrant clauses according to which the reduction in the repayment claim caused by losses during the period to maturity of the contribution can be offset by profits which arise more than four years after the repayment claim has matured, and

6. the institution, when concluding the agreement, referred explicitly and in writing to the legal consequences specified in sentences 3 and 4. The institution may reserve the right to terminate the liability without notice in the event that a change in taxation gives rise to additional payments to the party acquiring the participation rights. Subsequently, participation in any loss cannot be changed to the detriment of the institution, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Except in the cases described in sentence 6, any premature reacquisition of the participation rights or other repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment; the institution may reserve such a right contractually. If securities are issued in respect of the participation rights, the legal consequences specified in sentences 3 and 4 shall be specified in the subscription and issue terms only. An institution may purchase securitised participation rights issued by itself up to three per cent of the total nominal amount of an issue, for market-smoothing purposes, or if it is thereby carrying out instructions to buy on a commission basis. The Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified immediately of an institution’s intention to take advantage of the market-smoothing option in accordance with sentence 6.

(5a) Capital which has been paid up by virtue of the incurrence of subordinated liabilities shall be counted towards the liable capital as longer-term subordinated liabilities if

1. it has been agreed that in the event of the initiation of insolvency proceedings over the institution’s assets or of the institution’s liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,2. it has been made available to the institution for a period of at least five years, and

3. offsetting the repayment claim against claims of the institution is excluded and no contractual collateral for the liabilities is provided by the institution or third parties.

If the claim to repayment falls, or, under the terms of the agreement, can fall, due within less than two years, only two-fifths of the liabilities are counted as part of the liable capital. The institution may reserve the right to terminate the liability without notice in the event that a change in taxation gives rise to additional payments to the party acquiring the subordinated claims. Subsequently, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Except in the cases described in sentence 6, any premature reacquisition of the claim or other repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other liable capital of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment; the institution may reserve such a right contractually. An institution may purchase securitised subordinated liabilities issued by itself up to three per cent of the total nominal amount of an issue, for market-smoothing purposes, or if it is thereby carrying out instructions to buy on a commission basis. The Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified immediately of an institution’s intention to take advantage of the market-smoothing option in accordance with sentence 6. Upon conclusion of the agreement, the institution shall refer explicitly and in writing to the legal consequences specified in sentences 4 and 5; if securities are issued in respect of the subordinated liabilities, the aforementioned legal consequences shall be specified in the subscription and issue terms only. Section 11 number 3 of the Act to Regulate the Law Governing General Terms and Conditions (Gesetz zur Regelung des Rechts der Allgemeinen Ge- schäftsbedingungen) concerning the ban on netting does not apply to claims arising from the institution’s subordinated liabilities. No designation may be used for subordinated liabilities, or for advertising for subordinated liabilities, which contains the word “saving”, or which is otherwise liable to deceive as to the subordinated status in the event of the initiation of insolvency proceedings or liquidation; this does not apply, however, insofar as a credit institution uses its firm-name as protected under section 40. In deviation from sentence 1 number 3, an institution may provide subordinated collateral for subordinated liabilities incurred by a subsidiary of the institution that was established for the sole purpose of raising capital.

(6) The following shall be deducted from the sum of core and additional capital:

1. participating interests in institutions, other than investment companies, and financial enterprises amounting to more than ten per cent of the capital of these enterprises; at the request of the institution, the Federal Banking Supervisory Office may permit exceptions if the institution temporarily holds participating interests in another institution or a financial enterprise in order to give financial support to that enterprise;2. claims arising from subordinated liabilities within the meaning of subsection (5a) on institutions, other than investment companies, and financial enterprises in which the institution holds more than ten per cent of these enterprises’ capital;

3. claims arising from participation rights in respect of enterprises pursuant to number 2;

4. assets contributed by silent partners to enterprises pursuant to number 2;

5. the total amount of the following participating interests and claims insofar as it exceeds ten per cent of the institution’s liable capital before deduction of the amounts pursuant to numbers 1 to 4 and pursuant to this number:

(a) participating interests in institutions, other than investment companies, and financial enterprises amounting to not more than ten per cent of these enterprises’ capital;

(b) claims arising from subordinated liabilities on institutions, other than investment companies, and financial enterprises in which the institution holds no participating interest or in which the participating interest amounts to not more than ten per cent of these enterprises’ capital;

(c) claims arising from participation rights in respect of enterprises pursuant to letter (b);

(d) assets contributed by silent partners to enterprises pursuant to letter (b). Participating interests which an institution or its parent enterprise is required to include in the consolidation pursuant to section 10a, pursuant to section 13b (3) sentence 1 and – with respect to the stock of participating interests existing on January 1, 1993 (subject to section 64a) – pursuant to section 12 (2) sentences 1 and 2, need not be deducted from its liable capital. This provision applies as appropriate to the participating interests which the institution or its parent enterprise voluntarily includes in the consolidation pursuant to section 10a, pursuant to section 13b (3) sentence 1 and – with respect to the stock of parti- cipating interests existing on January 1, 1993 (subject to section 64a) – pursuant to section 12 (2) sentences 1 and 2, or which it consolidates voluntarily in accordance with these provisions.

(7) Capital which has been paid up by virtue of the incurrence of subordinated liabilities shall be counted towards tier 3 capital as short-term subordinated liabilities if

1. it has been agreed that, in the event of the initiation of insolvency proceedings over the institution’s assets or of the institution’s liquidation, it will not be repaid until all non-subordinated creditors have been satisfied,2. it has been made available to the institution for a period of at least two years,

3. offsetting the repayment claim against claims of the institution is expressly excluded and expressly no contractual collateral for the liabilities is provided by the institution or third parties, and

4. it is expressly stated in the terms of the contract that

(a) neither repayments of principal nor payments of interest in respect of the liability need to be made if this would imply that the institution’s own funds would no longer meet the statutory requirements, and

(b) premature repayments of principal or payments of interest made by the institution shall be returned to it, notwithstanding any arrangements to the contrary. Subsequently, the subordination of claims cannot be limited, and neither the period to maturity nor the period of notice can be shortened. Except in the cases described in sentence 5, any premature reacquisition of the claim or other repayment shall be returned to the institution, notwithstanding any arrangements to the contrary, unless the capital has been replaced by the inpayment of other own funds of at least equivalent status or the Federal Banking Supervisory Office has agreed to the premature repayment; the institution may reserve such a right contractually. Upon conclusion of the agreement, the institution shall refer explicitly and in writing to the legal consequences specified in sentences 2 and 3; if securities are issued in respect of the subordinated liabilities, the aforementioned legal consequences shall be specified in the subscription and issue terms only. An institution may purchase securitised subordinated liabilities issued by itself up to three per cent of the total nominal amount of an issue, for market-smoothing purposes, or if it is thereby carrying out instructions to buy on a commission basis. The Federal Banking Supervisory Office and the Deutsche Bundesbank shall be notified immediately of an institution’s intention to take advantage of the market-smoothing option in accordance with sentence 5. An institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if its own funds fall below one hundred and twenty per cent of the sum total of the appropriate own funds pursuant to subsection (1) sentence 1 on account of repayments of principal or payments of interest in respect of the short-term subordinated liabilities.

(8) An institution shall report immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank pursuant to sentence 2 those loans which are to be deducted in accordance with subsection (2a) sentence 2 number 4 or 5. It must also specify the collateral provided and the terms of the loans. Such loans which it has reported pursuant to sentence 1 shall be reported immediately once again to the Federal Banking Supervisory Office and the Deutsche Bundesbank if the collateral provided or the terms of the loans are changed by a legal transaction, together with the corresponding changes. The Federal Banking Supervisory Office may require institutions to submit to itself and to the Deutsche Bundesbank every five years a summary report of the loans to be reported in accordance with sentence 1.

(9) A securities trading firm must have own funds amounting at least to one-quarter of its costs shown in the profit and loss account of the last set of annual accounts under general administrative expenses, depreciation of tangible and intangible fixed assets and value adjustments. If a set of annual accounts has not yet been drawn up for the first full financial year, the corresponding estimates for these items contained in the business plan for the current year shall be indicated. The Federal Banking Supervisory Office may raise the requirements pursuant to sentences 1 and 2 if this appears appropriate in view of an expansion of the institution’s business activity.

10a. Own funds of groups of institutions and financial holding groups

(1) A group of institutions or a financial holding group (group), taken as a whole, must have adequate own funds. Section 10 on the own funds of individual institutions applies as appropriate.

(2) For the purposes of this provision, a group of institutions consists of the parent enterprise domiciled in Germany and the subordinated enterprises (enterprises belonging to the group). For the purposes of this provision, subordinated enterprises are the subsidiaries of an institution which themselves are institutions, financial enterprises or ancillary banking services enterprises. The parent enterprise of the group is the institution which is not subordinated to any other institution domiciled in Germany. If, in the case of mutual cross-shareholdings, no institution within the group meets this condition, the Federal Banking Supervisory Office shall determine which is to be deemed the group’s parent enterprise. If only ancillary banking services enterprises are subordinated to an institution, a group of institutions is deemed not to exist.

(3) For the purposes of this provision, a financial holding group is deemed to exist if a financial holding company domiciled in Germany has subordinated enterprises within the meaning of subsection (2) sentence 2, of which at least one deposit-taking credit institution or securities trading firm domiciled in Germany is a subsidiary of the financial holding company, unless the financial holding company for its part

1. is a subsidiary of a deposit-taking credit institution, a securities trading firm or a financial holding company domiciled in Germany, or2. is a subsidiary of a deposit-taking credit institution or a securities trading firm domiciled in another state of the European Economic Area. If the financial holding company is domiciled in another state of the European Economic Area, a financial holding group is deemed to exist, subject to sentence 1 numbers 1 and 2, if

1. at least one deposit-taking credit institution or securities trading firm domiciled in Germany is a subsidiary of the financial holding company, and if neither a deposit- taking credit institution nor a securities trading firm domiciled in the financial holding company’s country of domicile is a subsidiary of the financial holding company, and

2. the deposit-taking credit institution or the securities trading firm domiciled in Germany has a larger balance sheet total than any other deposit-taking credit institution that is a subsidiary of the financial holding company and than any other securities trading firm that is a subsidiary of the financial holding company which are domiciled in another state of the European Economic Area; in the event of identical balance sheet totals, the domicile at which the licence was granted first shall take precedence. In the case of a financial holding group, that deposit-taking credit institution or securities trading firm belonging to the group and domiciled in Germany which itself is not subordinated to any other institution belonging to the group and domiciled in Germany is deemed to be the parent enterprise. If several deposit-taking credit institutions or securities trading firms domiciled in Germany satisfy these requirements, or – in the case of mutual cross-shareholdings – no institution domiciled in Germany satisfies these requirements, the Federal Banking Supervisory Office shall determine which is to be deemed the group’s parent enterprise.

(4) Institutions, financial enterprises or ancillary banking services enterprises domiciled in Germany or abroad are likewise deemed to be subordinated enterprises if an enterprise belonging to the group holds directly or indirectly at least twenty per cent of the capital shares in such an enterprise, if it manages the institutions or enterprises together with other enterprises and if it is liable for the obligations of those institutions or enterprises up to the amount of its capital shares. Directly or indirectly held capital shares and capital shares held by a third party for the account of an enterprise belonging to the group shall be aggregated. Indirectly held capital shares shall be disregarded if they are mediated by an enterprise which is not a subsidiary of the parent institution or of the financial holding company. That also applies as appropriate to indirectly held capital shares which are mediated by more than one enterprise. Voting rights are equivalent to capital shares. Section 16 (2) and (3) of the Companies Act applies as appropriate.

(5) Investment companies are deemed not to be subordinated enterprises.

(6) Whether or not enterprises belonging to a group, taken as a whole, have adequate own funds shall be determined on the basis of a consolidation of their own funds, including the shares of other partners and the other items relevant under the Principles in accordance with subsection (1) sentence 2, read in conjunction with section 10 (1) sentence 2; in the case of enterprises belonging to a group, the items corresponding to those recognised under section 10 are deemed to be own funds. For the consolidation, the parent enterprise shall combine its relevant items with those of the other enterprises belonging to the group. The following shall be deducted from the own funds to be consolidated in accordance with sentence 2:

1. the book values, as shown by the parent enterprise and the other enterprises belonging to the group (and accounted for by the enterprises belonging to the group),

(a) of the capital shares,(b) of the assets contributed by silent partners in accordance with section 10 (4) sentence 1,

(c) of the participation rights in accordance with section 10 (5) sentence 1,

(d) of the longer-term subordinated liabilities in accordance with section 10 (5a) sentence 1, and

(e) of the short-term subordinated liabilities in accordance with section 10 (7) sentence 1, as well as

2. the unrealised reserves included by the parent enterprise or another enterprise belonging to the group in accordance with section 10 (2b) sentence 1 numbers 6 and 7, insofar as they are accounted for by enterprises belonging to the group. The capital shares, but subject to the provision concerning the capitalised consolidation difference in accordance with sentences 6 and 7, and the assets contributed by silent partners shall be deducted from the core capital, the longer-term subordinated liabilities from the additional capital components as specified in section 10 (2b) sentence 3, the liabilities represented by participation rights and the unrealised reserves from the sum total of the additional capital components, in each case before the capping specified in section 10 (2b) sentences 2 and 3, and the short-term subordinated liabilities from the tier 3 capital as specified in section 10 (2c) sentence 1, before the capping specified in section 10 (2c) sentences 2 and 4. In the case of participating interests mediated by enterprises not belonging to the group, such book values and unrealised reserves shall be deducted on a pro rata basis to the extent of the share which corresponds to the arithmetical capital share. If the book value of a participating interest is higher than the pro rata share of the capital and the reserves of the subordinated enterprise to be consolidated in accordance with sentence 2, the parent enterprise shall deduct the difference in equal parts from the group’s core capital and additional capital. The capitalised consolidation difference may be treated as a participating interest in an enterprise outside the group, with an amount that decreases by at least one-tenth each year. The items which derive from the legal relationships between enterprises belonging to the group shall be disregarded. Market-risk positions of different enterprises belonging to a group cannot be netted with one another, unless the enterprises are included in the parent enterprise’s central risk management system, the own funds are appropriately distributed across the group and, in the case of subordinated enterprises domiciled in non-EEA countries, it is ensured that the local legal and administrative regulations do not hinder the free transfer of capital to other enterprises belonging to the group. The Federal Ministry of Finance, acting in consultation with the Deutsche Bundesbank, may issue supplementary provisions by regulation, in particular also in order to specify in greater detail the application of regulations concerning trading book business within the group, the requirements that the parent enterprise’s central risk management system must satisfy and the appropriateness of the distribution of own funds within the group and to issue more detailed provisions concerning the offsetting of positions subject to market risk. The Federal Ministry of Finance may delegate by regulation this authority to the Federal Banking Supervisory Office subject to the condition that the regulation must be issued in agreement with the Deutsche Bundesbank. The central associations of the institutions shall be consulted prior to the issue of such regulation.

(7) In the case of subordinated enterprises which are not subsidiaries, the parent enterprise shall consolidate its own funds and the other relevant items under the Principles in accordance with subsection (1) sentence 2, read in conjunction with section 10 (1) sentence 2, with the own funds and the other relevant items of the subordinated enterprises on a pro rata basis in each case, in the amount of the share corresponding to its capital share in the subordinated enterprise. For the rest, subsection (6) applies.

(8) The parent enterprise is responsible for ensuring that the group has adequate own funds. To fulfil its obligations in accordance with sentence 1, it may, however, exercise an influence over enterprises belonging to the group only insofar as this does not contravene current company law. Section 10 (1) sentence 4 applies as appropriate.

(9) The enterprises belonging to the group shall set up a proper organisation and appropriate internal monitoring procedures to ensure that the data required for the con- solidation in accordance with subsections (6) and (7) are duly processed and passed on. They are required to transmit the data needed for the consolidation to the parent enterprise. If a parent enterprise is unable to obtain the requisite data relating to individual enterprises belonging to the group, the book values specified in subsection (6) sentence 3 accounted for by the enterprise belonging to the group shall be deducted from the own funds of the parent enterprise.

(10) Subsections (1) and (6) to (8) do not apply to a parent enterprise which itself is subordinated to an institution domiciled in Germany to which subsections (1) and (6) to (8) apply.

11. Liquidity

Institutions must invest their funds in such a way as to ensure that adequate liquidity for payment purposes is guaranteed at all times. The Federal Banking Supervisory Office, acting in agreement with the Deutsche Bundesbank, draws up Principles by which it as- sesses in the normal case whether an institution’s liquidity is adequate; the central associations of the institutions shall be consulted beforehand. The Principles shall be published in the Federal Gazette. The Principles shall conform to the definition of savings deposits, and particularly of a passbook, given in the Regulation on the Accounting of Institutions (Verordnung über die Rechnungslegung der Institute), which to this extent is subject to the approval of the Deutscher Bundestag. Institutions shall submit at monthly intervals to the Federal Banking Supervisory Office and the Deutsche Bundesbank the data needed in accordance with the Principles for assessing liquidity.

12. Limitation of qualified participating interests

(1) A deposit-taking credit institution may not hold a qualified participating interest whose share in the nominal capital, in terms of the amount, exceeds fifteen per cent of its liable capital in an enterprise which is neither an institution, a financial enterprise or an insurance enterprise nor an ancillary banking services enterprise. A deposit-taking credit institution may not hold qualified participating interests whose aggregate share in the nominal capital, in terms of the amount, exceeds sixty per cent of its liable capital in enterprises described in sentence 1. Shares in the capital which are not intended to serve the institution’s own business operations by creating lasting ties shall not be included in the computation of the level of the qualified participating interest. The deposit-taking credit institution may exceed the limits laid down in sentence 1 or 2 with the approval of the Federal Banking Supervisory Office. The Federal Banking Supervisory Office may grant such approval only if the deposit-taking credit institution backs that part of the participating interests that exceeds the limit by liable capital; if both the limits are exceeded, the larger amount shall be backed by liable capital.

