Implementation of CRD VI – government bill on Banking Directive Implementation and Bureaucracy Relief Act to bring key changes to German banking legislation

On 10 October 2025, the German government forwarded its bill for the German Banking Directive Implementation and Bureaucracy Relief Act (Bankenrichtlinienumsetzungs- und Bürokratieentlastungsgesetz) (“Implementation Act”) to the German upper house of parliament, or Bundesrat, for further deliberation and adoption of a decision (link to the draft Act in German). As an omnibus act, the draft includes amendments to central provisions of German banking prudential law in order to implement Directive (EU) 2024/1619 (“CRD VI”) and is accompanied by targeted measures to reduce bureaucracy and increase the powers held by the Federal Financial Supervisory Authority (“BaFin”).

This article gives an overview of the main reforms, the effects it will have in practice and the transitional arrangements.

New regulatory framework for third-country branches

The Implementation Act is intended to extensively reform the current fragmentary supervisory regime for third-country branches in the European Union and to modify it to reflect the provisions of CRD VI. The experience of Brexit and the resulting reorganisation of the market presence of international banking groups were just two events highlighting the need for a harmonised, consistent set of rules across Europe. A key aim of the reforms is that independent branches from third countries are subject to supervision that is uniform and adequately addresses risks.

At the moment, companies domiciled in a third country (i.e. a country outside the EEA) that carry out cross-border banking transactions can generally apply for an exemption under section 2(4) and (5) of the German Banking Act if certain conditions are met. Now, a new strategic approach is to be taken in order to implement CRD VI. The draft version of the German Implementation Act (in the “Draft Banking Act” (Kreditwesengesetz-E)) sets out an explicit requirement to obtain a licence for CRD third-country branches in future which will significantly modernise the existing licensing regime under section 53 of the German Banking Act. Branches which either provide deposit services themselves or have what is known as a “head undertaking” that would be a CRD credit institution if it were domiciled within the EU, if it provides lending and guarantee services (section 53c(1) of the Draft Banking Act), will be defined as CRD third-country branches. Whether a licence is granted mainly depends on adherence to a range of regulatory minimum requirements (section 53cc and following of the Draft Banking Act).

The authorised CRD third-country branches are to be subject to a risk-oriented supervisory regime distinguishing between two risk categories (section 53ca of the Draft Banking Act). This stipulates that the different risk categories are subject to graduated requirements for capitalisation, liquidity, corporate governance and risk management (sections 53ce to 53cg of the Draft Banking Act) taken from CRD VI. The risk-based approach to supervision also includes introducing a further category of CRD third-country branches, specifically of qualifying CRD third-country branches (section 53cb of the Draft Banking Act). It can be assumed that these branches are subject to comparable supervision under the law of their home country, meaning that financial regulator BaFin may exempt these branches from liquidity management requirements or certain reporting requirements (section 53cf(4) and section 53cl(3) of the Draft Banking Act).

The draft makes clear that authorisation as a CRD third-country branch will only cover activities within Germany, but without restricting intra-group financing transactions with other CRD third-country branches of the head undertaking or services that are provided exclusively at the request of a customer (section 53cc(5), second sentence of the Draft Banking Act).

If a CRD third-country branch reaches certain business volumes either alone (assets of at least €10 billion) or together with other CRD third-country branches within the EU (assets of at least €40 billion), if it operates in other EU Member States or if it otherwise becomes systemically relevant, BaFin may require that a subsidiary is established and an application for a conventional licence under the German Banking Act is made for this subsidiary (section 53ci of the Draft Banking Act).

Companies affected by the new licensing regime will be given some time to adjust to the new licensing requirement during a transitional period lasting until 11 January 2027 (section 64c of the Draft Banking Act). In addition, BaFin may decide that licences granted under the previous regime for branches of third countries will continue to apply provided that the CRD third-country branches concerned meet the new material requirements (section 53cc(7) of the Draft Banking Act).

New “fit & proper” requirements for governing bodies, supervisory boards and key function holders

In order to implement CRD VI’s requirements for EU-wide harmonisation of the requirements as to suitability (“fit and proper” requirements) of members of management bodies, supervisory bodies and more recently key function holders, existing rules in the German Banking Act are being amended and new rules introduced. The aim is to identify a lack of suitability at an early stage in a manner adequately addressing risks and to strengthen sustainable governance in the banking sector. In addition to professional suitability in the narrower sense, the function holders covered are still expected to be reliable and to devote sufficient time to the tasks assigned to them.

