The new German Ringfencing Act establishing criminal liability of banking and insurance executives for failures in risk management

Abstract

The German parliament recently approved a new law regarding individual criminal liability of banking and insurance executives, which will take effect as of January 2014. Under the new so-called Ringfencing Act (Trennbankengesetz), specific duties and responsibilities for risk management will be imposed on these executives. Failure to comply with these duties will be punishable by a maximum of five years’ imprisonment if it causes a threat to the viability as a going concern of a bank, or insolvency or over-indebtedness of an insurance company. This paper provides a description of the risk management duties and the corresponding criminal penalties. It also discusses the regulatory background and provides an initial assessment of the likely implications for risk management at German financial institutions.