(2) An institution which is a parent enterprise of a group (section 10a (2) or (3)) that includes at least one deposit-taking credit institution shall ensure that the group does not hold qualified participating interests in an enterprise within the meaning of subsection (1) sentence 1 whose share in the nominal capital, in terms of the amount, exceeds fifteen per cent of the group’s liable capital. It shall further ensure that the group in the aggregate does not hold qualified participating interests in enterprises within the meaning of subsection (1) sentence 1 whose share in the nominal capital, in terms of the amount, exceeds sixty per cent of the group’s liable capital. Subsection (1) sentence 3 applies. The institution may allow the group to exceed the limits laid down in sentence 1 or 2 with the approval of the Federal Banking Supervisory Office. The Federal Banking Supervisory Office may grant such approval only if the institution backs that part of the participating interests that exceeds the limit by the group’s liable capital; if both the limits are exceeded, the larger amount shall be backed by the group’s liable capital.

12a. Establishment of corporate ties

(1) An institution or a financial holding company, when acquiring a participating interest in an enterprise domiciled abroad, or when establishing corporate ties with such an enterprise by virtue of which the enterprise becomes a subordinated enterprise within the meaning of section 10a (2) to (5) or section 13b (2), shall ensure that it or, in the case of a financial holding company, the parent enterprise responsible for the consolidation receives the data required for discharging the various duties specified in sections 10a, 13b and 25 (2). Sentence 1 does not apply to the data required for discharging the duties specified in sections 10a and 13b if due account is taken of the risk arising from the establishment of the participating interest or from the corporate ties by the deduction of the book values, to be effected pursuant to section 10a (9) sentence 3 in a way comparable to the consolida- tion in accordance with section 10a (6) or (7) and section 13b (3), and if the Federal Banking Supervisory Office is enabled to monitor compliance with this condition. The institution or the financial holding company shall report the establishment, modification or discontinuation of a participating interest or of corporate ties, as specified in sentence 1, to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately.

(2) The Federal Banking Supervisory Office may prohibit the continuation of the participating interest or of the corporate ties if the parent enterprise does not receive the data required for discharging the duties specified in sections 10a, 13b or 25 (2). The exception pursuant to subsection (1) sentence 2 applies as appropriate to the powers of prohibition conferred by sentence 1.

Division 2. Lending business

13. Large exposures of non-trading book institutions

(1) An institution which is exempted from the provisions relating to trading book business pursuant to section 2 (11) (non-trading book institution) shall notify the Deutsche Bundesbank immediately if its exposures to a single borrower in the aggregate amount to or exceed ten per cent of its liable capital (large exposure). The regulation pursuant to section 24 (4) sentence 1 may provide for the possibility of regular summary reports instead of an immediate report stipulated in sentence 1. The Deutsche Bundesbank passes on these reports, together with its comments, to the Federal Banking Supervisory Office; the latter may waive its right to the have certain reports forwarded to it.

(2) Without prejudice to the validity of the transactions, a non-trading book institution or- ganised in the form of a legal person or partnership may incur a large exposure only by virtue of a unanimous decision by all its managers. The decision should be taken before the exposure is incurred. If in individual cases this is impossible because of the urgency of the transaction, the decision shall be taken immediately afterwards. The decision shall be placed on record. If the large exposure has been incurred without a prior unanimous decision by all the managers and if such decision has not been retrospectively made within one month after the exposure has been incurred, the non-trading book institution shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank. If an exposure already incurred becomes a large exposure owing to a reduction in the liable capital, this exposure may continue, without prejudice to the validity of the transaction, only by virtue of a unanimous decision to be taken immediately by all its managers. The decision shall be placed on record. If the decision has not been retrospectively taken within one month after the point in time at which the exposure became a large exposure, the non- trading book institution shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank.

(3) Without prejudice to the validity of the transactions, a non-trading book institution may not incur exposures to a single borrower, without the approval of the Federal Banking Supervisory Office, which in the aggregate exceed twenty-five per cent of the liable capital of the non-trading book institution (individual large exposure limit). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the non-trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if the individual large exposure limit is exceeded and shall back the amount by which the large exposure exceeds the individual large exposure limit by liable capital. Exposures to an affiliated enterprise that neither belongs to a group within the meaning of section 13b (2) nor is consolidated by the appropriate authorities of another state of the European Economic Area as provided in Council Directive 92/121/EEC of December 21, 1992 on the monitoring and control of large exposures of credit institutions (Official Journal of the European Communities 1993 No. L 29, page 1) (Large Exposures Directive) may not exceed, without the approval of the Federal Banking Supervisory Office, twenty per cent of the non-trading book institution’s liable capital. Sentence 2 applies as appropriate. The non-trading book institution shall ensure that all large exposures in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its liable capital (overall large exposure limit). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the non-trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately if the overall large exposure limit is exceeded and shall back the amount by which its large exposures in the aggregate exceed the overall large exposure limit by liable capital. A non- trading book institution which exceeds both the individual large exposure limit with respect to one or more borrowers and the overall large exposure limit shall back only the larger amount by which the respective limit is exceeded by liable capital. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion. In exceptional circumstances the Federal Banking Supervisory Office may temporarily exempt a non-trading book institution from the requirement to back the excessive amount by liable capital in accordance with sentence 2, also read in conjunction with sentence 4, if the limit was exceeded due to the merging of borrowers or comparable occurrences and this could not have been anticipated by the non-trading book institution. (4) Subsections (1) and (2) also apply to general credit lines committed, provided that the reports required under subsection (1) are to be filed on the dates specified by a regulation in accordance with section 24 (4) sentence 1.

13a. Large exposures of trading book institutions

(1) An institution which is not exempted from the provisions relating to trading book business pursuant to section 2 (11) (trading book institution) shall report large exposures as defined in sentence 3 to the Deutsche Bundesbank. Section 13 (1) sentence 3 applies as appropriate. A trading book institution has incurred a large exposure from overall business if the sum total of all its exposures to a single borrower (individual total position from overall business) amounts to or exceeds ten per cent of the institution’s own funds; a trading book institution has incurred a large exposure from banking book business if the sum total of its exposures to a single borrower excluding the individual total position from trading book business (individual total position from banking book business) amounts to or exceeds ten per cent of the institution’s liable capital. The individual total position from trading book business comprises all exposures to a single borrower that are assigned to the trading book.

(2) Section 13 (2) concerning the unanimous decision for large exposures incurred by non-trading book institutions applies as appropriate to trading book institutions.

(3) Without prejudice to the validity of the transactions, a trading book institution shall ensure that the individual total position from banking book business does not exceed, without the approval of the Federal Banking Supervisory Office, twenty-five per cent of its liable capital (individual large exposure limit for banking book business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the individual large exposure limit for banking book business is exceeded and shall back the amount by which the limit is exceeded by liable capital. The individual total position from banking book business vis-à-vis an affiliated enterprise within the mean- ing of section 13 (3) sentence 3 may not exceed, without the approval of the Federal Banking Supervisory Office, twenty per cent of the trading book institution’s liable capital. Sentence 2 applies as appropriate. The trading book institution shall ensure that all large exposures from banking book business in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its liable capital (aggregate large exposure limit for banking book business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the aggregate large exposure limit for banking book business is exceeded and shall back the amount by which the limit is exceeded by liable capital. Section 13 (3) sentence 7 applies as appropriate. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion. Section 13 (3) sentence 9 applies as appropriate.

(4) The trading book institution shall ensure that the individual total position from overall business does not exceed, without the approval of the Federal Banking Supervisory Office, twenty-five per cent of its own funds (individual large exposure limit for overall business).

Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the individual large exposure limit for overall business is exceeded and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. The individual total position from overall business vis-à-vis an affiliated enterprise within the meaning of section 13 (3) sentence 3 may not exceed twenty per cent of the trading book institution’s own funds. Sentence 2 applies as appropriate. The trading book institution shall ensure that all large exposures from overall business in the aggregate do not exceed, without the approval of the Federal Banking Supervisory Office, eight hundred per cent of its own funds (aggregate large exposure limit for overall business). Irrespective of whether the Federal Banking Supervisory Office grants its approval, the trading book institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank if the aggregate large exposure limit for overall business is exceeded and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. Section 13 (3) sentence 7 applies as appropriate. The Federal Banking Supervisory Office may grant approval in accordance with sentences 1, 3 and 5 at its own discretion; approval as laid down in sentence 1 or 3 shall be deemed not to have been granted if the individual total position from banking book business exceeds the relevant limit as laid down in subsection (3) sentence 1 or 3.

(5) Even if the limit laid down in subsection (4) sentence 1 or 3 is exceeded with the approval of the Federal Banking Supervisory Office, the individual total position from trading book business of a trading book institution may not exceed five hundred per cent of that portion of the trading book institution’s own funds that are not required for the purpose of backing risks arising from banking book business. If this limit is exceeded, the trading book institution shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1. All individual total positions from overall business which exceed the limit laid down in subsection (4) sentence 1 or 3 for more than ten days may not exceed in the aggregate, after deducting the amounts that do not exceed these limits (aggregate excess position), six hundred per cent of that portion of the trading book institution’s own funds that are not required for the purpose of backing risks arising from banking book business. If this limit is exceeded, the trading book institution shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank and shall back the amount by which the limit is exceeded by own funds as laid down in the regulation pursuant to section 22 sentence 1.

(6) Subsections (1) and (2) also apply to general credit lines committed, provided that the reports required under subsection (1) are to be filed on the dates specified by a regulation in accordance with section 24 (4) sentence 1.

13b. Large exposures of groups of institutions and of financial holding groups

(1) Section 13 (1), (3) and (4) and section 13a (1) and (3) to (6) on large exposures incurred by individual institutions apply as appropriate to the exposures incurred in the aggregate by the enterprises belonging to a group of institutions or a financial holding group.

(2) For the definition of a group within the meaning of this provision, section 10a (2) to (5) applies as appropriate.

(3) Whether or not enterprises belonging to a group have in the aggregate incurred a large exposure and are complying with the limits specified in sections 13 and 13a shall be determined by virtue of a consolidation of their own funds, including the shares of other partners, and the exposures to a single borrower, if, vis-à-vis one of the enterprises belonging to the group, the individual total position from overall business incurred by that enterprise amounts to or exceeds five per cent of its liable capital. Section 10a (6) sen- tences 2 to 15 and (7) applies as appropriate.

(4) The parent enterprise shall satisfy the reporting requirements in accordance with subsection (1), read in conjunction with sections 13 and 13a. It is responsible for ensuring that the enterprises belonging to the group, taken as a whole, comply with the limits specified in sections 13 and 13a. To fulfil its obligations in accordance with sentence 2, it may, however, exercise an influence over enterprises belonging to the group only insofar as this does not contravene current company law.

(5) Section 10a (9) and (10) applies as appropriate.

14. Loans of three million Deutsche Mark or more

(1) A credit institution, a financial services institution within the meaning of section 1 (1a) sentence 2 number 4 and a financial enterprise within the meaning of section 1 (3) sentence 1 number 2 shall report to the Deutsche Bundesbank by the fifteenth day of January, April, July and October those borrowers whose indebtedness to them amounted to three million Deutsche Mark or more at any time during the three calendar months preceding the reporting date. At the same time, parent enterprises within the meaning of section 13b (2) shall report in respect of the enterprises belonging to the group within the meaning of section 13b (2) these enterprises’ borrowers within the meaning of sentence 1, which is to be applied as appropriate. This does not apply insofar as those enterprises are themselves required to submit reports pursuant to sentence 1. Those enterprises belong- ing to the group which are not themselves required to submit reports pursuant to sentence 1 shall transmit the requisite data to the parent enterprise. In the case of syndicated loans of three million Deutsche Mark or more, sentence 1 applies even if the share of the individual enterprise does not amount to three million Deutsche Mark. The report must indicate the amount drawn down by the borrower as of the reporting date. Section 13 (1) sentence 3 applies as appropriate.

(2) If it is found that loans of three million Deutsche Mark or more have been granted to a single borrower by more than one enterprise, the Deutsche Bundesbank shall notify the reporting enterprises. The notification may indicate only the total indebtedness of the borrower and the number of enterprises involved. In the notification, the indebtedness to the lenders involved shall be broken down into

1. loans within the meaning of section 19 (1) sentence 2,2. derivatives that are loans within the meaning of section 19 (1) sentence 1,

3. loans within the meaning of section 19 (1) sentence 3 numbers 3 to 5, 7, 9 and 12,

4. loans which are guaranteed or secured in some other way by the Federal Government, a Federal special fund, a Land Government, a local authority or a local authority association (publicly guaranteed loans),

5. loans which satisfy the conditions of sections 11 and 12 (1) and (2) of the Mortgage Bank Act (mortgage loans),

6. loans within the meaning of section 20 (3) sentence 2 number 2, and

7. loans within the meaning of section 19 (1) sentence 2 number 9 and claims arising from the purchase of money claims.

The Deutsche Bundesbank will notify the indebtedness of a customer to an enterprise required to submit reports upon the latter’s request if the enterprise intends to grant that customer a loan of three million Deutsche Mark or more or to increase a loan that has already been granted to three million Deutsche Mark or more and the customer has given his assent to such notification. Persons employed by an enterprise required to submit reports may not disclose to third parties information notified to the enterprise under this subsection and may not exploit such information.

(3) If pursuant to section 19 (2) several debtors are deemed to be a single borrower, the indebtedness of the individual debtors shall also be indicated in the reports in accordance with subsection (1). In the notification pursuant to subsection (2), the total indebtedness of the debtors deemed to be a single borrower shall be stated. The indebtedness of individual debtors shall be notified only to those enterprises which themselves, or whose subordinated enterprises within the meaning of subsection (1) sentences 3 and 4, have incurred exposures to these debtors.

(4) After the conclusion of international agreements or after the entry into force of a Directive of the European Communities on credit reports within the meaning of this provision, the Deutsche Bundesbank is authorised to forward the reports specified in subsection (1) in the aggregated form provided for in subsection (2) sentences 2 and 3 to the agencies named in the international agreement or in the Directive of the European Communities for notification to the enterprises concerned that are domiciled abroad, and also to notify the enterprises concerned in accordance with subsection (2) about the indebtedness of borrowers to enterprises domiciled abroad.

15. Loans to managers, etc.

(1) Loans to

1. managers of the institution,2. partners (Gesellschafter) of the institution who are not managers if the institution is organised in the form of a partnership or private limited company, and general partners of an institution who are not managers if the institution is organised in the form of a limited company with one or more general partners,

3. members of a body of the institution appointed to supervise the conduct of its business if the supervisory powers of the body are regulated by law (supervisory body),

4. holders of a special statutory authority (Prokuristen), and agents of the institution with authority to represent it in all aspects of its business (zum gesamten Geschäftsbetrieb ermächtigte Handlungsbevollmächtigte),

5. spouses and under-age children of the persons specified in numbers 1 to 4,

6. silent partners of the institution,

7. enterprises organised in the form of a legal person or partnership if a manager, a holder of a special statutory authority or an agent of the institution with authority to represent it in all aspects of its business is a legal representative or a member of the supervisory body of the legal person or a partner in the partnership,

8. enterprises organised in the form of a legal person or partnership if a legal repres- entative of the legal person, a partner in the partnership, a holder of a special statutory authority or an agent of the enterprise with authority to represent it in all aspects of its business is a member of the supervisory body of the institution,

9. enterprises in which the institution or a manager holds a participating interest amounting to more than ten per cent of the enterprise’s capital or in which the institution or a manager is a general partner,

10. enterprises which hold a participating interest in the institution amounting to more than ten per cent of its capital, and

11. enterprises organised in the form of a legal person or partnership if a legal representative of the legal person or a partner in the partnership holds a participating interest in the institution amounting to more than ten per cent of its capital, may be granted only by virtue of a unanimous decision by all managers of the institution, and only with the explicit approval of the supervisory body. A participating interest within the meaning of sentence 1 numbers 9 to 11 is deemed to be any holding of shares in the enterprise amounting to not less than one-quarter of the capital (nominal capital, total amount of capital shares), irrespective of the duration of the holding. The authorisation of withdrawals in excess of the remuneration due to a manager or a member of the supervisory body, and in particular the authorisation of advances on such remuneration, are deemed to be equivalent to the granting of a loan.

(2) Subsection (1) applies as appropriate to the granting of loans to general partners, managers, members of the executive board or supervisory body, holders of a special statutory authority and agents of an enterprise dependent on or controlling the institution with authority to represent the enterprise in all aspects of its business, as well as to their spouses and under-age children. In such cases the explicit approval of the supervisory body of the controlling enterprise must have been given.

(3) Subsections (1) and (2) do not apply to

1. loans to holders of a special statutory authority or to agents of an institution with authority to represent it in all aspects of its business, or to their spouses and under-age children, if the loan does not exceed one annual salary of the holder of the special statutory authority or of the agent of the institution with authority to represent it in all aspects of its business,2. loans to the persons or enterprises specified in subsection (1) sentence 1 numbers 6 to 11, if the loan amounts to less than one per cent of the liable capital of the institution or to less than one hundred thousand Deutsche Mark, and

3. loans which are increased by not more than ten per cent of the amount approved in accordance with subsection (1) sentence 1.

