Higher Administrative Court of Hesse backs BaFin's publication practice

In a decision taken in an interim relief procedure in August 2022, the Higher Administrative Court of Hesse has confirmed BaFin's recent administrative practice on the publication of measures and fines for violations of the German Banking Act.

In one of his first major interviews in October 2021, the newly appointed president of the Federal Financial Supervisory Authority (BaFin) Mark Branson told leading German business daily Handelsblatt that BaFin will establish a new supervisory culture including testing boundaries, where necessary. Since then, BaFin has started to turn words into deeds. At an increasing pace, BaFin has taken administrative measures and sanctions against regulated financial institutions, in particular banks, often for shortcomings in their business organisation or AML compliance. More than that, BaFin tends to publish such measures and sanctions once they have become incontestable in a non-anonymized way, i.e. including the addressee's name.  

While the orders to mitigate shortcomings or other administrative actions are a burden themselves, institutions are usually more concerned about publications of these measures. Institutions fear the reputational harm BaFin's "naming and shaming" may cause vis-à-vis relevant stakeholders, in particular customers, business partners, and investors. As a result, addressees of BaFin orders increasingly consider not only to challenge these orders, but also their publication.

Judicial backing

A recent decision by the Higher Administrative Court of Hesse (VGH Kassel, case no. 6B 134/22), a second instance court competent for the judicial review of BaFin actions, has now backed BaFin's administrative practice. The court's decision confirms that the German Banking Act generally requires BaFin to publish administrative measures and sanctions in a non-anonymized way. Only in exceptional circumstances, BaFin may decide to refrain from such publication or to publish the order on an anonymized basis. The most relevant of these exceptions in practice are measures against managing directors due to the disproportionate harm to their reputation a non-anonymized publication may cause.

In its ruling, the court emphasized that the legislature intended the publication to have also a negative economic impact on the addressee so that it would have a deterrent effect.

Naming and shaming becomes new normal

Although the court's decision has only been taken in an interim relief procedure, it is a strong sign that the administrative courts will in most cases uphold BaFin's decision to publish its enforcement action. Even more than before, addresses of BaFin measures must therefore expect BaFin to make use of its "naming and shaming" powers and legal remedies against them having a little chance of success. This will strengthen compliance incentives for institutions. At the same time, the reputational harm caused by BaFin publications may decrease over time as the number of publication increases and publication of BaFin measures becomes the new normal.