Fit and Proper 2.0

On October 22, 2025, the German Federal Financial Supervisory Authority (BaFin) published its new "Circular on members of Management and Administrative and Supervisory Bodies in accordance with the German Banking Act (KWG)". In addition to various clarifications, this circular also contains some new provisions. Nomination Committees and Supervisory Boards of banks should take this opportunity to review the relevant processes and have them adjusted if necessary. Board members should also receive adequate training on the subject of information and communication technology.

With this circular, BaFin is combining the previously separate leaflets on Management and Supervisory Board members in order to eliminate duplication. It also explains how BaFin is implementing the current requirements of the European Banking Authority (EBA) on the subject of suitability.

Knowledge, skills, and experience

With regard to the knowledge, skills, and experience that all Board members (i.e., Management and Supervisory Board members) should have, BaFin refers to the relevant EBA guidelines. It has explicitly included sufficient collective knowledge in the field of information and communication technology for both bodies in the circular. Committee training tailored to the institution should also be provided regularly on this topic.

A new addition is a passage on knowledge acquired abroad by Management Board members. BaFin will examine on a case-by-case basis whether this can be used as evidence of a person's sufficient professional competence. In addition, BaFin clarifies that Management Board members must have sufficient language skills (German/English) to be able to communicate directly with the supervisory authority.

With regard to the skills of the Supervisory Board members, BaFin emphasizes that not every member needs to have in-depth knowledge of all areas of the institution's business, but must be able to recognize their need for information, support, and training.

While the expectation that the Management Board as a whole should have an appropriately broad range of knowledge, skills, and experience ("collective suitability") is already established in the banking sector, BaFin has recently included this requirement in the insurance sector for the first time in its circular on members of the Management Board.

Reliability

With regard to the reliability of Board members, BaFin emphasizes, in line with the EBA guidelines, the particular relevance of legal violations in the area of money laundering and terrorist financing. Another new requirement is that institutions must regularly and on an ad hoc basis check whether Board members are on sanctions lists or have relationships with sanctioned persons or companies.

Conflicts of interest

According to KWG, up to two former members of the Management Board may be represented on the Supervisory Board. In this regard, BaFin states that the transition from a management position to the Supervisory Board should take place after a sufficient period of time has elapsed so that control and monitoring tasks can be performed independently. BaFin generally considers it problematic if former members of the Management Board take over the chair of the Supervisory Board less than two years after leaving the Management Board. This "cooling-off" rule, which is known from the German Corporate Governance Code, was also introduced by BaFin in the corresponding circular for the insurance sector.

Time availability and term limits

The requirement for "sufficient time commitment" has been specified for members of the Management Board: they must devote at least 50% of their working time to their duties as members of the Management Board. In addition, technical measures must be in place to ensure that they have quick access to all necessary information and communication channels, even in special situations.

BaFin points out that violations of the obligations regarding time availability and mandate limitations may constitute an administrative offense, which is punishable by a fine of up to five million euros for Management Board members.

Documentation of the assessment

As before, institutions are required to document the suitability assessment process and to have certain guidelines in place, e.g., suitability guidelines. BaFin now clarifies that it considers this obligation to be fulfilled if the content has been implemented, appropriately documented, and communicated.

Disclosure requirements

New facts that significantly influence the original suitability assessment of Board members must be reported immediately in accordance with the new circular. Examples: initiation of criminal investigations or appointment to a committee. The same applies if training courses specified when a new Supervisory Board member was appointed do not take place as planned.

For audit purposes, the circular applies from January 2026. Adjustments to the circular are to be expected, in particular due to the changes to the Capital Requirements Directive (CRD VI) that are still to be implemented in German law.