(4) The decision by the managers and the decision on approval shall be taken before the loan is granted. The decisions must include provisions on the interest payable on, and the repayment of, the loan. They shall be placed on record. If a loan to be granted pursuant to subsection (1) sentence 1 numbers 6 to 11 is urgent, it is sufficient if all the managers and the supervisory body approve the granting of the loan immediately afterwards. If the decision by the managers has not been taken within two months, or if the decision by the supervisory body has not been taken within four months, of the date on which the loan was granted, the institution shall report this fact to the Federal Banking Supervisory Office immediately. For certain lending operations and types of lending operations, the decision by the managers and the decision on the approval of loans to the persons specified in subsection (1) sentence 1 numbers 1 to 5 and subsection (2) may be taken in advance, but no more than one year in advance.

(5) If, contrary to the provisions of subsections (1), (2) or (4), a loan is granted to a person specified in subsection (1) sentence 1 numbers 1 to 5 or subsection (2), it shall be repaid immediately, notwithstanding any arrangements to the contrary, unless all the managers and the supervisory body subsequently approve the granting of the loan.

16. (Rescinded)

17. Liability

(1) If a loan is granted contrary to the provisions of section 15, the managers who thereby fail to do their duty and the members of the supervisory body who, in defiance of their duty, take no action to prevent the granting of an intended loan despite having knowledge thereof, are jointly and severally liable to the institution for any loss arising; the managers and the members of the supervisory body have to prove that they did not act culpably.

(2) The institution’s right to compensation may also be asserted by its creditors insofar as they cannot obtain satisfaction from the institution. The li ability to compensate the creditors is not annulled by a waiver or by composition on the part of the institution nor, in the case of institutions organised in the form of a legal person, by the fact that the loan was granted by virtue of a decision by the supreme body of the institution (shareholders’ meeting, general meeting, partners’ meeting).

(3) Claims under subsection (1) are barred under the Statute of Limitations after five years.

18. Information required of borrowers

A credit institution may grant loans to a single borrower amounting in the aggregate to more than five hundred thousand Deutsche Mark only if it requires that borrower to disclose his financial circumstances, in particular by submitting his annual accounts. The credit institution may abstain from doing so if, in the light of the collateral provided or of the co-obligors, there is manifestly no reason to require such disclosure. The credit institution may abstain from ongoing disclosure if

1. the loan is secured by mortgages on residential property that is used by the borrower himself,2. the loan does not exceed four-fifths of the loan value of the pledged property within the meaning of section 12 (1) and (2) of the Mortgage Bank Act, and

3. the borrower regularly effects the interest payments and principal repayments owed by him.

Disclosure is not required in the case of loans to a foreign public authority within the meaning of section 20 (2) number 1 (b) to (d).

19. The concepts of “exposure” in sections 13 to 14, and of “borrower”

(1) For the purposes of sections 13 to 14, exposures are asset items, derivatives (other than written option positions) and the guarantees assumed in respect thereof, and other off-balance-sheet transactions. Asset items within the meaning of sentence 1 are:

1. balances with central banks and postal giro offices,2. debt instruments issued by public authorities and bills of exchange eligible for refinancing at central banks,

3. items in the course of collection, for which the relevant payments have already been advanced,

4. loans and advances to credit institutions and customers (including the trade receivables of credit institutions conducting business in goods),

5. debt securities and other fixed-income securities, unless they evidence titles coming under the derivatives specified in sentence 1,

6. shares and other non-fixed-income securities, unless they evidence titles coming under the derivatives specified in sentence 1,

7. participating interests,

8. shares in affiliated enterprises,

9. assets in respect of which the lessor has concluded leasing contracts, irrespective of how they are shown in the balance sheet, and

10. other assets, insofar as they are subject to a counterparty risk.

For the purposes of sentence 1, the following are deemed to be other off-balance-sheet transactions:

1. bills of exchange in circulation drawn by the bank, discounted and credited to borrowers,2. endorsement liabilities arising from rediscounted bills,

3. guarantees and warranties in respect of asset items,

4. performance bonds and other guarantees and warranties other than those specified in number 3, unless they relate to the derivatives specified in sentence 1,

5. the issuing and confirmation of letters of credit,

6. unconditional commitments by building and loan associations for the settlement of third-party interim and bridging loans,

7. the liability arising from the provision of collateral for third-party debts,

8. assets deducted from the borrower’s portfolio which the borrower has transferred to a third party subject to an agreement that he shall repurchase them on request,

9. sales of assets with recourse in respect of which the credit risk continues to be borne by the selling institution,

10. assets purchased under outright forward purchase agreements,

11. the forward placing of time deposits,

12. purchase and refinancing commitments,

13. loans committed but not yet drawn down which have an original period to maturity of more than one year and which cannot be terminated by the institution without notice and unconditionally at any time, and

14. loans committed but not yet drawn down which have an original period to maturity of up to one year or which can be terminated by the institution without notice and unconditionally at any time.

(2) For the purposes of sections 10 and 13 to 18, the following are deemed to be a single borrower: two or more natural or legal persons or partnerships which form a unit insofar as one of them can exercise a direct or indirect dominant influence over the other or others, or which, in the absence of such a dominant influence, are to be regarded as a risk unit since their mutual dependencies make it appear likely that, if one of these borrowers encounters financial problems, this will lead to payment difficulties on the part of the others, too. This applies, in particular, in the case of

1. all enterprises belonging to the same group or connected by agreements which provide that one enterprise is required to transfer its entire profit to another, and majority-owned enterprises and the enterprises or persons holding a majority interest in them, other than

(a) the Federal Government, a Federal special fund, a Land Government, a local authority or a local authority association,(b) the European Communities,

(c) foreign central governments,

(d) regional governments and local authorities in other states of the European Economic Area for which a zero weighting has been announced in accordance with Article 7 of Council Directive 89/647/EEC of December 18, 1989 on a solvency ratio for credit institutions (Official Journal of the European Communities No. L 386, page 14) (Solvency Ratio Directive),

2. partnerships and each general partner, and joint associations (Partnerschaften) and each member of a joint association, and3. persons and enterprises for whose account a loan is raised and the parties that raise this loan in their own name.

When applying sections 13 and 13a, sentence 1 does not apply to exposures within a group as defined in section 13b (2) to enterprises which are included in the consolidation pursuant to section 13b (3). Sentence 3 applies as appropriate to exposures to parent enterprises domiciled in another state of the European Economic Area, as well as to those enterprises’ other subsidiaries, if the institution, its parent enterprise and their other subsidiaries are included in the monitoring of large exposures on a consolidated basis, as provided in the Large Exposures Directive, by the appropriate authorities of the other state.

(3) In the case of loans from public promotional resources which the promotional in- stitutions of the Federal and Länder Governments transmit to final borrowers on the basis of autonomous loan agreements via principal bankers, and possibly via further transmission institutions, on predefined terms (principal banker principle), for the institutions concerned, with respect to sections 13 to 13b, the individual final borrowers are deemed to be the borrowers of the interbank loan granted by them if the claims arising from the loan are assigned to them as collateral. This applies as appropriate to subsidised loans granted by the promotional institutions out of their own or public resources in accordance with the principal banker principle (own resources programmes), as well as to loans granted out of non-public funds which a credit institution transmits to final borrowers via principal bankers (and possibly via further transmission institutions), in accordance with statutory provisions.

(4) For the purposes of applying sections 13 to 13b, in the case of loans which central credit institutions transmit to final borrowers via their affiliated regional institutions or via registered cooperative societies or savings banks affiliated thereto, the individual final borrowers are deemed to be the borrowers from the central credit institution if the claims arising from the loan are assigned to the central credit institution as collateral.

(5) In the case of a purchase of money claims, the seller of the claims is deemed to be the borrower within the meaning of sections 13 to 18 if he is liable for the satisfaction of the claim sold or is obliged to repurchase it if the purchaser so demands; in all other cases the debtor is deemed to be the borrower.

(6) If a domestic credit institution or a deposit-taking credit institution domiciled in another state of the European Economic Area is liable as a principal debtor for a loan with a remaining period to maturity of not more than one year to a third party which itself is not such an institution, for the purposes of sections 13 to 14 the domestic credit institution or the deposit-taking credit institution domiciled in another state of the European Economic Area will be deemed to be the borrower instead of the third party.

20. Exceptions to the requirements of sections 13 to 14

(1) For the purposes of sections 13 to 13b, the following are deemed not to be exposures:

1. advance payments in exchange rate transactions which are settled within two business days of the advance payment under the usual clearing procedure;2. advance payments in securities transactions which are settled within five business days of the advance payment under the usual clearing procedure;

3. asset items which are deducted from the liable capital in accordance with section 10 (6) sentence 1 numbers 1 to 4, section 10a (9) sentence 3 or section 13b (5);

4. exposures written off.

(2) In the reports pursuant to section 13 (1), section 13a (1) and section 13b (1), the following shall not be included:

1. exposures to

(a) the Federal Government, the Deutsche Bundesbank, a legally dependent special fund of the Federal Government or of a Land Government, a Land Government, a local authority or a local authority association,(b) the central government or central bank in another zone A country,

(c) the European Communities,

(d) a regional government or a local authority in another state of the European Economic Area for which the weighting “zero” has been announced in accordance with Article 7 of the Solvency Ratio Directive, and

(e) other borrowers insofar as the exposures are explicitly guaranteed by one of the agencie stipulated in letters (a) to (d), and

2. exposures insofar as they are secured by collateral in the form of

(a) securities issued by one of the borrowers specified in number 1,(b) cash deposits with the lending institution, or

(c) certificates of deposit or similar instruments issued by and deposited with the lending institution.

If an exposure, after deducting the amounts that are not to be included pursuant to sentence 1, does not reach the level qualifying as a large exposure in accordance with section 13 (1) sentence 1, also read in conjunction with section 13b (1), the reporting requirement does not apply.

(3) Exposures within the meaning of subsection (2) shall not be included in the com- putation of the amount of exposure for the purposes of the limits in accordance with section 13 (3) and section 13a (3) to (5). The following shall likewise not be included:

1. exposures to a central government or central bank in a zone B country if the exposures are denominated in the currency of the debtor or issuer concerned and have been financed in that currency;2. exposures with remaining periods to maturity of up to one year to credit institutions domiciled in Germany or to deposit-taking credit institutions domiciled in another zone A country; claims of registered cooperative societies on their regional institutions, of savings banks on their regional institutions and of such regional institutions on their central credit institutions which serve liquidity-adjustment purposes within the network may have a longer period to maturity;

3. debt securities which meet the conditions of Article 22 (4) sentences 1 and 2 of the UCITS Directive;

4. exposures secured by mortgages on residential property which is currently or will be in future used or let by the borrower himself, or in respect of which the borrower, as the lessor, has concluded leasing contracts with a purchase option on the part of the lessee, and which remains his property as long as the lessee or tenant has not exercised his purchase option, insofar as such exposures do not exceed fifty per cent of the value of the property and if the value of the property is ascertained every year in accordance with valuation provisions laid down by the Federal Banking Supervisory Office;

5. exposures incurred before January 1, 2002 which satisfy the requirements of section 12 (1) and (2) of the Mortgage Bank Act, unless they exceed fifty per cent of the value of the property.

Legally independent promotional institutions of the Federal Government and the Länder Governments within the meaning of section 5 (1) 2 of the Corporation Tax Act (Körperschaftsteuergesetz) may, in deviation from sentence 2 number 2, apply a weighting of twenty per cent to exposures constituting claims on other credit institutions domiciled in Germany, irrespective of their maturity, when computing the amount of exposure for the purposes of the limit for large exposures in accordance with section 13 (3) and section 13a (3) to (5). If the promotional institution makes use of this weighting option, it shall report the fact to the Federal Banking Supervisory Office and shall continue to make use of the weighting option for a period of at least five years from the date on which the report reaches the Federal Banking Supervisory Office.

(4) Exposures pursuant to subsections (2) and (3) sentence 2 and exposures pursuant to section 19 (1) sentence 3 number 14 shall not be included in the computation of the amount of exposure for the purposes of the overall large exposure limit pursuant to section 13 (3) sentence 5 and section 13a (3) sentence 5, of the extended overall large exposure limit pursuant to section 13a (4) sentence 5, in the computation of the individual total position from trading book business pursuant to section 13a (5) sentence 1 and in the computation of the aggregate excess position pursuant to section 13a (5) sentence 3.

(5) Section 13 (2) and (4) and section 13a (2) and (6) on decisions to incur large exposures do not apply to exposures pursuant to subsections (2) and (3) sentence 2 numbers 2 and 3.

(6) The following are deemed not to be exposures within the meaning of section 14:

1. exposures pursuant to subsection (1) 1, 2 and 4;2. exposures to

(a) the Federal Government, the Deutsche Bundesbank, a legally dependent special fund of the Federal Government or of a Land Government, a Land Government, a local authority or a local authority association,(b) the European Communities,

(c) the European Investment Bank, or

(d) a public-law legal person which is backed by the Federal Government, a Land Government or one of the legal persons specified in letter (a) and which is a non- profit organisation, or a non-profit enterprise owned by the Federal Government, a Land Government or one of the legal persons specified in letter (a);

3. shares in other enterprises, irrespective of how they are shown in the balance sheet;4. securities in the trading portfolio.

21. The concept of “exposure” in sections 15 to 18

(1) For the purposes of sections 15 to 18, the following are deemed to be exposures:

1. money loans of all kinds, money claims purchased, acceptance credits and claims in respect of registered debt securities, other than registered mortgage bonds and communal bonds;2. the discounting of bills of exchange and cheques;

3. money claims arising from a credit institution’s other commercial transactions, other than credit cooperatives’ claims in respect of transactions in goods, unless these claims are prolonged beyond the customary period;

4. an institution’s guarantees and other warranties and an institution’s li ability arising from the provision of collateral for third-party debts;

5. the obligation to meet money claims sold or to buy them back at the purchaser’s request;

6. an institution’s holding of shares in another enterprise amounting to not less than one-quarter of the enterprise’s capital (nominal capital, total amount of capital shares), irrespective of the duration of the holding;

7. assets in respect of which an institution, as the lessor, has concluded leasing contracts, less items formed on account of the settlement or sale of claims arising from such leasing contracts; such an item may be deducted only up to the book value of the respective asset leased.

Any collateral provided to, and balances maintained with, the institution by the borrower are left out of account.

(2) For the purposes of sections 15 to 18, the following are deemed not to be exposures:

1. loans granted to the Federal Government, a legally dependent special fund of the Federal Government or of a Land Government, a Land Government, a local authority or a local authority association;2. unsecured claims on other institutions arising from balances maintained with those institutions and serving the purpose of financial investment only, which fall due within three months at the latest; claims of registered cooperative societies on their regional institutions, of savings banks on their regional institutions, and of such regional institutions on their central credit institutions may fall due later;

3. bills of exchange purchased from other institutions which an institution has accepted, endorsed or issued as promissory notes and which have a period to maturity of not more than three months and are normally traded in the money market;

4. loans written off.

(3) Section 15 (1) sentence 1 numbers 6 to 11 and section 18 do not apply to

1. mortgages;2. loans with periods to maturity not exceeding fifteen years against the provision of ship mortgages if they satisfy the requirements of section 10 (1), (2) sentence 1 and (4) sentence 2, section 11 (1) and (4) and section 12 (1) and (2) of the Ship Mortgage Bank Act;

3. loans granted to a domestic public-law legal person not specified in subsection (2) 1, the European Communities or the European Investment Bank;

4. loans guaranteed by one of the borrowers specified in subsection (2) 1.

(4) Loans arising from the purchase for money of a claim in respect of trading transactions in the context of non-banking business are deemed not to be exposures within the meaning of section 18 if

1. claims on the respective debtor are acquired on a continuous basis,2. the seller of the claim is not answerable for its performance, and

3. the claim falls due within three months after the date on which it was purchased.

22. Authority to issue regulations on exposures

The Federal Ministry of Finance stipulates, by means of a regulation governing large exposures and loans of three million Deutsche Mark or more consistent with the Large Exposures Directive, the Solvency Ratio Directive and the Council Directive 93/6/EEC of March 15, 1993 on the capital adequacy of investment firms and credit institutions – Official Journal of the European Communities No. L 141 page 1 (Capital Adequacy Directive) – to be issued in consultation with the Deutsche Bundesbank, the following:

1. the determination of the credit amounts,2. the determination of the credit equivalent amounts of derivatives, securities repurchase transactions and stock lending transactions and of other comparable business and of the guarantees assumed in connection with such business, and

3. the determination of the total position from trading book business. The regulation may also contain, in keeping with the aforementioned Directives and over and above section 19 (3) to (5) and section 20 (2) to (5), provisions concerning

1. the assignment of exposures to borrowers,

2. the counting of exposures towards the large exposure limits and within the framework of reports on loans of three million Deutsche Mark or more, and

3. the decision-making requirements that are to be complied with in connection with the incurrence of large exposures.

The Federal Ministry of Finance may, by regulation, delegate the authority to the Federal Banking Supervisory Office provided that the regulation is issued in agreement with the Deutsche Bundesbank. The central associations of the institutions shall be consulted before the regulation is issued.

Division 3. (Repealed)

Division 4. Advertising, and information requirements of institutions

23. Advertising

(1) To counteract misleading advertising by institutions, the Federal Banking Supervisory Office may prohibit certain kinds of advertising wherever this does not come within the responsibilities of the Federal Supervisory Office for Securities Trading pursuant to section 36b of the Securities Trading Act.

(2) Before general measures are taken under subsection (1), the central associations of the institutions and the consumer protection federations shall be consulted.

