To the point four years ago, the German "Act Establishing the Federal Financial Supervisory Authority" (FinDAG) provided for a one-stop financial services agency, BaFin, which was to succeed three formerly independent public authorities for the supervision of banking, insurance and securities. Whereas this on-stop-shop approach has been both acclaimed and criticized, the US Securities and Exchange Commission from its very beginning administered the areas of corporate finance, market regulation and investment. Although the missions of both supervisory authorities correspond, the powers transferred and thus the means of operations differ sharply. Limited to the supervisory power for capital markets, the thesis will analyse the agencies' historical development, governing law, operations and legal means and conduct an estimate of their economic efficiency. A comparison will help to provide suggestions for further legal design and development of the BaFin in the following years.
Veronika Fischer, geb. 1982, promovierte nach dem Studium der Rechts- und Wirtschaftswissenschaften (Universität Augsburg) und dem Abschluss als MBA (University of Dayton) im internationalen Kapitalmarktrecht mit einem US- Forschungsaufenthalt (University of North Carolina). Sie ist einer internationalen Unternehmensberatung tätig.
Table of Contents
A. Introduction
a. Motivation
b. Stock market participation in the US and in Germany
c. Necessity of capital market supervision
d. Introduction to capital market law
e. Aim of capital market supervision and criteria for evaluation
f. Effectiveness and efficiency in capital market supervision
B. The US Securities and Exchange Commission (SEC)
a. Historical development
i. Establishment of capital markets and early development
ii. Stock market growth in the 1920s and crash in 1929
iii. Foundation and SEC’s gain of acceptance
iv. Succession of loss of influence and re-surge 1940-1990
v. Stock market crash in 2001/2002
vi. Reinforced authority and today’s security markets
vii. Summary
b. Organizational structure
i. Head of organization
ii. The divisions
iii. The offices
1. Regional offices
2. Functional offices
iv. Funding
v. Congressional control
vi. State partnerships, partnerships with federal agencies and private-public cooperation
vii. International cooperation
viii. Summary
c. Vision, mission and performance measurement
i. Vision and mission
ii. Goals
iii. Values
iv. Performance measurement
v. Summary
d. Governing law and SEC’s authority
i. Applicability of US securities law
ii. Acts instituting the SEC
1. Securities Act 1933
a. Mandatory registration and disclosure
b. Civil liability for misrepresentation
2. Securities Exchange Act 1934
a. Registration of security issuers
b. Registration of exchanges, associations and others
c. Protective provisions for investors
d. SEC authority for further rules and regulation
iii. Further acts governing the work of the SEC
1. Enactments of minor scope
2. Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act 2002
a. Increase of SEC authority and funding
b. Installation of the PCAOB
c. Auditor independence
d. Corporate responsibility
e. Enhanced financial disclosures
f. Increased penalties
iv. Summary
e. Operations and legal means
i. Rulemaking and standard-setting
ii. Registration
iii. Audit control
iv. Counseling and advice
v. Enforcement
1. Investigative power
a. Beginning of investigations
b. Informal investigations (Private hearings)
c. Formal investigations
d. Legal protection of investigated persons/entities
e. End of investigations
2. Sanctioning power
a. Course of civil action
b. Course of criminal proceedings
c. Course of administrative proceedings
d. Range of statutory sanctions
vi. Summary
f. Current challenges
i. Novel types of securities
ii. Current market structure
iii. Continuous market expansion
iv. Growing spread of investors
v. Technological changes
vi. Inconsistency in governing law
vii. Staffing
viii. Summary
g. Effectiveness and efficiency
i. Overall evaluation
ii. Specific criticism
iii. Reasons for efficiency of operations
1. Employment policy and organizational design
2. Administrative approach basing on cooperation
3. High amount of independence
4. Evaluation of action
iv. Recent initiative for further improvement
v. Summary
C. The German Federal Financial Supervisory Authority (BaFin)
a. Historical development
i. Establishment of capital markets and early development
ii. The BAKred 1934-2002
iii. The BAV 1901-2002
iv. The BAWe 1994-2002
v. Institution of the BaFin in 2002
vi. Rationale
vii. BaFin’s development 2002-2007
viii. Summary
b. Organizational structure
i. Head of organization
ii. The directorates
iii. Cross-sectoral and other departments
iv. Offices and employee base
v. Funding
vi. Governmental control
vii. Partnerships and cooperation
1. State partnerships, partnerships with federal agencies and private-public cooperation
2. International cooperation
viii. Summary
c. Vision, mission and performance measurement
i. Vision and mission
ii. Goals
iii. Performance measurement
iv. Summary
d. Governing law and BaFin’s authority
i. European law
ii. German law and applicability
1. Act instituting the BaFin – FinDAG
2. Acts governing the work of BaFin
a. Banking and insurance supervision
b. Securities Trading Act (Wertpapierhandelsgesetz; WpHG)
i. Ad-hoc disclosure
ii. Insider disclosure
iii. Director’s dealing
iv. Publication of interests
v. Prohibition of market price manipulation
vi. Rules for financial services institutions
vii. Rules for financial analyses
c. Securities Prospectus Act (Wertpapier-Prospekt-gesetz, WpPG)
d. Enactments of minor scope
iii. Summary
e. Operations and legal means
i. Rulemaking and standard-setting
ii. Registering
iii. Counseling and advice
iv. Supervisory power
v. Investigative power
1. Beginning of investigations
2. Course of investigations
3. End of investigations
4. Legal protection of investigated persons/entities
vi. Remedial power
vii. Sanctioning power
viii. Enforcement
ix. Summary
f. Current challenges
i. Spread in European capital market supervision
ii. Legislative overflow
iii. No own power of criminal prosecution
iv. Lacking power of exchange supervision and split of responsibility with the German Federal Bank for banking supervision
v. Two sites
vi. Summary
g. Effectiveness and efficiency
i. Overall evaluation
ii. Specific criticism