The suitability requirements for executive managers will be expanded to include ones applying to holders of key functions (section 25e of the Draft Banking Act). This refers to people who have a material influence on the management of credit institutions and (mixed) financial holding companies without being a manager or member of the administrative or supervisory body (section 1(2b) of the Draft Banking Act). Thus the heads of internal supervisory functions (risk control function, compliance function and internal audit department) are highlighted. As holders of special functions, they always count as holders of key functions (section 1(2a), (2c) and (2d) of the Draft Banking Act).

Notification requirements are also to be extended. In future, at least large companies (i.e. large credit institutions and large subsidiaries for the purposes of the CRD as well as authorised (mixed) parent financial holding companies with a large institution in their group) will have to report the appointment and dismissal of holders of particular key functions, for example.

Besides this, the institutions are to be expressly obliged to review the suitability of managers on an ongoing basis (section 25c(1b)(2) and (3) and section 25d(1a)(2) and (3) of the Draft Banking Act). If a person is no longer suitable, they will have to be dismissed without delay or measures will have to be taken to restore their suitability.

Managing ESG risks

In addition to the requirements already included in administrative practice, the Implementation Act is now intended to introduce a comprehensive statutory regime designed to consider environmental, social and governance (ESG) risks. Under sections 26c and 26d of the Draft Banking Act, all institutions must include ESG risks in their own risk strategy and draw up a specific ESG risk plan which must be reviewed, updated and reported to the supervisory authority on a regular basis. There is also an obligation to take appropriate account of ESG risks in remuneration systems (section 25a (1)(6) of the Draft Banking Act). The auditing and reporting requirements for statutory auditors are also to be amended and supplemented to reflect this.

The requirements for the ESG risk plan depend on the type and size of the institution and provide for simplifications for small and non-complex institutions (section 26d(1) of the Draft Banking Act). Special transitional arrangements are planned for these providing that the requirements of the ESG will only become effective from 11 January 2027 (section 64c(4) of the Draft Banking Act).

The importance of managing ESG risks is also illustrated by the fact that the knowledge, abilities and experience of managers within the meaning of section 25c(1a) of the German Banking Act will also have to encompass ESG in the short, medium and long term and the effects on ESG factors caused by the institution (section 26c(2) of the Draft Banking Act). Institutions will in future be explicitly called on to invest appropriate resources to ensure that their executive managers are professionally qualified in relation to ESG and ICT risks (section 26c(3) of the Draft Banking Act).

Various aspects of the new ESG requirements indicate that they should be taken seriously: BaFin is to be given targeted powers of intervention to enforce ESG-related risk management as part of its broader remit (section 45(2)(15) of the Draft Banking Act). In particular, it will be able to instruct institutions to revise their ESG risk plan, make changes to their business structures and strategies or carry out mandatory stress tests to assess ESG risks. If existing requirements are not met or not met to a sufficient extent, there is a risk of severe regulatory actions, including fines.

Extended audit and reporting proceedings in strategic decisions/investment control

In the Implementation Act, the provisions on investment control and corporate restructuring of CRD credit institutions and (mixed) financial holding companies are also to be significantly extended and ultimately tightened. The new rules are intended to harmonise the requirements for acquiring and selling material holdings, mergers, divestitures and transfers of assets and liabilities in line with EU law and to increase transparency, regulatory efficiency and risk prevention.

In future, a procedure for reporting qualifying holdings is also to be carried out if a CRD credit institution intends to acquire a material holding (section 2h of the Draft Banking Act). A holding is deemed to be material if it is equivalent to at least 15 per cent of the institution’s own applicable funds. If a holding is purchased despite it being prohibited or despite a notification not being filed, the authority can impose a ban on voting rights being exercised and issue an order reserving the right to approve a transfer of the shares (section 2h(22) of the Draft Banking Act). A parallel rule affects section 2i of the Draft Banking Act regarding mergers and divestitures.

These new requirements will be accompanied by additional notification requirements for CRD credit institutions and (mixed) financial holding companies during planned material transfers of assets or liabilities. This means a transfer of assets or liabilities by sale or other legal transaction if it accounts for at least 10% of the company’s total assets or liabilities, although certain transactions (such as transfers of non-performing assets) are not included in the calculation. Where intragroup transfers are involved, the threshold increases to 15%.

These new rules lead to significantly higher regulatory requirements for strategic measures which grant the supervisory authority preventive powers to review such measures and will always have to be borne in mind when planning the timing of such measures, for instance.