23a. Guarantee scheme

(1) An institution which conducts banking business within the meaning of section 1 (1) sentence 2 numbers 1, 4 or 10 or which provides financial services within the meaning of section 1 (1a) sentence 2 numbers 1 to 4 shall inform customers who are not institutions in its price list of its membership of a scheme designed to safeguard the claims of depositors and investors (guarantee scheme). In addition, the institution shall inform customers who are not institutions, in a written and easily comprehensible form, prior to commencing a commercial relationship about the guarantee provisions, including the scope and amount of the guarantee. If deposits and other repayable funds are not guaranteed, the institution shall draw attention to this fact in its General Terms and Conditions, in its price list and in a prominent position in the contract documents before the commercial relationship commences, unless the repayable funds are secured by mortgage bonds, communal bonds or other debt securities which satisfy the conditions of Article 22 (4) sentences 1 and 2 of the UCITS Directive. The information in the contract documents in accordance with sentence 3 shall not include any other statements, and must be signed separately by the customer. In addition, information must be available upon request on the terms and conditions of the guarantee scheme, including the requisite formalities for asserting compensation claims.

(2) If an institution withdraws from a guarantee scheme, it shall report this fact immediately and in writing to its customers who are not institutions, to the Federal Banking Supervisory Office and to the Deutsche Bundesbank. The Federal Banking Supervisory Office will send a copy of this report to the Federal Supervisory Office for Securities Trading. Division 5. Special duties of institutions, their managers, financial holding com- panies and mixed-activity holding companies

24. Reports

(1) An institution shall report immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank

1. the intention to appoint a manager or to authorise a person to represent the institution in all aspects of its business, stating the facts which are germane to assessing his trustworthiness and professional qualifications, as well as the realisation of such an intention;2. the retirement of a manager and the revocation of the authorisation to represent the institution in all aspects of its business;

3. the acquisition and disposal of a direct participating interest in another enterprise, and changes in the amount of the participating interest; a direct participating interest is deemed to be the holding of at least ten per cent of the capital or voting rights of the other enterprise;

4. changes in the legal form, unless a licence is required under section 32 (1), and changes in the firm-name;

5. a loss amounting to twenty-five per cent of the liable capital;

6. the relocation of the office or domicile;

7. the establishment, relocation and closure of a branch in a non-EEA state;

8. the termination of business;

9. the commencement and termination of business other than banking business or financial services or of business for which the licence is deemed to have been granted pursuant to section 64e (1);

10. a fall in the initial capital below the minimum requirements defined in section 33 (1) sentence 1 number 1, and the discontinuation of an appropriate insurance pursuant to section 33 (1) sentence 2;

11. the acquisition or disposal of a qualified participating interest in the reporting institution, the reaching, overshooting or undershooting of the thresholds for par- ticipating interests of twenty per cent, thirty-three per cent and fifty per cent of the voting rights or capital, and the fact that the institution becomes or ceases to be the subsidiary of another enterprise, if the change in these participatory relationships comes to the institution’s attention;

12. each case in which the counterparty to a securities repurchase agreement or a securities lending or borrowing transaction did not discharge his settlement obligations;

13. the existence of, change in or termination of a close association with another natural person or another enterprise.

(1a) An institution shall report to the Federal Banking Supervisory Office and the Deutsche Bundesbank once a year

1. its indirect participating interests in other enterprises,2. the name and address of any holder of a qualified participating interest in the reporting institution and in the enterprises subordinated to it as described in section 10a that are domiciled abroad, as well as the amounts of these participating interests, and

3. the establishment, relocation or closure of a domestic branch. The existence of an indirect participating interest within the meaning of sentence 1 number 1 shall be determined within the framework of the regulation in accordance with subsection (4).

(2) A institution intending to merge with another institution shall report this fact immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank.

(3) A manager of an institution shall report immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank

1. the commencement and termination of activities as a manager or member of the supervisory board or administrative board of another enterprise, and2. the acquisition and disposal of a direct participating interest in an enterprise, as well as any changes in the amount of such a participating interest. A direct participating interest within the meaning of sentence 1 number 2 is deemed to be the holding of shares in the capital of the enterprise amounting to at least twenty-five per cent of the capital.

(3a) A financial holding company shall submit to the Federal Banking Supervisory Office and the Deutsche Bundesbank once a year a summary report of those institutions, financial enterprises and ancillary banking services enterprises which are subordinated enterprises within the meaning of section 10a (3) to (5). The Federal Banking Supervisory Office communicates a list of these to the appropriate authorities of the other states of the European Economic Area and to the Commission of the European Communities. The establishment, modification or discontinuation of such participating interests or corporate relationships shall be reported to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately.

(4) The Federal Ministry of Finance, acting in consultation with the Deutsche Bundesbank, may issue by regulation more detailed provisions on the nature, scope and timing of the reports, and on the submission of the documentation, provided for in this Act, and may supplement the existing reporting requirements by the obligation to submit summary reports and lists, insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office and especially to enable it to obtain consistent records for assessing the banking business conducted and financial services provided by institutions. It may delegate this authority by regulation to the Federal Banking Supervisory Office, provided that regulations of the Federal Banking Supervisory Office are issued in agreement with the Deutsche Bundesbank. The central associations of the institutions shall be consulted before the regulation is issued.

24a. Establishment of a branch and provision of cross-border services in other states of the European Economic Area

(1) A deposit-taking credit institution and a securities trading firm shall report the intention to establish a branch in another state of the European Economic Area to the Federal Bank- ing Supervisory Office and the Deutsche Bundesbank immediately in accordance with sentence 2. The report shall contain the following particulars:

1. the name of the member state in which the branch is to be established,2. a business plan indicating the nature of the planned business and the organisational structure of the branch,

3. the address at which the records of the institution can be requested in the host member state, and to which documents can be delivered, and

4. the name of the manager of the branch.

(2) If there is no reason to doubt the suitability of the organisational structure and financial standing of the institution, the Federal Banking Supervisory Office forwards the particulars pursuant to subsection (1) sentence 2 to the appropriate authorities of the host state within two months of the receipt of the complete documentation, and advises the reporting institution accordingly. The Federal Banking Supervisory Office also informs the appropriate authorities of the host state about the amount of the own funds and the adequacy of the capital base and, if applicable, about the deposit guarantee scheme or investor compensation scheme to which the institution belongs or about its comparable protection arrangements within the meaning of section 23a (2) sentence 1. If the Federal Banking Supervisory Office does not forward the particulars pursuant to subsection (1) sentence 2 to the appropriate authorities of the host state, it notifies the institution of its reasons for not doing so within two months of the receipt of all the particulars pursuant to subsection (1) sentence 2 and also informs the Federal Supervisory Office for Securities Trading.

(3) Subsection (1) sentence 1 applies as appropriate to the intention, by providing cross- border services, to conduct banking business other than investment fund business, to provide financial services within the meaning of section 1 (1a) sentence 2 numbers 1 to 4 or to engage in activities pursuant to section 1 (3) sentence 1 numbers 2 to 8 or to provide credit reports or offer to rent out safe deposit boxes in another EEA state. The report shall specify the state in which the cross-border service is to be provided and shall contain a business plan specifying the intended activities. The Federal Banking Supervisory Office informs the appropriate authorities of the host state within one month of the receipt of the report.

(4) If the situation reported in accordance with subsection (1) sentence 2 or subsection (3) sentence 2 changes, the institution shall notify the Federal Banking Supervisory Office, the Deutsche Bundesbank and the appropriate authorities of the host state of the changes in writing at least one month before the changes become effective. An institution which has established a branch in accordance with subsection (1) shall report any changes in the situation regarding the deposit guarantee scheme or investor compensation scheme or the comparable protection arrangements within the meaning of section 23a (2) sentence 1 to the Federal Banking Supervisory Office, the Deutsche Bundesbank and the appropriate authorities of the host state at least one month before the changes become effective. The Federal Banking Supervisory Office informs the appropriate authorities of the host state of the changes in accordance with sentence 2.

(5) The Federal Ministry of Finance is authorised to rule by regulation that subsections (2) and (4) apply as appropriate to the establishment of a branch in a non-EEA state, insofar as this is necessary in the field of the right of establishment under agreements of the European Communities with non-EEA states.

(6) The Federal Banking Supervisory Office forwards copies of the reports pursuant to subsection (1) sentence 1, subsection (3) sentence 1 and subsection (4) sentence 1 to the Federal Supervisory Office for Securities Trading.

24b Participation in payment and securities transfer and settlement systems

(1) An institution shall report the intention to operate a system as provided for in Article 2 of Directive 98/26/EG of the European Parliament and Council of May 19, 1998 on settlement finality in payment and securities settlement systems (Official Journal of the European Communities No. L 166 page 45) immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank and shall name the participants. This also applies to any subsequent change in the participants. The Deutsche Bundesbank will notify the Commission of the European Communities of the systems reported to it after having satisfied itself of the appropriateness of the rules governing the system.

(2) An institution shall provide information on the systems within the meaning of subsection (1) in which it is involved and on the basic rules governing their mode of operation to all parties which can demonstrate that they have a legitimate interest in the matter.

(3) The Federal Ministry of Finance is authorised to issue a Regulation in consultation with the Deutsche Bundesbank regulating the details of the reporting requirements, notification of the Commission of the European Communities pursuant to subsection (1) and the right to information pursuant to subsection (2).

(4) Subsections (1) to (3) apply as appropriate to system operators which are not an institution.

25. Monthly returns and other particulars

(1) Institutions sha ll submit a monthly return to the Deutsche Bundesbank immediately after the end of each month. The Deutsche Bundesbank passes on the monthly returns, along with its comments, to the Federal Banking Supervisory Office; the latter may waive its right to the forwarding of certain monthly returns. If monthly balance sheet statistics are collected in accordance with section 18 of the Bundesbank Act, the returns to be submitted for that purpose are deemed to be monthly returns within the meaning of sentence 1.

(2) Parent enterprises within the meaning of section 13b (2) shall also submit a consol- idated monthly return to the Deutsche Bundesbank immediately after the end of each month. Subsection (1) sentence 2 and section 10a (6) and (7) on the consolidation procedure, subsection (9) on the requirement to provide data, and subsection (10) on exceptions from consolidation apply as appropriate.

(3) The Federal Ministry of Finance, acting in consultation with the Deutsche Bundesbank, may issue by regulation more detailed provisions on the nature and scope of the monthly returns, insofar as monthly balance sheet statistics are not collected in accordance with section 18 of the Bundesbank Act, especially to gain an insight into the trend in institutions’ assets and liabilities position and profit and loss position, and on other particulars, insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office. The particulars may also relate to subordinated enterprises within the meaning of section 13b (2), to subsidiaries domiciled in Germany or abroad which are not included in supervision on a consolidated basis and to mixed-activity holding companies which have subordinate institutions; the mixed-activity holding companies shall transmit the requisite data to the institutions. The Federal Ministry of Finance may, by regulation, delegate the authority to issue a regulation to the Federal Banking Supervisory Office provided that the regulation is issued in agreement with the Deutsche Bundesbank.

25a. Particular organisational duties of institutions

(1) An institution must

1. have in place suitable arrangements for managing, monitoring and controlling risks and appropriate arrangements by means of which the institution’s financial situation can be gauged with sufficient accuracy at all times;2. have a proper business organisation, an appropriate internal control system and adequate security precautions for the deployment of electronic data processing;

3. ensure that the records of executed business transactions permit full and unbroken supervision by the Federal Banking Supervisory Office for its area of responsibility; the requisite records shall be retained for six years; section 257 (3) and (5) of the Commercial Code applies as appropriate.

(2) The outsourcing to another enterprise of operational areas that are essential for conducting banking business or providing financial services must impair neither the orderliness of such business or services nor the managers’ ability to manage and monitor them nor the Federal Banking Supervisory Office’s right to audit and ability to monitor them. In particular, the institution shall ensure by contractual means that it has the required powers to give instructions to the contractor in question and shall include the outsourced areas in its internal monitoring procedures. The institution shall report its intention to outsource operational areas, as well as the realisation of its intention, to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. The Federal Banking Supervisory Office forwards a copy of the report to the Federal Supervisory Office for Securities Trading.

Division 5a. Submission of accounting records

26. Submission of annual accounts, management report and auditor’s reports

(1) Institutions shall draw up their annual accounts for the previous financial year in the first three months of their financial year, and shall submit their annual accounts as drawn up, and subsequently also as approved, and their management report to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately in accordance with sentence 2. The annual accounts shall bear a certificate of audit (Bestätigungsvermerk) or a note accounting for the withholding of such a certificate. The auditor shall submit his report on the auditing of the annual accounts (auditor’s report) to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after the completion of the audit. In the case of credit institutions which belong to a credit cooperative audit association or are audited by the audit office of a savings bank and giro association, the auditor shall submit the audit report only if requested to do so by the Federal Banking Supervisory Office.

(2) If an additional audit has taken place in connection with a guarantee scheme, the auditor or audit association shall submit the report on this audit to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately.

(3) An institution which draws up a set of group accounts or a group management report shall submit these documents to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately. If an audit report is written by an auditor of the group accounts, he shall submit that audit report to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately after the completion of the audit. In the case of credit institutions which belong to a credit cooperative audit association or are audited by the audit office of a savings bank and giro association, the auditor shall submit the audit report only if requested to do so by the Federal Banking Supervisory Office.

Division 6. Audits and the appointment of auditors

27. (Rescinded)

28. Appointment of the auditor in special cases

(1) Institutions shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank of the auditor they have appointed immediately after making the appointment. Within one month of the receipt of such notification, the Federal Banking Supervisory Office may request the appointment of a different auditor if this appears necessary to achieve the object of the audit; objections to and appeals against such requests have no postponing effect.

(2) The court of registration having jurisdiction at the domicile of the institution shall appoint an auditor at the request of the Federal Banking Supervisory Office if

1. the notification in accordance with subsection (1) sentence 1 is not effected im- mediately after the end of the financial year;2. the institution does not comply immediately with the request to appoint a different auditor in accordance with subsection (1) sentence 2;

3. the auditor chosen has declined to accept the auditing mandate, is no longer active, or is unable to conclude the audit in time, and the institution has not appointed a different auditor immediately.

The appointment by the court is final. Section 318 (5) of the Commercial Code applies as appropriate. The court of registration, at the request of the Federal Banking Supervisory Office, may terminate the appointment of an auditor appointed in accordance with sentence 1.

(3) Subsections (1) and (2) do not apply to credit institutions which belong to a credit co- operative audit association or are audited by the audit office of a savings bank and giro association.

29. Special duties of the auditor

(1) When auditing the annual accounts or interim accounts, the auditor shall likewise examine the financial circumstances of the institution. When auditing the annual accounts, he shall ascertain in particular whether the institution has complied with the reporting requirements pursuant to sections 10, 12a, 13 to 13b and 14 (1), sections 15, 24 and 24a, in each case also read in conjunction with a regulation in accordance with section 24 (4) sentence 1, in the case of section 24a also read in conjunction with a regulation in accordance with subsection (5), and also whether the institution has satisfied the requirements pursuant to sections 10, 10a, 12, 13 to 13b, 18 and 25a, in the case of sections 13 to 13b and 14 (1) also read in conjunction with a regulation in accordance with section 22. If unrealised reserves are included in the institution’s liable capital, the auditor, when auditing the annual accounts, shall likewise examine whether section 10 (4a) to (4c) was complied with when ascertaining those reserves. The findings shall be included in the auditor’s report.

(2) The auditor shall likewise examine whether the institution has complied with its obligations under the Money Laundering Act (Geldwäschegesetz ). In the case of institutions engaged in safe custody business he shall audit that business particularly carefully; this audit shall also cover compliance with section 128 of the Companies Act on disclosure requirements and section 135 of the Companies Act on the exercising of voting rights. The auditor shall report separately on the items mentioned in sentence 1 and sentence 2, respectively; section 26 (1) sentence 3 applies as appropriate.

(3) If, in the course of his audit, the auditor learns of facts which might warrant the qualification or withholding of the certificate of audit, jeopardise the existence of the institution or seriously impair its development, or which indicate that the managers have severely infringed the law, the articles of association or the partnership agreement, he shall report this immediately to the Federal Banking Supervisory Office and the Deutsche Bundesbank. At the request of the Federal Banking Supervisory Office or the Deutsche Bundesbank, the auditor shall elucidate the auditor’s report to them, and communicate any other facts which have come to his attention in the course of the audit and which suggest that the business of the institution has not been conducted properly. The auditor shall not be held accountable for the accuracy of facts which he reports in good faith in accordance with this subsection.

(4) The Federal Ministry of Finance, in agreement with the Federal Ministry of Justice and after having consulted the Deutsche Bundesbank, may issue by regulation more detailed provisions on the object of the audit, the time at which it is carried out and the contents of auditor’s reports, insofar as this is necessary for the performance of the functions of the Federal Banking Supervisory Office, and especially in order to enable it to identify irregularities which may jeopardise the safety of the assets entrusted to the institution or which may impair the proper execution of banking business or provision of financial services, and to obtain consistent records for assessing the business conducted by institutions. It may delegate this authority by regulation to the Federal Banking Supervisory Office.