iii. Possible success factors
1. Structure of cross-sectoral and organizational departments
2. Close cooperation of directorates
3. Long-term planning
4. Supervisory approach
5. Human resources concept
6. Cooperation and authority lending
iv. Summary
D. Comparison and suggestions for improvement
a. Comparison
i. Similarities
ii. Specific differences
1. Historical development
2. Field and amount of competencies
3. Supervisory concept
4. Involvement in integrated supervision
5. Funding
6. Organizational setting
b. Conclusions for further development of BaFin
i. Attribution of standard-setting power
ii. Attribution of power of prosecution
iii. Attribution of sanctioning power
iv. Extension of the use of novel types of sanctioning, especially shaming
v. Extension of competencies into company law, especially cease-and-desist authority
vi. Tighter intertwining of supervision
vii. Extension of funding and staff base
viii. Establishment of a European supervisory authority
c. Summary in 13 theses
Objectives and Scope
The primary objective of this dissertation is to compare the capital market supervision systems of the United States, represented by the Securities and Exchange Commission (SEC), and Germany, represented by the Federal Financial Supervisory Authority (BaFin). The research aims to evaluate both agencies under the efficiency criterion to derive suggestions for the further development and improvement of the German supervisory authority.
- Comparison of the organizational structures of the SEC and BaFin.
- Analysis of the historical development and legal foundations of both agencies.
- Examination of the enforcement strategies and supervisory effectiveness.
- Evaluation of the impact of performance measurement systems on supervisory efficiency.
- Development of specific recommendations for the future evolution of BaFin.
Excerpt from the Book
b. Stock market participation in the US and in Germany
Investment in shares has become the favorite saving vehicle of US citizens – over 57 million citizens directly own stock, and a much bigger proportion of the population indirectly, so that overall more than 50% of all citizens are engaged in the stock market. This is not only due to the fact that the US social system relies much more on individual financial precautions and thus sets incentives for private investments, but also on the fact that from the very beginnings of industrial activity, companies would rely on own funds (raised by shares) rather than on debt.
On the contrary, Germans are rather reticent in their stock investments: although the spread of stock ownership has been almost doubled since 1997, still only 10.8 million households – or 16.7% of the population – confide their fortunes in the stock market. However, a steady increase is expected for the future: the “’graying’ of the population […] and the resulting need for investment options” will most likely spur share market participation in Germany.
This long-term development is also reflected by the trading volumes: the overall turnover in Germany is less than 1/5 of NASDAQ alone, not counting turnover on NYSE and other US exchanges.
Summary of Chapters
A. Introduction: This chapter defines the empirical relevance of capital market supervision and establishes the motivation for comparing the US and German systems based on efficiency criteria.
B. The US Securities and Exchange Commission (SEC): This section provides a deep dive into the history, organizational structure, governing laws, and enforcement mechanisms of the SEC, emphasizing its role as a global model.
C. The German Federal Financial Supervisory Authority (BaFin): This chapter covers the history of BaFin's predecessors and its establishment in 2002, analyzing its organizational structure, legal base, and current challenges.
D. Comparison and suggestions for improvement: This final part compares the two agencies' structures and competencies, providing 13 specific theses for the future development and modernization of BaFin.
Keywords
SEC, BaFin, Capital Market Supervision, Investor Protection, Financial Regulation, Enforcement, Efficiency, Sarbanes-Oxley Act, Securities Act, Securities Exchange Act, Market Integrity, Disclosure, Administrative Law, Comparative Law, Corporate Governance
Frequently Asked Questions
What is the core focus of this research?
The work provides a comprehensive comparative analysis of the capital market supervisory systems in the United States and Germany, focusing on the SEC and BaFin.
What are the central themes of the analysis?
The study examines the historical development, organizational structure, legal mandates, enforcement tools, and overall effectiveness of both supervisory agencies.
What is the primary goal of the comparison?
The objective is to evaluate both systems using the efficiency criterion to offer concrete recommendations for the further evolution of the German BaFin.
What methodology is applied in the study?
The research uses an economic analysis of law to assess how administrative structures and enforcement mechanisms impact the efficiency of capital market supervision.
What aspects of the agencies are covered in the main body?
The main sections cover organizational design, funding models, the influence of governing acts, the use of investigative and sanctioning powers, and the management of current market challenges.
Which keywords best characterize the work?
The work is defined by terms such as SEC, BaFin, capital market supervision, investor protection, financial regulation, and institutional efficiency.
Why is the comparison between the SEC and BaFin particularly significant?
Since the US capital market law and its administration are considered a worldwide model, comparing it with the German system helps to identify specific areas for BaFin's growth and modernization.
How does the study address the current differences between the two systems?
The study recognizes that while direct application of US principles is limited by German constitutional constraints and the principle of separation of powers, the SEC's successful strategies can serve as a reference point for BaFin’s policy refinements.
- Quote paper
- Dipl. oec. iur. univ; MBA (University of Dayton) Veronka Fischer (Author), 2008, The SEC and BaFin - US and German Capital Market Supervision in Comparision, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/131567
