BRUBEG: Expansion of powers of intervention and enforcement

On 1 April 2026, far-reaching amendments to the German Banking Act ("KWG") came into force under the Banking Directive Implementation and Bureaucracy Reduction Act ("BRUBEG"). This will significantly strengthen the supervisory bodies' powers in supervising banks and financial institutions. 

BRUBEG brings changes to sections 44, 44b, 45, 50 and 56 KWG 

The reform was carried out, amongst other things, as a result of transposition of Directive (EU) 2024/1619 of 31 May 2024 amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks (CRD VI).

Five key sections will be amended as a result of the reform: sections 44, 44b, 45, 50 and 56 KWG. It introduces a number of changes that will have a direct impact on the institutions concerned, members of governing bodies, employees and holders of significant holdings. 

The new regulations strengthen the powers of intervention and enforcement of the Federal Financial Supervisory Authority (BaFin) and the Deutsche Bundesbank, thereby significantly expanding their operative scope for action. Members of governing bodies must prepare their companies and employees – including those who have resigned – for these changes and the significant powers of intervention that the supervisory authority now possesses.

Section 44 KWG: BRUBEG expands powers to obtain information and carry out inspections

Section 44 KWG, which governs the supervisory authority’s powers to obtain information and carry out inspections, is being expanded significantly with obligations that apply even after individuals have left the body or company. Members of governing bodies and employees of institutions, parent companies and outsourcing firms remain obliged to provide information and documents even after they have left the governing body or the company. This means that the duty to provide information does not end with the termination of the employment relationship or the client engagement, but continues thereafter.

The supervisory authority is granted extended powers to enter premises, carry out inspections and conduct searches

Pursuant to section 44 (1), fifth sentence, KWG, BaFin is expressly authorised for the first time to enter and inspect the premises of undertakings subject to a duty to provide information and documents, in order to prevent imminent threats to public safety and order, even outside normal business hours, as well as premises used as residential accommodation. This expressly restricts the fundamental human right to the inviolability of the home, and those affected must tolerate the measure. This expansion of supervisory powers takes account of changes in the modern world of work, in particular the regular practice of working from home. Furthermore, pursuant to section 44 (2), fourth sentence, KWG, this power is extended to subsidiaries, holding companies, mixed financial holding companies, mixed holding companies and other subsidiaries.

Furthermore, the new section 44 (5) KWG grants officials of BaFin and the Bundesbank the right to search the premises of companies subject to disclosure requirements, as well as the premises of members of the governing body, even after they have left their posts. The prequisite for these measures is that there are facts suggesting that the company or a member of its governing body is in breach of the KWG or a specific provision based on the KWG, and is thereby obstructing, jeopardising or delaying the investigation of a matter of importance to the supervisory authority. This can occur, for example, if information is provided incorrectly, incompletely or late, or if documents are not submitted in the proper manner. Such searches generally require a court order, except for cases of imminent danger.

Although section 44(9) KWG now provides for a right to refuse to provide information, the revision of section 44 KWG nevertheless represents a significant expansion of the supervisory authority’s powers and, consequently, of its operational capacity to act.

New possibilities for securing evidence under the KWG

Under section 44 (6) KWG, officials of BaFin and the Bundesbank may seize items that may be of significance as evidence. If the items are no longer required, they must be returned to the person who last had them in their possession. At the same time, the powers relating to holders of significant holdings were expanded under section 44b KWG. The obligations to provide information and documents now expressly apply to employees and members of the governing bodies of holders of significant holdings even after they have left the company. In line with section 44 KWG, section 44b (4) and (5) KWG introduced powers of search and seizure in respect of holders of significant holdings, including in relation to members of their governing bodies, even after they have left the company. 

The changes have a significant impact on those affected. To date, the supervisory authority has had to rely on the cooperation of companies and the individuals concerned in response to requests for information and documents, as well as during inspections. There was no effective recourse to date in cases where documents or information were deliberately withheld. Consequently, it is often impossible to verify that information is complete, and the refusal, delay or concealment by those involved makes it difficult to establish the facts and makes it possible for relevant documents to be destroyed or tampered with. Although BaFin can impose coercive measures, they do not always lead to the desired clarification; enforcement remains difficult, particularly where substitute performance or a penalty payment are not applicable.

Even former members of governing bodies remain subject to duty to provide information and documents

Members of governing bodies must now be prepared for the fact that they remain subject to the obligation to provide information and documents even after they are no longer in the relevant position, which requires them to keep careful records of all relevant matters during their term of office. Furthermore, employees of companies covered by section 44 (1) KWG and holders of significant holdings must be prepared to provide information, even after their contract has been terminated or they have left the company. Now companies have to take their documentation obligations much more seriously, as breaches of these obligations can now lead to searches, amongst other things. 