30. (Rescinded)

Division 7. Exemptions

31. Exemptions

(1) The Federal Ministry of Finance, after having consulted the Deutsche Bundesbank, may by regulation exempt

1. all institutions, or certain types or categories of institutions, from the duty to report specific exposures and facts in accordance with section 10 (8) sentence 3, section 13 (1), section 13a (1), section 14 (1) and section 24 (1) 1 to 5, 7 and 9 and (1a), certain types or categories of institutions from the duty to submit monthly returns in accordance with section 25 or from the obligation under section 26 (1) sentence 2 to elucidate the annual accounts in notes thereon, and the managers of an institution from the duty to report participating interests in accordance with section 24 (3) 2, if these particulars are immaterial for supervisory purposes;2. certain types or categories of institutions from compliance with the provisions of section 13 (3) and section 26, if this is warranted by the particular nature of their business.

The Federal Ministry of Finance may delegate this authority by regulation to the Federal Banking Supervisory Office provided that the regulation is issued in consultation with the Deutsche Bundesbank.

(2) The Federal Banking Supervisory Office may exempt individual institutions from the requirements of section 13 (1) and (2), section 13a (1) and (2), section 15 (1) sentence 1 numbers 6 to 11 and (2), section 24 (1) 1, 2, 4 and 5 and sections 25, 26 and 29 (2) sentence 2 if this appears desirable for particular reasons, and especially because of the nature or scale of the business conducted. The Federal Banking Supervisory Office may exempt individual parent enterprises within the meaning of section 10a (2) to (5) and section 13b (2) from the requirements of section 10a (6) to (8), section 12a (1) sentence 1 and section 13b (3) and (4) in respect of individual subordinated enterprises within the meaning of section 10a (2) to (5) and section 13b (2) if and as long as the balance sheet total of the individual subordinated enterprise amounts to less than ten million ECU and less than one per cent of the balance sheet total of the parent enterprise of a group of institutions or of the financial holding company holding the participating interest, if the inclusion of these enterprises is immaterial for supervision on a consolidated basis, and if the Federal Banking Supervisory Office is enabled to monitor compliance with these conditions. The Federal Banking Supervisory Office shall refrain from granting exemption in accordance with sentence 2 if several enterprises belonging to a group satisfy the conditions for exemption, but the totality of these enterprises are not of minor significance for supervision on a consolidated basis. Exemption is likewise permissible for individual enterprises belonging to a group if, in the opinion of the Federal Banking Supervisory Office, their inclusion in supervision on a consolidated basis would be inappropriate or misleading.

Part III Provisions for the supervisions of institutions

Division 1. Licence to conduct business

32. Granting the licence

(1) Anyone wishing to conduct banking business or to provide financial services in Germany commercially or on a scale which requires a commercially organised business undertaking requires a written licence from the Federal Banking Supervisory Office. The application for the licence must contain the following particulars:

1. suitable evidence of the resources needed for business operations;2. the names of the managers;

3. the information which is necessary for assessing the trustworthiness of the applicants and of the persons specified in section 1 (2) sentence 1;

4. the information which is necessary for assessing the professional qualifications, as required for managing the institution, of the proprietors and of the persons specified in section 1 (2) sentence 1;

5. a viable business plan showing the nature of the planned business, the organisational structure and the planned internal monitoring procedures of the institution;

6. if qualified participating interests are held in the institution:

(a) the names of the holders of the qualified participating interests,(b) the amount of these participating interests,

(c) the data required for assessing the trustworthiness of these holders or of the legal representatives or of the general partners,

(d) if these holders are required to draw up annual accounts: their annual accounts for the last three financial years, along with the auditor’s reports compiled by independent external auditor if such reports are to be prepared, and

(e) if these holders belong to a group: particulars of the structure of the group and, if such accounts are to be drawn up, the consolidated group accounts for the last three financial years, along with the auditor’s reports compiled by independent external auditor if such reports are to be prepared;

7. the facts indicating a close relationship between the institution and other natural persons or other enterprises.

The reports and documents to be submitted pursuant to sentence 2 shall be specified in detail by regulation in accordance with section 24 (4). The requirements under sentence 2 (6) (d) and (e) do not apply to financial services institutions.

(2) The Federal Banking Supervisory Office may make the granting of the licence subject to conditions which must be consistent with the purpose pursued by this Act. It may limit the licence to certain types of banking business or financial services.

(3) Before granting the licence, the Federal Banking Supervisory Office shall consult the guarantee scheme appropriate for the institution.

(3a) On being granted the licence, the institution, if it is liable to pay contributions under section 8 (1) of the Deposit Guarantee and Investor Compensation Act (Einlagensicherungs- und Anlegerentschädigungsgesetz ), shall be informed of the compensation scheme to which the institution is assigned.

(4) The Federal Banking Supervisory Office shall publicise the granting of the licence in the Federal Gazette and shall also notify the Federal Supervisory Office for Securities Trading.

33. Refusing the licence

(1) The licence shall be refused if

1. the resources needed for business operations, in particular adequate initial capital within the meaning of section 10 (2a) sentence 1 numbers 1 to 7, are not available in Germany; the initial capital which must be available is as follows: (a) in the case of investment brokers, contract brokers and portfolio managers who in the course of providing financial services are not authorised to obtain ownership or possession of funds or securities of customers and who do not trade in financial instruments for their own account: an amount equivalent to at least fifty thousand ECU,(b) in the case of other financial services institutions which do not trade in financial instruments for their own account: an amount equivalent to at least one hundred and twenty-five thousand ECU,

(c) in the case of financial services institutions which trade in financial instruments for their own account and in the case of securities trading banks: an amount equivalent to at least seven hundred and thirty thousand ECU, and

(d) in the case of deposit-taking credit institutions: an amount equivalent to at least five million ECU;

2. facts are known which suggest that an applicant or one of the persons specified in section 1 (2) sentence 1 is not trustworthy;3. facts are known which warrant the assumption that the holder of a qualified participating interest in the institution or a general partner or legal representative of the enterprise concerned is not trustworthy or for other reasons fails to satisfy the requirements to be set in the interests of the sound and prudent management of the institution;

4. facts are known which suggest that the proprietor or one of the persons specified in section 1 (2) sentence 1 does not have the professional qualifications necessary for managing the institution and if no other person has been designated as manager in accordance with section 1 (2) sentence 2 or 3;

5. a credit institution or a financial services institution which, in the course of providing financial services, is authorised to obtain ownership or possession of funds or securities of customers does not have at least two managers who work for the institution not merely in an honorary capacity;

6. the institution has its head office outside Germany;

7. the institution is not prepared or not in a position to make the organisational arrangements necessary for the proper operation of the business for which it is seeking a licence.

An investment broker or a contract broker who in the course of providing financial services is not authorised to obtain ownership or possession of funds or securities of customers and who does not trade in financial instruments for his own account shall not be refused a licence in accordance with sentence 1 (a) if, instead of the initial capital, he can demonstrate that he has taken out appropriate insurance for the protection of customers.

(2) A prerequisite of the professional qualifications for managing an institution needed by the persons specified in subsection (1) sentence 1 number 4 is that they have adequate theoretical and practical knowledge of the business concerned, as well as managerial experience. A person shall normally be assumed to have the professional qualifications necessary for managing an institution if he can demonstrate three years’ managerial ex- perience at an institution of comparable size and type of business.

(3) The Federal Banking Supervisory Office may refuse the licence if

1. facts are known which warrant the assumption that the institution is associated with other individuals or enterprises through corporate ties which impair the effective supervision of the institution;2. (rescinded)

3. facts are known which warrant the assumption that the institution is a subsidiary of an institution domiciled abroad that is not effectively supervised in the state where it is registered or has its head office or whose appropriate supervisory body is not prepared to cooperate satisfactorily with the Federal Banking Supervisory Office;

4. contrary to section 32 (1) sentence 2, the application does not contain adequate information or documents.

(4) The licence may not be refused for reasons other than those specified in subsections (1) and (3).

33a. Deferring or qualifying the licence in the case of enterprises domiciled outside the European Communities

The Federal Banking Supervisory Office shall defer the decision on an application for a licence by enterprises domiciled outside the European Communities or by subsidiaries of such enterprises, or shall qualify the licence, if a decision to this effect has been taken by the Commission or the Council of the European Communities under Article 22 (2) of the Second Banking Coordination Directive. The deferral or qualification may not exceed three months from the date of the decision. Sentences 1 and 2 also apply to applications for a licence submitted after the date of the decision. If the Council of the European Communities decides to extend the period specified in sentence 2, the Federal Banking Supervisory Office shall take due account of this extension and shall prolong the deferral or qualification accordingly.

33b. Consultation of the appropriate authorities of another state of the European Economic Area

If a licence is to be granted to conduct banking business pursuant to section 1 (1) sentence 2 numbers 1, 2, 4 or 10 or to provide financial services pursuant to section 1 (1a) sentence 2 numbers 1 to 4 to an enterprise which

1. is a subsidiary or an affiliated enterprise of a deposit-taking credit institution or a securities trading firm and whose parent enterprise is licensed in another state of the European Economic Area, or2. is controlled by the same natural persons or enterprises which control a deposit-taking credit institution or a securities trading firm domiciled in another state of the European Economic Area, the Federal Banking Supervisory Office shall consult the appropriate authorities in the home state before granting the licence.

34. Substitution and continuation in the event of death

(1) Section 45 of the Industrial Code (Gewerbeordnung) does not apply to institutions. (2) After the death of the holder of the licence, the institution may be continued without a licence on behalf of the heirs by two substitutes for a period not exceeding one year. The substitutes shall be appointed immediately after the licence-holder’s death; they are deemed to be managers. If a substitute is not trustworthy or does not have the necessary professional qualifications, the Federal Banking Supervisory Office may prohibit the continuation of business. The Federal Banking Supervisory Office may prolong the period specified in sentence 1 if there are special reasons for doing so. One substitute suffices in the case of financial services institutions which in the course of providing financial services are not authorised to obtain ownership or possession of funds or securities of customers.

35. Expiry and revocation of the licence

(1) The licence expires if no use is made of it within one year from the date it is granted. The licence likewise expires if the institution has been excluded from the compensation scheme pursuant to section 11 of the Deposit Guarantee and Investor Compensation Act.

(2) The Federal Banking Supervisory Office may revoke the licence pursuant to the pro- visions of the Act on Administrative Procedures (Verwaltungsverfahrensgesetz) and also if

1. the business to which the licence relates has not been conducted for more than six months;2. a credit institution is operated in the form of a sole proprietorship;

3. the Office learns of facts which would warrant the refusal of the licence under section 33 (1) sentence 1 numbers 1 to 7 or (3) 1 to 3;

4. the discharge of an institution’s obligations to its creditors, and particularly the safety of the assets entrusted to it, is endangered, and the danger cannot be averted by taking other measures under this Act; the safety of the assets entrusted to the institution is endangered, inter alia, by

(a) a loss amounting to one-half of its liable capital calculated in accordance with section 10, or(b) a loss amounting to more than ten per cent of its liable capital calculated in accordance with section 10 in each of at least three successive financial years;

5. the own funds of a securities trading firm do not amount to at least one-quarter of its costs within the meaning of section 10 (9);6. the institution has persistently contravened provisions of this Act, of the Securities Trading Act or the regulations or orders issued to implement these Acts.

(3) Section 48 (4) sentence 1 and section 49 (2) sentence 2 of the Act on Administrative Procedures concerning the period of one year do not apply.

36. Dismissal of managers

(1) In the cases specified in section 35 (2) 3, 4, and 6 the Federal Banking Supervisory Office, instead of revoking the licence, may demand the dismissal of the managers responsible and may also prohibit these managers from carrying out their activities at institutions organised in the form of a legal person.

(2) The Federal Banking Supervisory Office may also demand the dismissal of a ma- nager, and may also prohibit that manager from carrying out his activities at institutions organised in the form of a legal person, if he has intentionally or recklessly contravened the provisions of this Act or of the Securities Trading Act, the regulations issued to implement these Acts or orders issued by the Federal Banking Supervisory Office or by the Federal Supervisory Office for Securities Trading, and if he persists in such behaviour in spite of having been duly warned by the Federal Banking Supervisory Office or the Federal Supervisory Office for Securities Trading. The Federal Banking Supervisory Office notifies the Federal Supervisory Office for Securities Trading of such dismissal.

37. Action to stop unlawful business

If banking business is being conducted or financial services are being provided without the licence required under section 32 or if business prohibited under section 3 is being conducted, the Federal Banking Supervisory Office may order the immediate cessation of the business operations and the prompt liquidation of this business. It may issue instructions for the liquidation and appoint a suitable person as the liquidator. It may publicise the measures it takes in accordance with sentences 1 and 2.

38. Consequences of the revocation and expiry of the licence; measures in the event of liquidation

(1) If the Federal Banking Supervisory Office revokes the licence or if the licence expires, the Office may rule in the case of legal persons and partnerships that the institution be liquidated. Its decision has the effect of a winding-up order (Auflösungsbeschluss). The decision shall be communicated to the court of registration and entered by the latter in the Commercial Register (Handelsregister) or Register of Cooperative Societies (Genossenschaftsregister).

(2) The Federal Banking Supervisory Office may issue general instructions regarding the liquidation of an institution. The court of registration shall appoint liquidators at the request of the Federal Banking Supervisory Office if the persons otherwise appointed to liquidate the institution afford no guarantee of proper li quidation. An immediate appeal against the order of the court of registration is permissible. If the matter is outside the court of registration’s responsibility, the Federal Banking Supervisory Office appoints the liquidator.

(3) The Federal Banking Supervisory Office shall publicise the revocation or expiry of the licence in the Federal Gazette and shall inform the Federal Supervisory Office for Securities Trading of this. It shall inform the appropriate authorities of the other states of the European Economic Area in which the institution has established branches or has been providing cross-border services.

(4) Subsections (1) and (2) do not apply to public-law legal persons.

Division 2. Protection of certain designations

39. The terms “bank” and “banker”

(1) Except as otherwise provided by legislation, the term “bank” or “banker”, or a term in which the word “bank” or “banker” appears, may be used in the firm-name or as an addition thereto or to describe the object of the business or for advertising purposes only by

1. credit institutions holding a licence in accordance with section 32 or branches of enterprises in accordance with section 53b (1) sentence 1 or (7);2. other enterprises which, when this Act came into force, were legitimately using such a term under the former regulations.

(2) The term “people’s bank” (Volksbank), or a term in which the words “people’s bank” appear, may be newly used only by credit institutions organised in the form of a registered cooperative society and belonging to an audit association.

(3) The Federal Banking Supervisory Office may rule when granting the licence that the terms specified in subsection (1) may not be used if, in the accepted view, the nature or scale of the credit institution’s business does not warrant their use.

40. The term “savings bank”

(1) The term “savings bank” (Sparkasse), or a term in which the words “savings bank” appear, may be used in the firm-name or as an addition thereto or to describe the purpose of the business or for advertising purposes only by

1. public savings banks holding a licence in accordance with section 32;2. other enterprises which, when this Act came into force, were legitimately using such a term under the former regulations;

3. enterprises which are newly established by the restructuring of the enterprises specified in number 2 as long as, by virtue of their articles of association, they display special features (in particular, business objectives geared to the common weal and a restriction of their principal activities to the economic locality in which the enterprise is domiciled) to the same extent as before the restructuring.

(2) Credit institutions within the meaning of section 1 of the Act on Building and Loan Associations (Gesetz über Bausparkassen) may use the term “building and loan association” (Bausparkasse), and registered cooperative societies belonging to an audit association may use the term “savings and loan bank” (Spar- und Darlehenskasse).

41. Exceptions

Sections 39 and 40 do not apply to enterprises which use the words “bank”, “banker” or “savings bank” in a context which precludes the impression that they conduct banking business. Credit institutions domiciled abroad may use the terms specified in section 39 (2) and in section 40 in their firm-name or as an addition thereto or to describe the object of the business or for advertising purposes in connection with their domestic operations if they are entitled to use these terms in their country of domicile and include a clarifying addition in their firm-name which refers to their country of domicile.

42. Decision by the Federal Banking Supervisory Office

In doubtful cases, the Federal Banking Supervisory Office decides whether an enterprise is entitled to use the terms specified in sections 39 and 40. It shall communicate its decisions to the court of registration.

43. Registration provisions

(1) If the conduct of banking business or the provision of financial services is subject to a licence in accordance with section 32, entries in public registers may be made only if the court of registration has been furnished proof that such a licence is held.

(2) If an enterprise uses a firm-name or an addition thereto which is impermissible under sections 39 to 41, the court of registration shall officially cancel such firm-name or addition; section 142 (1) sentence 2, (2) and (3) and section 143 of the Act on Matters Relating to Voluntary Jurisdiction (Gesetz über die Angelegenheiten der freiwilligen Gerichtsbarkeit) apply as appropriate. The enterprise shall be induced to discontinue the use of the firm-name or addition thereto by the imposition of administrative fines; section 140 of the Act on Matters Relating to Voluntary Jurisdiction applies as appropriate.

(3) In proceedings before the court of registration concerning the entry or changing of the legal status or firm-name of credit institutions or enterprises which are using impermissible terms under sections 39 to 41, the Federal Banking Supervisory Office is entitled to enter petitions and also to seek the legal remedies permissible under the Act on Matters Relating to Voluntary Jurisdiction.

Division 3. Information and audits

44. Information from and audits of institutions, ancillary banking services enterprises, financial holding companies and enterprises included in supervision on a consolidated basis

(1) An institution and the members of its governing bodies shall upon request provide information about all business activities and present documentation to the Federal Banking Supervisory Office, to the persons and agencies the Federal Banking Supervisory Office uses in performing its functions and to the Deutsche Bundesbank. The Federal Banking Supervisory Office may carry out audits at the institutions even if there is no special reason for them. The staff of the Federal Banking Supervisory Office and the persons it deploys to perform the audits may enter and inspect the institution’s business premises for this purpose during customary office and business hours. The parties affected shall tolerate the measures taken under sentences 2 and 3.

