Road to CRD: What’s Changing for Fit and Proper Requirements and Board Governance in Germany?

Road to CRD 6 – What’s Changing for Fit and Proper Requirements and Board Governance in Germany?

After much anticipation, the German Ministry of Finance has finally published its draft act (Draft Act) implementing Directive (EU) 2024/1619 (CRD 6). One of the headline changes is the introduction of a harmonised fit and proper regime for members of the management board and supervisory board as well as key function holders (KFHs).

But what does this all mean for German banks? Let’s break down the key takeaways:

I. Changes relevant to members of the management and supervisory board 

With respect to the fit and proper requirements for members of the management and supervisory board, the following changes will be introduced, all of which closely mirror the CRD 6 requirements:

1. A new era for board appointments: Early notification procedure for “large companies”

The Draft Act provides that large companies, such as 

• GSIBs,
• Other systemically important institutions (see BaFin’s list for an overview),
• German institutions with a total value of assets equal to or greater than EUR 30 billion,

must notify their intent to appoint new members to the management board to BaFin and Bundesbank at the latest 30 working days before the prospective members take up their position. The same holds true for a new chair of the supervisory board of such institution. However, in relation to this position (only), an exemption from the early filing requirement applies in cases where the appointment of the chair is governed by acts on the representation of employees or the chair is appointed by regional or elected bodies. This earlier notification gives supervisors more time for their suitability assessments and means that banks will need to plan appointments much more carefully. Compliance with this new deadline should be monitored closely, as late notifications can be fined. 

The requirement to notify the supervisors at an earlier stage about intended appointments should also be read in conjunction with the ECB’s (draft) recommendations on succession planning, as supervisors will expect institutions to establish more formalised processes for potential future board appointments.

The early notification procedure described above contrasts with the procedure for smaller institutions, which can continue notifying supervisors as before, i.e. (i) the intention to appoint new candidates to the management board and (ii) the actual appointment of new candidates to the supervisory board must be notified to BaFin and Bundesbank without undue delay (i.e. regularly no later than two weeks after the appointment).

In addition, the Draft Act further clarifies that the same procedure applies to deputy management board members that shall exercise the function of the respective management board members in case of his/her absence.

2. Stronger supervisory powers for BaFin

The Draft Act also makes it crystal clear: board appointments can be blocked if the person is not deemed “fit and proper” by BaFin. BaFin is given the authority to prevent unsuitable individuals from taking up a position - even if this is simply due to incomplete or insufficient information provided in the notification procedure (cf. Sec. 25c (1c) and Sec. 25d (1c) KWG). This is a major shift. While under the current fit and proper framework it was good practice to informally introduce in particular new candidates for the management board or the chair of the supervisory board to BaFin before the appointment as part of the notification procedure, no statutory intervention powers were stipulated that would have enabled BaFin to prevent the appointment from the outset (although subsequent removals are possible). The new provisions therefore introduce a conceptual change and an arguably stricter supervisory approach. 

In line with the above, it is now clearly stipulated that institutions must ensure that a management or supervisory board position is not assigned or is terminated if the candidate is not fit and proper. Alternatively, measures must be applied to ensure that the candidate fulfils the requirements, which can be regularly fulfilled by offering the required trainings in a timely manner (cf. Sec. 25c (1b) KWG and Sec. 25d (1) KWG).

3. Training and induction

Institutions will need to devote sufficient time and resources to board member inductions, including on topics such as ESG and ICT risk, indicating that these aspects will be given greater weight in the context of the suitability assessment (cf. Sec. 25c (4) KWG). The new ESG and ICT-related fit and proper requirements are further detailed in BaFin’s consultation for an updated circular on members of the management and supervisory boards (see our blogpost for an overview).

4. Mapping of duties and individual responsibility

All institutions will be required to draw up an overview of the duties and individual responsibilities of all members of the management board, of senior management and of KFHs (Sec. 25c (4a) no. 8 KWG). What appears to be as a simple documentation requirement will in reality be a burdensome exercise for institutions and concerned individuals, as those requirements are further specified by EBA’s draft guidelines on internal governance (Draft Guidelines), which were published on 7 August 2025. 

