for Bauspar Systems Christian Knig, LL.M. Attorney at law and Head - - PowerPoint PPT Presentation

Legal framework & Requirements for Bauspar Systems

Christian König, LL.M. Attorney at law and Head of Legal Affairs Association of Private Bausparkassen Berlin, 27th September 2016

Bausparen / Contract savings schemes

Agenda

• 1. What do we have ?
• 2. Supervisory law
• 3. Civil law
• 4. Details concerning the loan / mortgage

contract

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Banking Supervisory law

Capital Requirement Regulation (EU/575/2013) Capital Requirement Directive (2013/36/EU) (implementation of Basel I, II and soon III, general European principles for banking supervision for credit and financial institutions)

3

German banking act (KWG) (regulates credit institutions, licences, supervisory rules, business rules for banks, capital requirements)

EU law German law

Bausparkassen are deposit taking credit institutions and fall under the German Banking Act and European Directives and Regulation

Banking Supervisory law

No rules for Bausparkassen at EU level

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German Bauspar Act (BSpkG) from 16.11.1972

(regulates Bausparkassen as specialised credit institutions, business is limited to savings collections for and granting mortgage loans only, plus granting of certain housing loans, no investment activities, no payments services or other banking business allowed)

German Bauspar Regulation (BspkVO) from 29.12. 2015

(stipulates ceilings for the investment of available funds and the granting of specific loans)

EU law German law

German Banking Supervisor Bausparkassen

supervises apply

Banking Supervisory law

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Content of the Bausparkassen Act

• legal form of specialised

credit institution (public limited companies or under public law)

• specific audit and

supervision by the German Banking Supervisor

• rules on permissible business activities

§ 1 Bausparkassen Act (1) Bausparkassen are credit institutions, whose business objective is to accept bauspar deposits (Bauspareinlagen) from bauspar customers (Bausparer) and to grant bauspar loans (Bauspardarlehen) from these aggregate savings to bauspar customers for housing finance activities. Only bausparkassen are authorized to conduct this aforementioned bauspar business (Bauspargeschäft).

• collecting savings
• granting housing loans (with a strict definition of housing purpose, e.g. in

general no commercial housing loans, if commercial than quota limits)

• obligation to check the housing purpose
• obligation to secure housing loans with a mortgage, exceptions loans under

30.000 €

• possibility to register a mortgage on second rank

Banking Supervisory law

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Content of the Bausparkassen Act

• running closed collective fund scheme with prescribed

mathematical formula concering the disbursement of bauspar loans

• granting additional housing loans, e.g. bridge loans
• prohibition to invest savings money on stock market,
• nly secure investment such as treasury bonds and

treasury bills of the Federal Government, or other countries of the European Economic Area

• general framework for business principles and general

contract terms for bauspar contracts

• In general 80 % LTV maximum for Bauspar loans,

exemptions for self used housing till LTV

Banking Supervisory law

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Content of the Bausparkassen Act

General Business Principles must include provisions regulating

• calculations relevant to the implementation of bauspar

contracts including individual valuation indices highlighting the longest, median and shortest waiting periods

• composition of the allocation fund, the allocation date, and the

preconditions for allocation as well as the order of allocation (Zuteilungsverfahren)

• the "technical security reserve”
• the calculation of property value for lending purposes

Banking Supervisory law

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Content of the Bausparkassen Act

The Standard Terms and Conditions for Bauspar contracts must include provisions regulating

• amount and due dates of the deposits to be made by the bauspar

customer and by the Bausparkasse and legal consequences arising from default

• interest rate for bauspar deposits and bauspar loans
• amount of costs and fees chargeable to the bauspar customer
• conditions for allocation and the rules governing the order of allocations,

well as the terms governing the payment of the bauspar sum

• security for the claims arising from the bauspar loan, conditions under

which a bauspar contract may be split or combined with another bauspar contract or under which the bauspar sum may be increased or reduced

• life insurance policies

Banking Supervisory law

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Content of the Bauspar Regulation

• rules on large-scale bauspar contracts
• quota for loans granted to finance construction projects of a commercial

character

• quota for loans with alternative security
• threshold for uncollateralised loans
• share of all uncollateralised loans
• rules on transfers to the technical security reserve
• use of technical security reserve

Civil law rules for saving and credit contract

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Deposit Guarantee Act (16.07.1998) EU origin: Deposit Guarantee Scheme Directive (94/19/EC)

• deposits and interests of private depositors are

secured by deposit guarantee scheme or institutional gurantee schemes up to 100.000 €

• pay out delay currently 20 days
• credit institutions pay in general yearly 0,08 % of

their balance sheet position „obligations towards customers“

Voluntary additional deposit guarantee by the private Bausparkassen Covers Bauspar deposits unlimited and other deposits < 250.000 €

Civil law rules for saving and credit contract

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Civil Code containing rules for consumer credit and mortgage credits EU origin: Consumer Credit Directive (2008/48/EC) Mortgage Credit Directive (2014/17/EU)

• contracts in written form
• 14 days withdrawal period
• pre-contractual information requirements (ESIS), adequate

explanation duties

• rules concerning advertisement for loans
• APRC and nominal interest rate
• early repayment right after 10 years, before no general right, but

early repayment compensation (fixed interest rate agreements)

• collateral agreement signed at the notary

What is really necessary?

It depends

• a. Should it be a regulated product
• b. Should it be regulated specialised credit institution?

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If it should be regulated product:

• Act or regulation by central bank providing certain standards
• Only supervised banks could offer this product with a specific licence
• Mandatory closed collective fund separated from other banking activities
• Insolvency proof from the rest of banks activity
• Specific supervision

What is really necessary?

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• Tarifs need to be proven as sustainable
• Fair mathematical rule concerning the allocation of loans
• Same contract conditions for every customer probably with

the consent of the supervisor

• Certain LTV limits
• Sound property valuation
• Loans secured by right in rem
• Evident ownership titels in order to enable foreclosure

What is really necessary?

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Civil law standard helpful for all lenders

• Predictable rules for credit contracts
• Foreclosure laws, security need to be enforceable
• Land titles, official land register with the possibility to register

the mortgage, registration need to have a certain public effect

• Deposit guarantee scheme could help creating trust for

citizens in credit institutions

• Supportive measures by governments in order to cope with

inflation are probably welcomed

• Possible legal support for „two pillar finance“, normal

mortgage loan plus savings for housing loan

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Any further questions?

Christian König Head of Legal Affairs Tel: +49/30/ 59 00 91 515 koenig@bausparkassen.de www.bausparkassen.de