(2) A subordinated enterprise within the meaning of section 10a (2) to (5), a financial holding company at the head of a financial holding group within the meaning of section 10a (3) and a member of a governing body of such an enterprise shall upon request provide information and present documentation to the Federal Banking Supervisory Office, to the persons and agencies the Federal Banking Supervisory Office uses in performing its functions and to the Deutsche Bundesbank to enable them to check the accuracy of the information or data supplied and which are required for supervision on a consolidated basis or which are to be supplied in connection with a regulation pursuant to section 25 (3) sentence 1. The Federal Banking Supervisory Office may, likewise without requiring a specific reason, carry out audits at these enterprises. The staff of the Federal Banking Supervisory Office and the persons it deploys to perform the audits may enter and inspect the institution’s business premises for this purpose during customary office and business hours. The parties affected shall tolerate the measures taken under sentences 2 and 3. Sentences 1 to 4 apply as appropriate to a subsidiary not included in the consolidation and to a mixed-activity holding company and its subsidiaries.

(3) Enterprises domiciled abroad which are included in the consolidation shall upon request allow the Federal Banking Supervisory Office to carry out the audits permitted under this Act, in particular checks of the accuracy of the data supplied for the consolidation pursuant to section 10a (6) and (7), section 13b (3) and section 25 (2) and (3), to the extent necessary to enable the Federal Banking Supervisory Office to perform its functions and to the extent permissible under the laws of the other state. This also applies to subsidiaries domiciled abroad which are not included in the consolidation.

(4) The Federal Banking Supervisory Office may send representatives to shareholders’ meetings, general meetings or partners’ meetings, as well as to meetings of the supervisory bodies of institutions organised in the form of a legal person. They may address these meetings. The parties affected shall tolerate the measures taken under sentences 1 and 2.

(5) Institutions organised in the form of a legal person shall, at the request of the Federal Banking Supervisory Office, convene the meetings specified in subsection (4) sentence 1, convene meetings of the administrative and supervisory bodies and announce subjects on which decisions are to be taken. The Federal Banking Supervisory Office may send representatives to a meeting convened in accordance with sentence 1. They may address the meeting. The parties affected shall tolerate the measures taken under sentences 2 and 3. This is without prejudice to subsection (4).

(6) The person required to provide information may refuse to answer questions the replies to which would expose him or one of the relatives specified in section 383 (1) 1 to 3 of the Code of Civil Procedure (Zivilprozessordnung) to the risk of criminal prosecution or of proceedings under the Act on Breaches of Administrative Regulations (Gesetz über Ordnungswidrigkeiten).

44a. Cross-border information and audits

(1) Legislation that restricts the transmission of data does not apply to the transmission of data between an institution, a financial enterprise, a financial holding company, an ancillary banking services enterprise or an enterprise not included in the consolidation and an enterprise domiciled abroad which directly or indirectly holds at least twenty per cent of the capital shares or voting rights in the enterprise, is a parent enterprise or can exercise a dominant influence, or between a mixed-activity holding company and its subsidiaries domiciled abroad, if such transmission of data is necessary to comply with the prudential provisions on the enterprise domiciled abroad, as provided in the Consolidation Directive. The Federal Banking Supervisory Office may prohibit an institution from transmitting data to a non-EEA state.

(2) At the request of an authority responsible for exercising supervision over an enterprise domiciled in another state of the European Economic Area, the Federal Banking Supervisory Office shall check the accuracy of the data transmitted by an enterprise within the meaning of subsection (1) sentence 1 for the supervisory authority as provided in the Consolidation Directive, or shall permit the authority making the request, an auditor or an expert to check such data. Section 5 (2) of the Act Concerning Administrative Procedures, regarding the limits to administrative assistance, applies as appropriate. Enterprises within the meaning of subsection (1) sentence 1 shall tolerate the audit. This is without prejudice to the granting of audit rights for banking supervisory authorities by virtue of international agreements.

(3) The Federal Banking Supervisory Office may request from deposit-taking credit institutions, securities trading firms or financial holding companies domiciled in another state of the European Economic Area information that facilitates the supervision of institutions which are subsidiaries of these enterprises and which are not included in supervision on a consolidated basis by the appropriate authorities of the other state for reasons corresponding to those specified in section 31 (2) sentence 2 or 4.

44b. Information from and audits of the holders of qualified participating interests

(1) The obligations towards the Federal Banking Supervisory Office and the Deutsche Bundesbank to provide information and present documentation specified in section 44 (1) sentence 1 also apply to

1. persons and enterprises who report the intention to acquire a participating interest in accordance with section 2b or who are named as holders of qualified participating interests in connection with an application for a licence pursuant to section 32 (1) sentence 2 number 6 or a supplementary report pursuant to section 64e (2) sentence 4,2. the holders of a qualified participating interest in an institution and the enterprises controlled by them,

3. persons and enterprises about whom facts are known which warrant the assumption that they are persons or enterprises within the meaning of number 2, and

4. persons and enterprises who are associated with a person or an enterprise within the meaning of numbers 1 to 3 pursuant to section 15 of the Companies Act.

(2) The Federal Banking Supervisory Office and the Deutsche Bundesbank may take measures in accordance with section 44 (1) sentences 2 and 3 in respect of the persons and enterprises specified in subsection (1) if there are indications which might warrant grounds for a refusal in accordance with section 2b (1a) sentence 1 numbers 1 to 3. The parties affected shall tolerate these measures.

44c. Prosecution of unauthorised banking business and financial services

(1) An enterprise about which facts are known which warrant the assumption that it is an institution or is conducting business prohibited under section 3, a member of its governing bodies and an employee of this enterprise shall upon request provide information on the enterprise’s business activities and present documentation to the Federal Banking Supervisory Office and the Deutsche Bundesbank. A member of a governing body and an employee shall upon request provide information even after they have left the governing body or the enterprise.

(2) The Federal Banking Supervisory Office may carry out inspections on the premises of the enterprise to the extent necessary to determine the nature or scope of business or activities. To this end the staff of the Federal Banking Supervisory Office and the Deutsche Bundesbank may enter and inspect these premises during customary office and business hours. In order to avert imminent risks to public order and safety, they are authorised to enter and inspect these premises also outside the customary office and business hours and may also enter and inspect areas which also serve as residential quarters; the basic right enshrined in Article 13 of the Constitution is thereby restricted to this extent.

(3) The staff of the Federal Banking Supervisory Office and the Deutsche Bundesbank may search these premises of the enterprise. The basic right enshrined in Article 13 of the Constitution is thereby restricted to this extent. Searches of business premises shall require a judicial warrant except in the event of imminent risk. Searches of areas which also serve as residential quarters shall require a judicial warrant. The district court (Amtsgericht) responsible for issuing the warrant is the one in whose area of jurisdiction the premises are located. An appeal may be lodged against the decision to issue a judicial warrant; sections 306 to 310 and 311a of the Criminal Code (Strafprozessordnung) apply as appropriate. A written record shall be made of the search. It must specify which agency carried out the search, the reason, time and place of the search and its outcome and, if no judicial warrant was issued, the facts substantiating the presumption of imminent risk.

(4) The staff of the Federal Banking Supervisory Office and the Deutsche Bundesbank may secure items which could be of importance as evidence in their investigations.

(5) The parties affected shall tolerate the measures taken in accordance with subsection (2), (3) sentence 1 and (4). Section 44 (6) applies.

Division 4. Measures in special cases

45. Measures in cases of inadequate own funds or inadequate liquidity

(1) If, at any institution,

1. the own funds fail to satisfy the requirements of section 10 (1), or2. the investment of its funds fails to satisfy the requirements of section 11 sentence 1, the Federal Banking Supervisory Office may prohibit or limit withdrawals by the proprietors or partners, the distribution of profits and the granting of loans (section 19 (1)). Sentence 1 applies as appropriate to parent enterprises within the meaning of section 10a (2) to (5) if the consolidated own funds of the enterprises belonging to the group fail to satisfy the requirements of section 10a (1).

(2) The Federal Banking Supervisory Office may issue the orders specified in subsec- tion (1) only if the institution has failed to remedy the deficiency within a period set by the Office. Decisions on the distribution of profits are invalid insofar as they contradict an order issued in accordance with subsection (1).

45a. Measures relating to financial holding companies

(1) If a financial holding company at the head of a financial holding group within the meaning of section 10a (3) sentence 1 or 2 or section 13b (2) fails to transmit to the parent enterprise the data in accordance with section 10a (9) sentence 2 or section 13b (5), read in conjunction with section 10a (9) sentence 2, needed for the consolidation pursuant to section 10a or section 13b, the Federal Banking Supervisory Office may prohibit the financial holding company from exercising its voting rights in the institution and the other subordinated enterprises domiciled in Germany unless the prudential consolidation requirements can be satisfied in some other way.

(2) In the case of a prohibition in accordance with subsection (1) and at the request of the Federal Banking Supervisory Office, the court having jurisdiction at the domicile of the parent enterprise shall appoint a trustee to whom it transfers the exercise of the voting rights. In exercising the voting rights, the trustee shall take due account of the interest in a sound management of the enterprises concerned, in conformity with the requirements of banking supervision. For good reason, the Federal Banking Supervisory Office may request the appointment of a different trustee. If the conditions specified in subsection (1) no longer obtain, the Federal Banking Supervisory Office shall request the revocation of the trustee’s appointment. The trustee is entitled to the reimbursement of reasonable expenses and to remuneration for his activities. The court determines such expenses and remu- neration at the request of the trustee; no further appeal is permissible. The Federal Government advances such expenses and remuneration; the financial holding company and the enterprises concerned are jointly and severally liable to the Federal Government in respect of its outlays.

(3) As long as the prohibitory injunction specified in subsection (1) is enforceable, the enterprises concerned are not deemed to be subordinated enterprises of the financial holding company within the meaning of sections 10a and 13b.

46. Measures in cases of danger

(1) If the discharge of an institution’s obligations to its creditors, and especially the safety of the assets entrusted to it, is endangered or if there are grounds for suspecting that effective supervision of the institution is not possible (section 33 (3) 1 to 3), the Federal Banking Supervisory Office may take temporary measures to avert the danger. In particular, it may

1. issue instructions on the management of the institution’s business,2. prohibit the taking of deposits or funds or securities of customers and the granting of loans (section 19 (1)),

3. prohibit proprietors and managers from carrying out their activities, or limit such activities, and

4. appoint supervisors.

Decisions on the distribution of profits are invalid insofar as they contradict any order issued in accordance with sentences 1 and 2. In the case of institutions organised in a form other than that of a sole proprietorship, managers who have been prohibited from carrying out their activities are barred from the management and representation of the institution for the duration of the prohibition. Regarding the claims arising from the employment contract or from other provisions governing the activities of the manager, the general regulations apply. Rights permitting a manager to participate as a partner or in other ways in decisions on measures affecting the management of the institution may not be exercised for the duration of the prohibition.

(2) If managers have been prohibited from carrying out their activities in accordance with subsection (1) sentence 2 number 3, the court having jurisdiction at the domicile of the institution shall, at the request of the Federal Banking Supervisory Office, appoint the necessary persons authorised to manage the institution’s business and to represent it if, owing to the prohibition, the institution no longer has the requisite number of persons authorised to manage its business and represent it. Section 46a (2) sentences 2 to 4, (3) sentence 1 and (4) to (7) applies as appropriate.

46a. Measures in cases of a danger of insolvency; appointment of persons authorised to represent the institution

(1) If the conditions specified in section 46 (1) sentence 1 obtain, the Federal Banking Supervisory Office may, to avert insolvency proceedings, temporarily

1. issue a ban on sales and payments by the institution,2. order the institution to be closed for business with customers, and

3. prohibit the acceptance of payments not intended for the discharge of debts to the institution, unless the appropriate deposit guarantee scheme or investor compensation scheme undertakes to satisfy in full all those entitled to satisfaction.

The deposit guarantee scheme or investor compensation scheme may make its commitment subject to the condition that incoming payments not intended for the discharge of debts to the institution are held and administered, in favour of the scheme, separately from the institution’s assets in existence at the time of the issuing of the ban on sales and payments in accordance with sentence 1 number 1. After the issuing of the ban on sales and payments in accordance with sentence 1 number 1, the institution may complete the transactions in progress at the time of the issuing of the ban and enter into new transactions insofar as these are necessary for completing the former transactions, provided that and insofar as the appropriate deposit guarantee scheme or investor compensation scheme supplies the funds required for the purpose or undertakes to compensate the institution for any diminution in its assets resulting from these transactions as a whole, insofar as such compensation is needed for the full satisfaction of all creditors. Moreover, the Federal Banking Supervisory Office may authorise exceptions to the ban on sales and payments in accordance with sentence 1 number 1 insofar as this is necessary for the administration of the institution. Judicial enforcements on, seizures of and temporary injunctions against the assets of the institution are not permissible for the duration of measures in accordance with sentence 1. The provisions of the Insolvency Code (Insolvenzordnung) relating to the protection of payment and securities transfer and settlement systems and of collateral security of central banks apply as appropriate.

(2) If, in the case of institutions organised in a form other than that of a sole proprietorship, measures in accordance with subsection (1) sentence 1 have been ordered, and if managers have been prohibited from carrying out their activities, the court having jurisdiction at the domicile of the institution, at the request of the Federal Banking Supervisory Office, shall appoint the necessary persons authorised to manage the institution’s business and to represent it if, owing to the prohibition, the institution no longer has the requisite number of persons authorised to manage its business and represent it. In the case of institutions entered in a public register, the appointment or dismissal by the court of persons authorised to represent the institution, the scope of their representational authority and the termination of their tenure of office are recorded officially. The persons authorised to represent the institution shall deposit specimen signatures with the court. For the duration of the conditions specified in sentence 1, the persons or governing bodies entitled to do so under other legislation may not exercise their right to appoint persons authorised to manage the institution’s business and to represent it.

(3) The representational authority of a person appointed by the court is dependent on the representational authority of the manager in whose stead this person has been appointed. This person’s authority to manage the institution’s business – unless it is extended by the appropriate governing bodies of the institution – is limited to the execution of the measures necessary to avert insolvency proceedings and protect creditors.

(4) The person authorised to manage the institution’s business and to represent it whom the court has appointed is entitled to the reimbursement of reasonable cash expenses and to remuneration for his activities. The court having jurisdiction at the domicile of the institution determines such expenses and remuneration at the request of the person authorised to manage the institution’s business and to represent it whom the court has appointed. No further appeal is permissible. The final and absolute judicial decision results in judicial enforcement in accordance with the Code of Civil Procedure.

(5) For the duration of measures in accordance with subsection (1) sentence 1, a person authorised to manage the institution’s business and to represent it whom the court has appointed may be dismissed only by the court, at the request of the Federal Banking Supervisory Office or of the institution’s governing body responsible for the debarment of partners from the management and representation of the institution or for the dismissal of persons authorised to manage the institution’s business or to represent it, and only if there is good reason for doing so.

(6) The tenure of office of a person authorised to manage the institution’s business and to represent it whom the court has appointed expires in any event if the measures in accordance with subsection (1) sentence 1 and the order prohibiting the manager in whose stead the person was appointed from carrying out his activities are revoked. If only the measures in accordance with subsection (1) sentence 1 are revoked, the tenure of office of a person authorised to manage the institution’s business and to represent it whom the court has appointed expires as soon as the persons or governing bodies entitled to do so under other legislation have appointed a person authorised to manage the institution’s business and to represent it, and as soon as a licence has been granted to this person, if necessary, in accordance with section 32.

(7) Subsections (2) to (6) do not apply to public-law legal persons.

46b. Insolvency petition

(1) If an institution becomes insolvent or overindebted, the managers and, in the case of an institution organised in the form of a sole proprietorship, the proprietor shall report this fact immediately to the Federal Banking Supervisory Office. Insofar as these persons are required under other legislation to file a petition for the initiation of insolvency proceedings in the event of insolvency or overindebtedness, the reporting requirement in accordance with sentence 1 takes the place of the requirement to file such a petition. Insolvency proceedings over an institution’s assets are initiated in the event of insolvency or overindebtedness. The petition for the initiation of insolvency proceedings over the institution’s assets may be filed by the Federal Banking Supervisory Office only. The court order to initiate insolvency proceedings shall be specially communicated to the Federal Banking Supervisory Office.

(2) If insolvency proceedings are initiated in respect of an institution which is a participant in a system within the meaning of section 24b (1), the Federal Banking Supervisory Office shall immediately notify the agencies whose names have been communicated by the other states of the European Economic Area to the Commission of the European Communities. Sentence 1 applies as appropriate to system operators within the meaning of section 24b (4).

46c. Calculation of prescribed periods

The periods to be calculated, in accordance with sections 88 and 130 to 136 of the Insolvency Code and with section 32b sentence 1 of the Act Concerning Private Limited Companies (Gesetz betreffend die Gesellschaften mit beschränkter Haftung), from the date of filing the petition for the initiation of insolvency proceedings shall be calculated from the date on which a measure in accordance with section 46a (1) is ordered.

47. Moratorium, suspension of banking and stock market business

(1) If there is reason to fear that credit institutions may encounter financial difficulties which are likely to pose grave dangers to the national economy, and particularly to the proper functioning of the general payments system, the Federal Government may by regulation

1. grant a credit institution an extension of time to discharge its obligations, and order that judicial enforcements, seizures and temporary injunctions against the credit institution, as well as the initiation of insolvency proceedings over the credit institution’s assets, are impermissible for the duration of the extension;2. order that credit institutions be temporarily closed for business with customers and that they may neither make nor accept payments and credit transfers connected with such business; it may limit this order to certain types or categories of credit institutions and to particular types of banking business;

3. order that stock exchanges within the meaning of the German Stock Exchange Act (Börsengesetz) be temporarily closed.