The overview of duties is referred to by EBA as “mapping of duties”. Institutions are supposed to draw up and maintain a repository of the duties of the in-scope persons, including reporting lines and lines of responsibility. The mapping of duties aims at enabling the institution to identify any gaps between the roles and the activities covered by the institution and ensure an effective internal governance framework. 

The mapping of duties is accompanied by individual statements of roles and duties. Institutions must create, maintain, and update detailed individual statements specifying the roles and duties for each management board member, KFH and senior management member. The Draft Guidelines provide for a specific form for such statements.

The individual statements and mappings must be submitted to competent authorities, raising the question whether they will not only be the basis for a mapping of duties but also a mapping of responsibilities, as violations of the duties may have an impact on, among others,

• the remuneration of the individual (malus and clawback),
• the person’s fitness and propriety and thereby his/her position,
• BaFin measures, which may also be used against individuals “responsible” for a violation (Sec. 6 (3) KWG), or 
• periodic penalty payments (PPP) levied against individuals (Sec. 50 (1) KWG).

The fact that PPPs can be levied against individuals is in itself a noteworthy novum. Under the new Sec. 50 (1) KWG, PPPs can be imposed on members of the management and supervisory boards, KFHs and other individuals to the extent that they are “responsible” for an infringement. What the concept of “responsibility” entails remains unclear under the current legislative proposal and should be clarified. 

II. Changes relevant to key function holders

The Draft Act introduces a new fit and proper regime for KFHs. The regime differentiates between ‘simple’ KFHs and holders of ‘special’ key functions:

• KFHs are persons that have a significant influence over the direction of an institution but are not members of the management body. The exact scope of roles falling under the term of KFHs remains unclear and will have to be defined by the institutions themselves (at entity and group level). EBA considers, for example, the heads of important business lines or of significant branches to be KFHs.
• Special KFHs are (not conclusively) the heads of the internal control functions (risk, compliance, internal audit) and the CFO. Which additional persons are to be considered as special KFHs is not specified in the legislative proposal.

All KFHs will be subject to fit and proper requirements under the Draft Act (Sec. 25e KWG). Institutions must ensure that these persons have the sufficient expertise and are reliable. 

With respect to special KFHs, large companies will be subject to additional requirements akin to those for members of the management board. This includes requirements to 

• notify BaFin and Bundesbank regarding their appointment and dismissal; and
• obtain the prior consent of the supervisory board before their dismissal.

In relation to special KFHs, BaFin is also given the supervisory powers set out under I.2. above. 

III. Honourable mentions

The Draft Act does not only address changes in the fit and proper regime of credit institutions, as the implementation of CRD 6 might suggest. In a case of (intentional or unintentional) gold plating, the Draft Act extends the application of the new requirements to a considerable extent also to institutions that qualify as ‘financial services institutions’ under German law, eg leasing firms. 

Moreover, the new requirements are also applied to the boards of financial holding companies (FHCs). This harmonisation means FHCs must meet the same (i) fit and proper requirements (including in particular mandate restrictions, see full reference to Sec. 25c KWG) and (ii) notification requirements regarding the appointment and resignation of management board members and KFHs as banks. The extension of the full set of fit and proper requirements to FHCs is mirrored by the application of the Draft Guidelines to FHCs.

IV. Next steps

The consultation period runs until 9 September 2025. A government draft (Regierungsentwurf) should follow soon after, with a final act due to be published by 10 January 2026 to meet the CRD 6 deadline - a tight schedule!

V. Bottom line

Germany’s road to CRD 6 means stricter, and more harmonised fit and proper standards for bank management and supervisory boards, and KFHs. Banks should prepare for more rigorous planning, documentation, and regulatory scrutiny - especially if they qualify as “large companies” under the new regime.