Revision of measures to ensure compliance with regulatory requirements

Section 45 KWG has been significantly revised and is now titled "Measures to ensure ongoing compliance with regulatory requirements". This amendment highlights the broader scope of the provision. Instead of specific requirements, the requirements of Regulation (EU) No 575/2013 (Capital Requirements Regulation (CRR)), the requirements of the KWG or the statutory regulations issued pursuant to the KWG are now generally covered. 

New measures in the area of ESG risks and crypto assets

The list of possible measures has also been expanded. New measures have been introduced, particularly in the areas of ESG risks and crypto assets. They include, on the one hand, mitigating ESG risks in the short, medium or long term. This can require adjustments to the business strategy, risk strategy or risk management, or a refinement of the ESG risk plan in accordance with section 26d KWG. On the other hand, BaFin can require stress tests or scenario analyses to be carried out to assess risks arising from crypto asset exposures and from the provision of crypto asset services.

The power to prohibit distributions has also been extended. A new point is that interest payments can be prohibited or restricted to shareholders, partners or holders of Additional Tier 1 instruments, provided that non-payment does not constitute a default event for the institution. An obligation to take subsequent measures has been introduced in relation to restructuring plans. Supervisory authorities can also order that measures set out in the restructuring plan are implemented. 

These changes also have far-reaching consequences. Institutions must expand their compliance systems to adequately monitor ESG and crypto risks. Shareholders and holders of own funds instruments may be required to accept dividend and interest payments in order to strengthen the capital base. Extending the scope to cover all regulatory requirements gives BaFin greater leeway when taking action.

Section 50 KWG: introduction of periodic penalty payments

Furthermore, the new section 50 KWG provides the supervisory authority with a further means of enforcing the KWG and other regulations. The amended version of section 50 KWG introduces "periodic penalty payments" (periodische Zwangsgelder) as a new sanction. Periodic penalty payments may be imposed in the event of a persistent breach of the KWG, the associated statutory regulations, the Capital Requirements Regulation (CRR) or enforceable orders issued by BaFin. Penalty payments may be imposed on companies, managing directors, members of management bodies or supervisory bodies, key function holders, risk bearers and any other natural person responsible for the breach. The penalty payment is payable from a date to be determined by BaFin until the breach has ceased, but for a maximum of six months. 

The daily amount of the periodic penalty payment for natural persons is up to EUR 50,000. For legal entities and partnerships with legal capacity, the daily limit is up to 5 % of the average daily net turnover. The average daily net turnover is calculated as 1/365 of the annual net turnover. Annual net turnover comprises twelve items, including interest income, fees and commissions, gains on financial assets, exchange rate differences, and other operating income and expenses. It is determined on the basis of the latest annual regulatory financial information. 

Amendment to section 50 KWG has significant financial implications

Institutions may face significant financial penalties in the event of persistent breaches. With an annual net turnover of EUR 1 billion and a maximum daily rate of 5 % (approximately EUR 137,000 per day), the penalty could theoretically amount to as much as EUR 25 million for a six-month breach. Managing directors and members of governing bodies may be personally liable for penalties of up to EUR 50,000 per day. This also applies to any other natural person (i.e. not just employees), and therefore, in theory, also to partners or secondees who are seconded from law firms to institutions. The measure provides a strong incentive to put an end to breaches quickly to avoid substantial fines and costs. At the same time, however, because the wording is so broad, it is difficult to predict which individuals this provision might affect in practice.

Expansion of provisions on administrative fines under section 56 KWG

Finally, section 56 KWG was significantly expanded and updated to reflect the provisions introduced as a result of transposition of CRD VI. The list of administrative offences has been expanded to include numerous new offences, particularly in relation to the notification requirements under section 2h KWG (acquisition of a significant holding), section 2i KWG (mergers and demergers) or amendments to section 24 KWG (in particular the new notification requirements, e.g. section 2f (1) (f), first or fourth sentence, KWG). It should also be noted that, from 11 January 2027, new fine provisions for CRD third-country branches will come into force, making breaches of a number of provisions under section 53 (cc) ff. KWG a criminal offence.

What stricter banking supervision under CRD VI and BRUBEG means for financial institutions

In summary, the transposition of CRD VI and the introduction of extensive changes under BRUBEG represent a significant tightening of banking supervision. The main developments are: 

• strengthening enforcement powers through search and seizure powers, 
• expansion of the scope of those subject to the obligation to provide information, including after they have left the institution or the company, 
• introduction of new enforcement measures in the form of periodic penalty payments, 
• expansion of scope of section 45 KWG to cover ESG risks and crypto assets and 
• extended provisions on fines for breaches of the new KWG regulations. 

For institutions, this means they must review and adapt their internal compliance and documentation systems, implement ESG risk management and crypto asset oversight, and provide training for members of governing bodies and staff on their expanded obligations, particularly the disclosure requirements under section 44 KWG. Members of governing bodies and managing directors must be aware of the ongoing disclosure obligations (which also apply to their employees) even after leaving the institution in question, and must carefully document their decisions. Those affected should take these changes seriously and adapt their compliance systems accordingly to avoid fines and other penalties.