(2) Before taking measures in accordance with subsection (1) the Federal Government shall consult the Deutsche Bundesbank.

(3) If the Federal Government takes measures in accordance with subsection (1), it shall specify by regulation the legal consequences of these measures for prescribed periods and deadlines in the fields of civil law, commercial law, company law, bill of exchange law, cheque law and procedural law.

48. Resumption of banking and stock market business

(1) For the period after a temporary closure of credit institutions and stock exchanges in accordance with section 47 (1) 2 and 3, the Federal Government, after having consulted the Deutsche Bundesbank, may issue by regulation provisions on the resumption of payments, credit transfers and stock market business. In particular, it may rule that the withdrawal of credit balances is subject to temporary restrictions. Such restrictions may not be imposed in respect of sums of money accepted after a temporary closure of credit institutions.

(2) The regulations issued in accordance with subsection (1) and section 47 (1) cease to have effect three months after promulgation if they have not been revoked earlier. Division 5. Enforceability, sanctions, costs and charges

49. Immediate enforceability

Objections to and appeals against measures taken by the Federal Banking Supervisory Office on the basis of section 2b (1a) sentence 1 and (2) sentence 1, section 12a (2), section 13 (3), section 13a (3) to (5), in each case also read in conjunction with section 13b (4) sentence 2, of section 28 (1), section 35 (2) 2 to 4, sections 36, 37, and 44 (1), also read in conjunction with section 44b, and (2), of section 44a (2) sentence 1, sections 44c, 45 and 45a (1), sections 46 and 46a (1) and section 46b have no postponing effect.

50. Sanctions

(1) The Federal Banking Supervisory Office may impose sanctions in accordance with the provisions of the Administration Enforcement Act (Verwaltungsvollstreckungs-gesetz) to enforce compliance with the orders it issues by virtue of its statutory powers. It may likewise impose sanctions on institutions which are public-law legal persons.

(2) Such a sanctionary fine may be levied up to the amount of five hundred thousand Deutsche Mark in the cases of measures pursuant to section 2b (1a) sentence 1, (2) sentence 1, sections 37 and 44c, up to two hundred and fifty thousand Deutsche Mark in the case of measures pursuant to sections 46 and 46a and up to one hundred thousand Deutsche Mark in the case of other measures.

51. Costs and charges

(1) Institutions shall refund to the Federal Government ninety per cent of the costs incurred by the Federal Banking Supervisory Office that are not covered by charges or special refunds in accordance with subsection (3). The costs are apportioned among the individual institutions in accordance with the scale of their business, and are collected by the Federal Banking Supervisory Office as provided in the Administration Enforcement Act. Detailed provisions on such apportionment and collection are issued by regulation by the Federal Ministry of Finance; it may set minimum amounts in the regulation. It may transfer such authority by regulation to the Federal Banking Supervisory Office.

(2) For decisions pursuant to section 2 (4) or (5), section 10 (3b) sentence 1, section 31 (2), sections 32 and 34 (2) and sections 35 to 37, the Federal Banking Supervisory Office may levy charges of between five hundred Deutsche Mark and one hundred thousand Deutsche Mark. The sum charged should depend in each case on the amount of work required for the decision and the scale of business of the enterprise concerned.

(3) The costs incurred by the Federal Government as a result of appointing a liquidator under section 37 sentence 2 and section 38 (2) sentences 2 and 4, a supervisor under section 46 (1) sentence 2, as a result of an announcement under section 32 (4), section 37 sentence 3 or section 38 (3) or of an audit carried out under section 44 (1) or (2), section 44b sentence 2 or section 44c (2) shall be refunded separately by the enterprise concerned, and at the request of the Federal Banking Supervisory Office they shall be paid in advance. The costs incurred by the Federal Government as a result of checks pursuant to section 44 (3) of the accuracy of the data transmitted for the consolidation in accordance with section 10a (6) and (7), section 13b (3) and section 25 (2) shall be refunded separately by the parent institution required to effect the consolidation, and at the request of the Federal Banking Supervisory Office they shall be paid in advance.

Part IV Special Provisions

52. Special supervision

Insofar as institutions are subject to any other government supervision, this remains in effect alongside supervision by the Federal Banking Supervisory Office.

53. Branches of enterprises domiciled abroad

(1) If an enterprise domiciled abroad maintains a branch in Germany which conducts banking business or provides financial services, that branch is deemed to be a credit institution or a financial services institution. If the enterprise maintains several branches within the meaning of sentence 1, they are deemed to be a single institution.

(2) This Act applies to the institutions specified in subsection (1) subject to the following provisos:

1. The enterprise shall appoint at least two natural persons residing in Germany who are authorised to manage the enterprise’s business and to represent it in respect of the institution’s field of business insofar as the institution conducts banking business or provides financial services and, in the course of providing financial services, is authorised to obtain ownership or possession of funds or securities of customers. These persons are deemed to be managers. Their names shall be reported for entry in the Commercial Register.2. The institution is required to keep separate books and render separate accounts to the Federal Banking Supervisory Office and the Deutsche Bundesbank in respect of the business it conducts and the assets of the enterprise used in its business. To this extent, the provisions of the Commercial Code on books of account apply as appropriate. On the liabilities side of the annual statement of assets and liabilities the amount of working capital supplied to the institution by the enterprise and the amount of operating profit retained by the institution to bolster its own resources shall be shown separately. The amount by which the liability items exceed the asset items or by which the asset items exceed the liability items shall be shown separately and in a single sum at the end of the statement of assets and liabilities.

3. The statement of assets and liabilities to be drawn up as at the end of each financial year in accordance with number 2, together with a statement of income and expenses and notes thereon, is deemed to constitute the annual accounts (section 26). Section 340k of the Commercial Code applies as appropriate to the auditing of the annual accounts, provided that the auditor is chosen and appointed by the managers. The annual accounts of the enterprise for the same financial year shall be submitted along with the annual accounts of the institution.

4. The sum total of the amounts shown in the monthly return in accordance with sec- tion 25 as working capital supplied to the institution by the enterprise and operating profit retained by the institution to bolster its own resources, less the amount of a credit balance on inter-branch settlement account, if any, is deemed to constitute the institution’s own funds. In addition, capital paid up against the issue of participation rights or on account of the incurrence of longer-term subordinated liabilities or short- term subordinated liabilities, and net profits (section 10 (2c) sentence 1 number 1) shall be counted as part of the institution’s liable capital or tier 3 capital if the conditions stipulated in section 10 (5), (5a) or (7) relate in each case to the entire enterprise; section 10 (1), (2b) sentences 2 and 3, (2c) sentences 2 to 5, (3b), (6) and (9) applies as appropriate provided that the own funds in accordance with sentence 1 count as core capital. The amount of own funds is calculated on the basis of the most recent monthly return.

5. The commencement of business by any branch of the enterprise requires a licence. The licence may be refused if, inter alia, reciprocity on the basis of international agreements is not assured. The licence shall be revoked if and insofar as the enterprise’s licence to conduct banking business or provide financial services has been revoked by the authority responsible for supervising the enterprise abroad.

6. For the purposes of section 36 (1) the institution is deemed to be a legal person. (2a) For the provisions of this Act relating to an institution which is a subsidiary of an enterprise domiciled abroad, the branch is deemed to be a wholly owned subsidiary of the institution’s head office domiciled abroad.

(3) For legal proceedings relating to the business of a branch within the meaning of subsection (1), the place of jurisdiction of the branch, in accordance with section 21 of the Code of Civil Procedure, may not be contractually barred.

(4) Subsections (2) to (3) do not apply if barred by international agreements approved by Parliament in the form of a Federal Act.

53a. Representative offices of institutions domiciled abroad

An institution domiciled abroad may establish or continue a representative office in Germany if it is authorised to conduct banking business or provide financial services in its home state and if it has its head office there. The institution shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately of its intention to establish a representative office, as well as the realisation of that intention. The Federal Banking Supervisory Office will confirm to the institution the receipt of such a notification. The representative office may commence its activities only after the institution has received the confirmation from the Federal Banking Supervisory Office. The institution shall report the relocation or closure of the representative office to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately.

53b. Enterprises domiciled in another state of the European Economic Area

(1) A deposit-taking credit institution or securities trading firm domiciled in another state of the European Economic Area may conduct banking business, except for investment fund business, or provide financial services in Germany, either through a branch or by providing cross-border services, without a licence from the Federal Banking Supervisory Office if the enterprise is licensed by the appropriate authorities of the home state, the business it conducts is covered by the licence and the enterprise is supervised by the appropriate authorities in accordance with the Directives issued by the European Communities. Section 53 does not apply in this case. This is without prejudice to section 14 of the Industrial Code.

(2) The Federal Banking Supervisory Office shall notify an enterprise within the meaning of subsection (1) sentence 1 intending to establish a branch in Germany, within two months of receipt of the documents relating to the intended establishment of the branch transmitted by the appropriate authorities of the home state, of the reports to the Federal Banking Supervisory Office and the Deutsche Bundesbank prescribed for its operations, and shall specify the conditions applying pursuant to subsection (3) sentence 1, on grounds of general interest, to the performance of the operations planned by the branch. After receipt of the notification from the Federal Banking Supervisory Office and the notification from the Federal Supervisory Office for Securities Trading pursuant to section 36a (1) of the Securities Trading Act, but not later than after the expiry of the period specified in sentence 1, the branch can be established and commence operations.

(2a) The Federal Banking Supervisory Office shall notify an enterprise within the meaning of subsection (1) sentence 1 intending to engage in operations in Germany by providing cross-border services, within two months of receipt of the documents relating to the intended commencement of the cross-border services transmitted by the appropriate authorities of the home state, of the conditions, on grounds of general interest, under which it may conduct its intended operations in accordance with subsection (3) sentence 2. (3) Sections 3 and 6 (2), sections 11, 14, 22, 23, 23a and 24 (1) 6 to 9, sections 24b, 25 and 25a (1) 3, sections 37, 39 to 42 and 43 (2) and (3), section 44 (1) and (6), section 44a (1) and (2) and sections 44c and 46 to 50 apply as appropriate to branches within the meaning of subsection (1) sentence 1, provided that one or more branches of the same enterprise are deemed to be a single credit institution or financial services institution. Sections 3, 23a and 37, section 44 (1) and sections 44c, 49 and 50 apply as appropriate to the operations constituting cross-border services in accordance with subsection (1) sentence 1.

(4) If the Federal Banking Supervisory Office finds that an enterprise within the meaning of subsection (1) sentence 1 does not comply with its obligations pursuant to subsection (3), and in particular that its liquidity is inadequate, it requests the enterprise to remedy the deficiency within a specified period. If the enterprise fails to comply with this request, the Federal Banking Supervisory Office notifies the appropriate authorities of the home state. If the home state fails to take any measures, or if its measures prove to be insufficient or if the Federal Banking Supervisory Office has been informed in accordance with section 36a (2) of the Securities Trading Act, the Federal Banking Supervisory Office, after having informed the appropriate authorities of the home state, may take the necessary measures; if necessary, the Federal Banking Supervisory Office may prohibit the conduct of new business in Germany.

(5) In urgent cases the Federal Banking Supervisory Office may take the necessary measures before initiating the procedure provided for in subsection (4). It shall notify the Commission of the European Communities and the appropriate authorities of the home state thereof immediately. The Federal Banking Supervisory Office shall modify or revoke the measures if the Commission, after having consulted the appropriate authorities of the home state and the Federal Banking Supervisory Office, so rules.

(6) The appropriate authorities of the home state, after having notified the Federal Banking Supervisory Office beforehand, may check the particulars needed for the prudential supervision of the branch at the branch concerned, either themselves or through their agents.

(7) An enterprise domiciled in another state of the European Economic Area which conducts banking business within the meaning of section 1 (1) sentence 2 numbers 1 to 3, 5, 7 to 9, provides financial services within the meaning of section 1 (1a) sentence 2 number 7 or operates as a financial enterprise within the meaning of section 1 (3) may conduct these operations, in deviation from section 32, without a licence from the Federal Banking Supervisory Office through a branch or by providing cross-border services in Germany if

1. the enterprise is a subsidiary of a deposit-taking credit institution or a joint subsidiary of several deposit-taking credit institutions,2. its articles of association permit such operations,

3. the parent enterprise(s) is (are) licensed as a deposit-taking credit institution in that state in which the enterprise is domiciled,

4. the operations performed by the enterprise are likewise conducted in the home state,

5. the parent enterprise(s) hold(s) at least ninety per cent of the voting rights in the subsidiary,

6. the parent enterprise(s) has (have) submitted convincing evidence of the prudent management of the enterprise to the appropriate authorities of the enterprise’s home state and, with the approval of these appropriate authorities of the home state, have jointly and severally guaranteed the obligations incurred by the subsidiary, if appropriate, and

7. the enterprise is included in the supervision of the parent enterprise on a consolidated basis.

Sentence 1 applies as appropriate to subsidiaries of enterprises specified in sentence 1 which satisfy the aforementioned conditions. Subsections (2) to (6) apply as appropriate.

53c. Enterprises domiciled in a non-EEA state

The Federal Ministry of Finance is authorised

1. to prescribe by regulation that the provisions of this Act concerning foreign enterprises domiciled in another state of the European Economic Area shall likewise be applied to enterprises domiciled in non-EEA states insofar as this is necessary in the context of the freedom of establishment or of service transactions or for the purpose of supervision on a consolidated basis by virtue of agreements of the European Communities with non-EEA states;2. to order by regulation that the provisions of section 53b be applied in full or in part, with full or partial exemption from the provisions of section 53, to enterprises domiciled in non-EEA states if reciprocity is assured and if

(a) the enterprises are supervised in their country of domicile in the areas covered by the exemption in accordance with internationally accepted principles,(b) branches of corresponding enterprises domiciled in Germany are afforded comparable exemptions in that state, and

(c) the appropriate authorities of the country of domicile are willing to cooperate satisfactorily with the Federal Banking Supervisory Office, and if this is ensured by means of an international agreement.

53d. Reports to the Commission of the European Communities

The Federal Banking Supervisory Office reports to the Commission of the European Communities

1. the granting of a licence to a deposit-taking credit institution or a securities trading firm;2. the granting of a licence in accordance with section 32 (1) to the subsidiary of an enterprise domiciled in a non-EEA state; the structure of the group shall be outlined in the report;

3. the acquisition of a participating interest in a deposit-taking credit institution or securities trading firm through which the deposit-taking credit institution or securities trading firm becomes a subsidiary of an enterprise domiciled in a non-EEA state;

4. the number and nature of the cases in which the establishment of a branch in another state of the European Economic Area has foundered because the Federal Banking Supervisory Office has failed to forward the information specified in section 24a (1) sentence 2 to the appropriate authorities of the host state;

5. the number and nature of the cases in which measures have been taken in accord- ance with section 53b (4) sentence 3 and (5) sentence 1;

6. the general difficulties which deposit-taking credit institutions or securities trading firms face in establishing branches, setting up subsidiaries, conducting banking business, providing financial services or in performing the activities specified in section 1 (3) sentence 1 numbers 2 to 8 in a non-EEA state;

7. the application for a licence submitted by the subsidiary of an enterprise domiciled in a non-EEA state;

8. the intention (reported in accordance with section 2b) to acquire a participating interest within the meaning of number 3.

The reports specified in sentence 1 numbers 7 and 8 shall be submitted only at the Com- mission’s request.

Part V Provisions on penalties and fines

54. Prohibited business, operating without a licence

(1) Anyone who

1. conducts business which is prohibited under section 3, also read in conjunction with section 53b (3) sentence 1 or 2, or2. conducts banking business or provides financial services without the licence required under section 32 (1) sentence 1,

will be punished by a term of imprisonment not exceeding three years or by a fine.

(2) If the culprit behaves in this way through negligence, the punishment is a term of im- prisonment not exceeding one year or a fine.

55. Violation of the duty to report insolvency or overindebtedness

(1) Anyone who, as a manager of an institution, or as the proprietor of an institution organised in the form of a sole proprietorship, fails to report insolvency or overindebtedness to the Federal Banking Supervisory Office, in violation of section 46b sentence 1, also read in conjunction with section 53b (3) sentence 1, will be punished by a term of imprisonment not exceeding three years or a fine.

(2) If the culprit behaves in this way through negligence, the punishment is a term of imprisonment not exceeding one year or a fine.

55a. Unauthorised use of data on loans of three million Deutsche Mark or more

(1) Anyone who uses data in violation of section 14 (2) sentence 5 will be punished by a term of imprisonment not exceeding two years or a fine.

(2) The violation will be investigated only upon application.

55b. Unauthorised public disclosure of data on loans of three million Deutsche Mark or more

(1) Anyone who publicly discloses data in violation of section 14 (2) sentence 5 will be punished by a term of imprisonment not exceeding one year or a fine.

(2) If the culprit commits the violation for monetary consideration or with the intention of enriching himself or a third party or in order to damage a third party, the punishment will be a term of imprisonment not exceeding two years or a fine.

(3) The violation will be investigated only upon application.

56. Provisions governing fines

(1) A breach of administrative regulations is committed by anyone who violates an enforceable order pursuant to section 36 (1) or (2) sentence 1.

