What is BaFin?

BaFin, short for the Federal Financial Supervisory Authority (Bundesanstalt für

Finanzdienstleistungsaufsicht), is Germany’s central regulatory body responsible for overseeing the country’s financial markets.

It is an autonomous body that operates under the technical and legal supervision of the Federal Ministry of Finance. Bafin works in public interest, with a mission to ensure the German financial system stays stable, transparent and functions properly.

One of BaFin’s critical functions is combating financial crime, particularly money laundering and terrorist financing and protecting the financial system from being misused for it.

History of BaFin

BaFin was established on May 1, 2002, through the merger of three supervisory agencies:

• The Federal Banking Supervisory Office (BAKred)
• The Federal Supervisory Office for Insurance Enterprises (BAV)
• The Federal Securities Supervisory Office (BAWe)

This unification was driven by the need for an integrated financial oversight body in response to global financial integration and evolving market complexities. The creation of BaFin was a major reform in Germany’s approach to financial supervision—from sector-specific oversight to a unified authority covering banks, financial services providers, insurers, and securities markets.

BaFin’s role saw major expansion in 2008 in the aftermath of the global financial crisis. The regulator now adopted a preventive and proactive approach, resulting in risk-based supervision (more strict monitoring of institutions whose risk and impact on the public is high). This shift also saw a renewed collaboration with European supervisory bodies like the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA).

In recent years, BaFin has also adjusted its AML/CFT regulation and supervision strategy in accordance with evolving EU directives and FATF recommendations, fulfilling its objective to stop cross-border financial crime and enhancing the transparency of Germany’s financial sector.

Key AML/CFT Functions of BaFin

BaFin implements Germany’s Money Laundering Act (Geldwäschegesetz – GwG) and ensures its requirements are fully met by institutions dealing in regulated activity. Its prominent functions and responsibilities are:

• Licensing institutions to conduct regulated activity
• Supervising and monitoring obliged financial entities
• Conducting audits and off-site reviews
• Receiving Suspicious Activity Reports (SARs) via the Financial Intelligence Unit (FIU)
• Enforcing Enhanced Due Diligence (EDD) in high-risk scenarios
• Collaborating with national and international bodies like the Financial Action Task Force (FATF) and EU supervisory authorities

Licensing and Supervision Obligations

BaFin not only licenses financial institutions, but also monitors and supervises them to ensure they comply with their AML obligations. If an institution is involved in following activity it must be licensed by the BaFin:

• Cryptocurrency trading and issuance
• E-money and payment services
• Securities trading
• Banking and credit operations
• Asset and portfolio management

Before submitting a license application, an institution is required to meet the criteria for minimum capital requirements, have a written program for AML, and a risk management framework. After a license has been issued, institutions are obliged to regularly submit:

• Audit reports and financial statements
• Internal control documents
• Customer due diligence outcomes

If an institution doesn’t comply with these obligations, it can be penalized in the form of fines, license revocation, or criminal prosecution.

Recent Regulatory Updates in AML (2024)

In November 2024, BaFin published updated supervisory guidelines that call for need of risk-based AML controls as required by Sections 25a of the German Banking Act and Section 10 of the GwG. Guidance specially highlights the needs of a risk-based approach (RBA) for:

Risk Management

Under the MaRisk framework, financial institutions must establish risk-based internal control systems that leverage both internal data and external sources to identify client risk profiles.

Customer Due Diligence (CDD)

Institutions should collect detailed customer information, verify Ultimate Beneficial Owners (UBOs), and screen against Politically Exposed Persons (PEP) and sanctions lists. In accordance with risk-based approach (RBA), some high-risk clients or jurisdictions require enhanced due diligence procedures.

Suspicious Activity Reporting

BaFin mandates that designated compliance officers investigate and report suspicious transactions. In cases of suspected money laundering or terrorism financing, transactions may be suspended to prevent illicit fund transfers.

Penalties for non-compliance

Bafin has wide powers when it comes to enforcement of laws and regulations. It can:

• Impose financial penalties up to €1 million for disclosure violations
• Suspend shareholder voting rights
• Revoke licenses
• Remove senior personnel involved in misconduct

As an example, due to the inadequate monitoring and loose AML controls, BaFin penalized Commerzbank AG with a fine of €1.45 million in 2024.

Why BaFin Compliance Matters?

BaFin’s supervision helps in maintaining market integrity, protecting it from financial crime, and encouraging confidence in Germany’s financial system. If an institution holds a BaFin license this means that the public can trust it for cross-border transactions with their funds and that it meets its regulatory obligations.