German banking regulations and court rulings clarify risk and advice duties

German regulatory and judicial rulings have clarified obligations for financial institutions regarding risk management and investment advice.

Under the Minimum Requirements for Risk Management (MaRisk) and BaFin circular 06/2026 (BA), banks must ensure that trading activities go beyond mere adherence to limits. Effective risk management requires verifying the completeness of documentation, the accuracy of trader information, and ensuring that market conditions are appropriate and controls remain independent from trading operations. These requirements stem from EU Directive 2013/36/EU and the German Banking Act (KWG), placing responsibility for proper organizational structure on executive management.

Additionally, the Federal Court of Justice (BGH) ruled that advising on interest rate swaps constitutes investment advice, even when used to hedge existing interest rate risks in loans. The court rejected the classification of such transactions as mere financing advice, noting that swaps change an existing risk position rather than providing new capital. This ruling reinforces the duty of banks to provide comprehensive disclosure to clients, particularly regarding initial negative market values and contract durations.