(2) A breach of administrative regulations is committed by anyone who intentionally or recklessly

1. fails to submit a report, does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 2b (1) sentence 1, 5 or 6, in each case also read in conjunction with a regulation pursuant to section 24 (4) sentence 1,2. fails to submit a document, does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 2b (1) sentence 3, also read in conjunction with a regulation pursuant to section 24 (4) sentence 1,

3. violates an enforceable prohibition or order pursuant to

(a) section 2b (1a) sentence 1 or (2) sentence 1, or(b) section 12a (2) sentence 1,

4. fails to submit a report, does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 2b (1) sentence 10, (4) sentence 1 or 4, section 10 (8) sentence 1 or 3, section 12a (1) sentence 3, section 13 (1) sentence 1 (also read in conjunction with subsection (4)), (2) sentence 4 or 7, in each case also read in conjunction with section 13a (2), of section 13 (3) sentence 2 or 6, section 13a (1) sentence 1 (also read in conjunction with subsection (6)), (3) sentence 2 or 6, section 14 (1) sentence 1 or 2, in each case also read in conjunction with section 53b (3) sentence 1, section 15 (4) sentence 5, section 24 (1) numbers 6 to 9, in each case also read in conjunction with section 53b (3) sentence 1, section 24 (1a) sentence 1, section 24 (3) sentence 1 or (3a) sentence 1, section 24a (1) sentence 1, also read in conjunction with (3) sentence 1, or (4) sentence 1, in each case also read in conjunction with a regulation pursuant to section 24a (5), section 25a (2) sentence 3, section 28 (1) sentence 1 or section 53a sentence 2 or 5, in each case also read in conjunction with a regulation pursuant to section 24 (4) sentence 1,5. fails to submit a set of interim accounts, an interim auditor’s report, a monthly return, a set of annual accounts, a management report, an auditor’s report, a set of group accounts or a group management report, or does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 10 (3) sentence 5 or 6, section 25 (1) sentence 1 or (2) sentence 1, in each case read in conjunction with a regulation pursuant to (3) sentence 1, in each case also read in conjunction with section 53b (3) sentence 1, or in violation of section 26 (1) sentence 1, 3 or 4 or (3),

6. incurs an exposure or fails to ensure that exposures do not exceed the specified limit, in violation of section 13 (3) sentence 1 or section 13a (3) sentence 1,

7. fails to ensure that large exposures do not exceed the specified limit, in violation of section 13 (3) sentence 5 or section 13a (3) sentence 5, or

8. commences activities, in violation of section 53a sentence 4.

(3) A breach of administrative regulations is committed by anyone who intentionally or negligently

1. fails to submit a report, does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 10 (5) sentence 7 or (5a) sentence 7, in each case also read in conjunction with a regulation pursuant to section 24 (4) sentence 1,2. holds a qualified participating interest, in violation of section 12 (1) sentence 1 or 2,

3. fails to ensure that the group does not hold a qualified participating interest, in violation of section 12 (2) sentence 1 or 2,

4. grants a loan, in violation of section 18 sentence 1,

5. violates an enforceable order pursuant to section 23 (1), also read in conjunction with section 53b (3) sentence 1, or section 45 (1) sentence 1 or 2,

6. fails to draw attention to the fact in question, does not do so correctly, does not do so in full, does not do so in the prescribed manner or does not do so in time, in violation of section 23a (1) sentence 3, also read in conjunction with section 53b (3),

7. fails to inform a customer, the Federal Banking Supervisory Office or the Deutsche Bundesbank, does not do so correctly, does not do so in full, does not do so in the prescribed manner or does not do so in time, in violation of section 23a (2), also read in conjunction with section 53b (3),

8. violates an enforceable condition pursuant to section 32 (2) sentence 1,

9. fails to provide information, does not provide it correctly, does not provide it in full or does not provide it in time or fails to submit a document, does not submit it correctly, does not submit it in full or does not submit it in time, in violation of section 44 (1) sentence 1, also read in conjunction with section 44b (1) or section 53b (3) sentence 1, section 44 (2) sentence 1 or section 44c (1), also read in conjunction with section 53b (3) sentence 1,

10. fails to tolerate a measure, in violation of section 44 (1) sentence 4, also read in conjunction with section 44b (2) or section 53b (3), subsection (2) sentence 4, (4) sentence 3, (5) sentence 4 or section 44c (5) sentence 1, also read in conjunction with section 53b (3),

11. fails to take a specified measure or to take it in time, in violation of section 44 (5) sentence 1,

12. violates an enforceable order pursuant to section 46 (1) sentence 1 or section 46a (1) sentence 1, in each case also read in conjunction with section 53b (3) sentence 1, or

13. violates a regulation pursuant to section 47 (1) 2 or 3 or section 48 (1) sentence 1 insofar as, for a specified offence, it refers to this provision to impose a fine.

(4) A breach of administrative regulations may be punished by a fine not exceeding one million Deutsche Mark in the cases described in subsection (1), subsection (2) 3 (a), 6 and 7 and subsection (3) 12, a fine not exceeding three hundred thousand Deutsche Mark in the cases described in subsection (2) 1, 2 and 3 (b) and subsection (3) 4 to 10, and by a fine not exceeding one hundred thousand Deutsche Mark in the other cases described.

57. and 58. (Repealed)

59. Fines imposed on enterprises

Section 30 of the Act on Breaches of Administrative Regulations applies to institutions organised in the form of a legal person or partnership, or to enterprises within the meaning of section 53b (1) sentence 1, (7) sentence 1 operating through a branch or by providing cross-border services in Germany, even if a manager who is not appointed by law, the articles of association or partnership agreement to represent the enterprise has committed a criminal offence or a breach of administrative regulations.

60. Appropriate administrative authority

The administrative authority (Verwaltungsbehörde) for the purposes of section 36 (1) 1 of the Act on Breaches of Administrative Regulations is the Federal Banking Supervisory Office.

60a. Notifications in cases of criminal prosecution

(1) In criminal proceedings initiated against the proprietors or managers of institutions and against holders of qualified participating interests in institutions or their legal representatives or general partners on account of violating their professional duties or committing other criminal acts in carrying out or in connection with carrying out a trade or profession or with operating any other kind of business enterprise, as well as in criminal proceedings relating to criminal acts described in section 54 of this Act, the court, the criminal prosecution authority or the penal enforcement authority shall, if a public action is brought, transmit to the Federal Banking Supervisory Office

1. the indictment or the petition in lieu of an indictment,2. the application for the issue of a summary penal order, and

3. the decision concluding the proceedings together with a substantiation of the decision;

if an appeal has been lodged against the decision, the decision shall be transmitted together with a reference to the fact that an appeal has been lodged. In the case of proceedings concerning criminal acts caused by negligence, the information to be transmitted under numbers 1 and 2 will be transmitted only if the transmitting authority believes that decisions or other measures need to be taken by the Federal Banking Supervisory Office immediately.

(2) If, in the course of criminal proceedings, facts become otherwise known which point to irregularities in an institution’s business operations, and if the transmitting authority believes that these need to be made known to the Federal Banking Supervisory Office in order that it can take measures in accordance with this Act, the court, the criminal prosecution authority or the penal enforcement authority shall likewise transmit these facts, unless the transmitting authority is aware that protecting the interests of the party concerned should take precedence. Due consideration should be given in this context to the reliability of the findings to be transmitted.

Part VI Transitional and Final Provisions

61. Licence for existing credit institutions

If a credit institution was permitted to conduct banking business on the scale specified in section 1 (1) at the time this Act came into force, the licence required under section 32 is deemed to have been granted. The period specified in section 35 (1) begins with the entry into force of this Act.

62. Transitional provisions

(1) The legislation already existing in the field of banking and the orders issued by virtue of the existing legislation remain in force, except as otherwise provided by this Act. This is without prejudice to legislation prescribing requirements stricter than those embodied in this Act for the business activities of certain categories of credit institutions.

(2) Functions and powers assigned under Federal legislation to the banking supervisory authority devolve upon the Federal Banking Supervisory Office.

(3) This is without prejudice to the responsibilities of the Länder Governments for recognition as a relocated financial institution in accordance with the Thirty-fifth Regulation Implementing the Conversion Act (Fünfunddreissigste Durchführungsverordnung zum Umstellungsgesetz) , for confirmation of the conversion account and the old bank account, and for functions and powers under the Securities Validation Acts (Wertpapierberei- nigungsgesetze) and the Act on the Validation of German External Bonds (Bereini- gungsgesetz für deutsche Auslandsbonds).

63. (Legislation rescinded and amended)

63a. Special provisions relating to the territory specified in Article 3 of the Unification Treaty (Einigungsvertrag)

(1) If a credit institution domiciled in the German Democratic Republic including Berlin (East) was allowed on July 1, 1990 to conduct banking business on the scale specified in section 1 (1), the licence pursuant to section 32 is deemed to have been granted.

(2) The Federal Banking Supervisory Office may exempt certain categories of credit institutions or individual credit institutions domiciled in the territory specified in Article 3 of the Unification Treaty from obligations under this Act if this appears to be advisable for special reasons, in particular because the law of the territory specified in Article 3 of the Unification Treaty has not yet been brought into line with the law of the Federal Republic of Germany.

64. Successor enterprises to Deutsche Bundespost

(1) From January 1, 1995 the licence pursuant to section 32 is deemed to have been granted to POSTBANK, a successor enterprise to Deutsche Bundespost. For the purpose of aggregation pursuant to section 19 (2) sentence 1, shares which are held in the successor enterprises to Deutsche Bundespost by the Bundesanstalt für Post und Telekommunikation Deutsche Bundespost will be disregarded until December 31, 2002.

64a. Limits on investments by existing credit institutions

If a credit institution or a group of credit institutions fails to comply on January 1, 1993 with the limits laid down in section 12 (1), the credit institution or group of credit institutions must comply with that provision within a period of ten years from that date. 64b. Capital of existing credit institutions

(1) Deposit-taking credit institutions which are licensed in accordance with section 32 on January 1, 1993, may have at their disposal an initial capital, in deviation from section 33 (1) sentence 1 number 1(d), which is lower than the equivalent of five million ECU. In this case the initial capital may not fall below the level available on December 31, 1990. In the case of deposit-taking credit institutions licensed after December 31, 1990, the initial capital may not fall below the level available at the time the licence was granted.

(2) If the preconditions of subsection (1) are met, section 35 (2) 3, read in conjunction with section 33 (1) sentence 1 number 1 (d), on the revocation of the licence does not apply.

(3) If control over a credit institution which has taken advantage of the preferential treatment specified in subsection (1) changes, section 33 (1) sentence 1 number 1 (d) on the amount of the capital applies to that credit institution.

(4) In the case of a merger between two or more credit institutions which have taken advantage of the preferential treatment specified in subsection (1), the initial capital of the credit institution resulting from the merger may be below the equivalent of five million ECU, subject to the approval of the Federal Banking Supervisory Office, if the discharge of the credit institution’s obligations to its creditors is not endangered. However, in this case the initial capital of the merged credit institution must at least equal the total amount of the initial capital of the merging credit institutions available at the time of the merger.

(5) The Federal Banking Supervisory Office may grant the credit institution a period within which it must comply with the capital requirements specified in subsection (1) sentence 2 or 3 or (4) sentence 2, or discontinue its activities. If a credit institution lastingly fails to satisfy these capital requirements, section 35 (2) 3 on the revocation of the licence applies as appropriate.

64c. Transitional arrangement for asset-side balances

If the book value of a participating interest which has been acquired by December 31, 1993 is higher than that part of the subordinated enterprise’s capital and reserves which is to be consolidated in accordance with section 10a (6), the institution, in deviation from section 10a, need not include the difference, arising on first-time consolidation, in the de- duction pursuant to section 10a (6) sentence 3 for a period not exceeding ten years, at an amount decreasing by at least one-tenth each year, but may treat it like a participating interest in an enterprise not belonging to the group.

64d. Transitional arrangement for large exposures

Until December 31, 1998 the reporting threshold for large exposures as specified in section 13 (1) sentence 1 and for the large exposure limit for overall business as specified in section 13a (1) sentence 3 shall be fifteen per cent instead of ten per cent, and the individual large exposure limit as specified in section 13 (3) sentence 1 or 3, the individual large exposure limit from banking book business as specified in section 13a (3) sentence 1 or 3 and the individual large exposure limit from overall business as specified in section 13a (4) sentence 1 or 3 and 4 shall be forty per cent instead of twenty-five per cent or thirty per cent instead of twenty per cent, respectively. The exposures shall be reduced to the individual large exposure limits specified in section 13 (3) sentence 1 or 3 and section 13a (4) sentence 1 or 3 by December 31, 2001. Sentence 2 does not apply to exposures which were incurred before January 1, 1996 and which, by virtue of the contractual conditions, do not fall due until after December 31, 2001. In the case of institutions whose liable capital did not exceed seven million ECU on February 5, 1993, the periods specified in sentences 1 and 2 are extended by five years in each case; sentence 3 applies as appropriate. Sentence 4 does not apply if such an institution was or will be merged with another institution after February 5, 1993 and if the liable capital of the merged credit institutions exceeds seven million ECU.

64e. Transitional provisions for the Sixth Act Amending the Banking Act

(1) For a credit institution which on January 1, 1998 holds a licence to conduct business as a deposit-taking credit institution, the licence to conduct principal broking services, underwriting business, prepaid card business and network money business and to provide financial services shall be deemed to have been granted as of this date.

(2) Financial services institutions and securities trading banks which were legitimately operating on January 1, 1998 without a licence from the Federal Banking Supervisory Office shall report their activities which require a licence under this Act and their intention to continue such activities to the Federal Banking Supervisory Office and the Deutsche Bundesbank by April 1, 1998. If the report is submitted by this date, the licence pursuant to section 32 shall be deemed to have been granted for the scope specified. The Federal Banking Supervisory Office confirms the activities licensed within three months of receipt of the report. Within three months of receipt of the confirmation from the Federal Banking Supervisory Office the institution shall submit a supplementary report to the Federal Banking Supervisory Office and the Deutsche Bundesbank which satisfies the contents of the requirements under section 32. If the supplementary report is not submitted in time, the Federal Banking Supervisory Office may revoke the licence granted in accordance with sentence 2; this is without prejudice to section 35. The Federal Banking Supervisory Office forwards one copy each of the report in accordance with sentence 1, the confirmation in accordance with sentence 3, the supplementary report in accordance with sentence 4 and the notice of revocation of the licence in accordance with sentence 5 to the Federal Supervisory Office for Securities Trading.

(3) Section 35 (2) 3, read in conjunction with section 33 (1) sentence 1 number 1 (a) to (c) and section 24 (1) 10 on the initial capital are to be applied only as from January 1, 2003 to institutions for which a licence is deemed to have been granted pursuant to subsection (2). As long as the initial capital of the institutions described in sentence 1 is smaller than the amount required under section 33 (1) sentence 1 number 1, it may not fall below the average level over the preceding six months; the average level is to be calculated every six months and reported to the Federal Banking Supervisory Office. If the average level in accordance with sentence 2 is not achieved, the Federal Banking Supervisory Office may revoke the licence. Section 10 (1) to (8) and sections 10a, 11 and 13 to 13b are to be applied to institutions described in sentence 1 only as from January 1, 1999, unless they establish a branch or provide cross-border services in other states of the European Economic Area pursuant to section 24a. Securities trading firms for which a licence is deemed to have been granted pursuant to subsection (2) and which do not apply section 10 (1) to (8) and sections 10a, 11 and 13 to 13b shall inform their customers that they may not establish a branch or provide cross-border services in other states of the European Area pursuant to section 24a. Institutions for which a licence is deemed to have been granted pursuant to subsection (2) shall notify the Federal Banking Supervisory Office and the Deutsche Bundesbank as to whether they apply section 10 (1) to (8) and sections 10a, 11 and 13 to 13b.

(4) Credit institutions which on January 1, 1998 hold a licence pursuant to section 32 are required to apply sections 10, 10a and 13 to 13b only as from October 1, 1998. Up to this date credit institutions which do not apply sections 10, 10a and 13 to 13b shall apply the provisions of sections 10, 10a, 13 and 13a in the version announced on January 22, 1996 (Federal Law Gazette I page 64). Insofar as the credit institutions described in sentence 1 apply sections 10, 10a and 13 to 13b, they shall report this fact to the Federal Banking Supervisory Office and the Deutsche Bundesbank immediately.

(5) Proven, unencumbered personal assets of the proprietor or of the general partners of a credit institution which on January 1, 1998 holds a licence pursuant to section 32 may, upon application, be counted as part of the liable capital, to an extent to be determined by the Federal Banking Supervisory Office.

Entry into force

Pursuant to Article 4 of the Act implementing EC guidelines on the harmonisation of prudential regulations applying to banks and securities trading firms (Gesetz zur Umsetzung von EG-Richtlinien zur Harmonisierung bank- und wertpapieraufsichtsrechtlicher Vorschriften), section 10a (6) sentences 14 and 15, sections 12, 16, 18, 22, 24, 25 (3) and 29 (4) of this Act entered into force on October 29, 1997. The other provisions of this Act, except for section 60a, entered into force on January 1, 1998. Section 60a entered into force on June 1, 1998.

Pursuant to section 64e (4) sentence 1 of this Act, credit institutions which on January 1, 1998 held a licence pursuant to section 32 werre required to apply sections 10, 10a and 13 to 13b of this Act only as from October 1, 1998.

In addition, attention is drawn to the transitional arrangements under section 64d and to further transitional provisions under section 64e

The above translation was published by the Deutsche Bundesbank. Reproduced with kind permission. This HTML edition by Lawrence Schäfer and © 2001 Gerhard Dannemann. The contents of this page may be downloaded and printed out in single copies for individual use only. Making multiple copies without permission is prohibited.