Extension of supervisory powers and possible penalties

BaFin’s powers to intervene, prohibit and issue orders are to be significantly extended. One crucial change is that the employees of BaFin and Deutsche Bundesbank, Germany’s central bank, are to be authorised to search people and companies and to confiscate items (section 44(5) and (6) of the Draft Banking Act). Up to now, the authorities have been dependent on the people concerned cooperating with them and could only threaten and enforce penalties to bend their will. Searches are generally subject to authorisation by a judge, but BaFin’s officers in charge will also be able to order them in the event of imminent danger provided that they do not involve residential premises. The powers are generally be used to confiscate documents in order to investigate facts. The measures will not only be applicable to the person directly obliged to produce the documents, but also to holders of material holdings and persons or companies who report an intention to acquire such a holding (section 44b(4) and (5) of the Draft Banking Act).

Another new feature is the power to impose what are known as periodic penalty payments (section 50 of the Draft Banking Act). These have not been covered by the instrument of penalty payments known from administrative law up to now. In future, BaFin will be able to impose periodic penalty payments for persistent breaches of enforceable orders issued by it, the German Banking Act or regulations enacted on the basis of the German Banking Act or CRD. In this case, the penalty payment will be incurred for each day of breach to the value set by the authority. This daily amount can be set at up to €50,000 for individuals and up to 5 per cent of the average net daily turnover for legal entities and partnerships with legal capacity (section 50(4) of the Draft Banking Act). It should also be noted that the penalty can be imposed not only on a company, but also on executive managers, members of administrative and supervisory bodies, holders of key functions, risk-takers and other responsible individuals (section 50(1), first sentence of the Draft Banking Act).

Unlike in the past, it is to be set down that BaFin will have to publish infringements especially of the German Banking Act and CRD and any fines that are no longer contestable and certain measures that have become final and binding (section 60b(1), first sentence of the Draft Banking Act). This means that the discretion previously provided for will no longer apply, although it hardly played a role in practice.

Cutting red tape

In addition to implementing EU law, the Implementation Act is intended to reduce bureaucracy. To achieve this, outdated or duplicated reporting obligations will be abolished, thresholds for creditworthiness checks will be increased (raising the threshold under section 18 of the German Banking Act from €750,000 to €1.5 million), facilitations and simplifications of notification and reporting procedures and various national rules will be tightened in terms of their wording or content. The simplifications will benefit above all small and medium-sized credit institutions and their customers, as the amount of checking and documentation required will be reduced.

In the draft, the Ministry of Finance expresses its commitment to the “one in, one out” rule, under which new burdens have to be matched by an equivalent reduction in existing burdens. Gold-plating, i.e. over-fulfilment of EU legal requirements, is to be avoided.

Other reforms

Diversity when filling positions in management and supervisory bodies is playing a greater role, since in future it will be expressly stipulated that the objective of promoting diversity should be taken into account when selecting applicants for such positions (section 25d(11), first sentence, paragraphs 1 and 2 of the Draft Banking Act).

Credit institutions are already not able to be operated under the legal form of a sole trader (Einzelkaufmann). Section 2b(1) of the Draft Banking Act extends this limitation to include general partnerships (offene Handelsgesellschaften), limited partnerships (Kommanditgesellschaften) and partnerships limited by shares (Kommanditgesellschaften auf Aktien). However, existing institutions will be allowed to retain their legal form (section 64c(1) of the Draft Banking Act). In addition, companies involved in factoring may also no longer be operated under the legal form of a sole trader.

Finally, the Act contains a wide range of technical and editorial amendments, especially to the German Banking Act, the German Act on the Recovery and Resolution of Credit Institutions (Sanierungs- und Abwicklungsgesetz), the German Federal Financial Supervisory Act (Finanzdienstleistungsaufsichtsgesetz), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz), the German Investment Firm Act (Wertpapierinstitutsgesetz) and various regulations.

Conclusion

The German Banking Directive Implementation and Bureaucracy Relief Act with its extensive new rules for third-party branches, the extension and harmonisation of governance requirements, the new requirements for investment control and other strategic matters, and the specifications for managing ESG risks is without doubt extremely significant at a practical level. Not all reforms will be met with enthusiasm by credit institutions. For example, it is questionable whether the declared aim of reducing bureaucracy is consistent with the numerous new reporting and procedural requirements. Apart from this, it is at least doubtful whether the aim of a one-to-one implementation of CRD VI without any gold-plating will actually be rigorously put into practice, especially when the rules for third-party branches are examined in detail, for instance. Finally, some may call into question whether it is actually necessary to extend BaFin’s powers to include rights to search and confiscate on constitutional grounds.

Irrespective of this, there are unlikely to be any more significant amendments in the continuing legislative process. This is because the Implementation Act was primarily intended to implement EU requirements. Institutions are therefore well advised to thoroughly and quickly analyse any need to adapt their internal processes.