Fit & Proper: New requirements to key function holders under BRUBEG

Since the entry into force of BRUBEG on 31 March 2026, the KWG contains seven key provisions relating to key function holders:

1. Section 1 (2b) and (2d) KWG: introduction of statutory definitions of "key function holders" and "holders of special key functions";
2. Section 24 (1) no. 15b and no. 16, Section 24(2a) and Section 24(3a) sentence 1 nos. 6 and 7 KWG: notification requirements concerning the appointment and removal of holders of special key functions at large institutions, as well as obligations to notify newly emerging facts that materially affect the original assessment of their propriety, suitability, expertise or sufficient time commitment;
3. Section 25e KWG: substantive requirements applicable to key function holders, institutional obligations to ensure the proper performance of key functions and supervisory intervention powers in cases of non-compliance;
4. Section 25c (4a) no. 7 and Section 25c(4b) sentence 2 no. 7 KWG: management body responsibility for implementing appropriate policies and procedures to ensure compliance with the requirements set out in Section 25e(1) KWG;
5. Section 6 (3) KWG: extension of BaFin's general supervisory powers, enabling it to issue orders directly against key function holders where necessary to prevent or remedy breaches of supervisory requirements or deficiencies that may endanger assets entrusted to the institution or impair the proper conduct of banking business or financial services;
6. Section 25d (11) sentence 1 no. 5 KWG: expansion of the nomination committee's supporting role in reviewing management body's policies concerning the selection and appointment of key function holders; and
7. Section 50 (1) sentence 1 KWG: authority for BaFin to impose periodic penalty payments on key function holders in cases of continued non-compliance with the KWG, related statutory instruments, Regulation (EU) No. 575/2013 (CRR) or enforceable supervisory measures.

(1) Definition of Key Function Holders

Pursuant to the statutory definition in Section 1 (2b) KWG, key function holders are individuals who exert a material influence on the management of an institution without being members of the management body or the administrative or supervisory body.

The legislator therefore places key function holders conceptually in an intermediate position: below the formal management level, yet sufficiently close to strategic decision-making processes to justify supervisory oversight. The classification cannot be determined uniformly. Rather, it requires an institution-specific assessment that takes into account the institution's business and risk strategy, risk profile, organisational structure, and the supervisory principle of proportionality.

The concept of "material influence" constitutes an indeterminate legal term and therefore requires interpretation and practical specification. Relevant assessment criteria may include:

• the individual's influence on corporate management;
• reporting lines and hierarchical proximity to the management body;
• decision-making authority;
• influence on the institution's risk profile; and
• whether the position constitutes a potential single point of failure.

An additional indicator may be the existence of a statutory or regulatory obligation to establish the function. A notable example is the Anti-Money Laundering Officer pursuant to Section 7 (1) sentence 1 of the German Anti-Money Laundering Act (Geldwäschegesetz, GwG).

The EBA/GL/2021/06, which BaFin has not formally adopted, further identify heads of significant business lines, heads of branches within the EEA or EFTA, and heads of third-country subsidiaries as potential key function holders. In practice, however, the latter category will frequently qualify as de facto managing directors under Section 1 (2) KWG.

By definition, all holders of special key functions constitute key function holders. Pursuant to Section 1 (2d) sentence 2 KWG, this category expressly includes:

• heads of internal control functions; and
• the Chief Financial Officer (head of finance),

provided that they are not themselves members of the management body.

The legislator has deliberately refrained from identifying any further special key functions. The wording of Section 1 (2d) sentence 2 KWG ("This includes ...") indicates an intention to exhaustively define the category. Had additional functions been contemplated, this would likely have been reflected through illustrative examples or broader wording.

It remains to be seen which additional positions supervisory authorities and administrative courts may ultimately classify as key functions.

(2) Process for Identifying Key Function Holders

Institutions are required to conduct a comprehensive assessment of positions within the organisation against the criteria outlined above.

This assessment must be distinguished from the identification of material risk takers (MRT) under Section 25a (5b) KWG. While MRT analyses focus on an individual's influence on the institution's risk profile, the identification of key function holders centres on the individual's influence on the management and direction of the institution.

To facilitate a robust and defensible identification process, institutions should establish an appropriate assessment framework. A practical approach is the implementation of a structured evaluation matrix that quantitatively assesses both the position and the individual office holder against predefined criteria.

In governance practice, such matrices typically employ a four-tier or five-tier scoring methodology for each criterion. Quantitative thresholds may then be used to determine whether a position automatically qualifies as a key function or whether a holistic overall assessment is required. Such methodologies enhance transparency, consistency and auditability of the assessment process.

Pursuant to Section 24 (1) no. 15b KWG, large institutions within the meaning of Section 1 (1c) KWG are required to notify BaFin of the appointment of holders of special key functions, including all information necessary for the assessment of their reliability and professional suitability. Furthermore, under Section 24(1) no. 16 KWG, the removal of holders of special key functions must also be notified to BaFin, including, where applicable, the approval of the administrative or supervisory body required pursuant to Section 25c (4a) no. 3 lit. i) KWG.

Equivalent notification obligations apply to financial holding companies and mixed financial holding companies pursuant to Section 24 (3a) sentence 1 nos. 6 and 7 KWG.

For the purposes of these provisions, the term "large institution" is defined by reference to Article 4(1), point (146), of Regulation (EU) No. 575/2013, as amended by Regulation (EU) 2024/1623 (CRR III), pursuant to Section 1 (35) KWG.

(1) Structure of the Provision

Section 25e KWG establishes a three-tier regulatory framework.

First, Section 25e (1) KWG sets out the core substantive requirement that holders of key functions must be professionally suitable and reliable.

Second, Section 25e (2) KWG requires institutions, financial holding companies and mixed financial holding companies to take all necessary measures to ensure the proper performance of key functions.

Third, Section 25e (3) KWG provides BaFin with specific supervisory intervention powers in relation to holders of special key functions.

(2) Substantive Requirements under Section 25e(1) KWG

The concept of professional suitability (fachliche Eignung) is not expressly defined in the KWG.

The EBA and ESMA, in EBA/GL/2021/06, as well as BaFin in its BaFin Circular 2025, have stated that the concept should be interpreted by reference to the principles applicable to the assessment of suitability of members of management bodies. Accordingly, holders of key functions must possess sufficient knowledge, skills and experience relating to the professional and managerial responsibilities associated with the relevant function. The assessment of knowledge, skills and experience must take due account of the specific role and responsibilities of the position concerned.

Consequently, suitability is not assessed against an abstract or generic competency framework. Rather, in accordance with the principle of proportionality, the relevant benchmark is the institution-specific requirements profile of the respective key function.

BaFin has further stated in Circular 2025 that institutions may rely on the assessment principles applicable to members of the management body when evaluating the suitability and reliability of key function holders, provided that the requirements are calibrated to reflect the specific function concerned.

Unlike professional suitability, reliability (Zuverlässigkeit) does not require affirmative proof. From a supervisory perspective, reliability is presumed unless specific facts give rise to doubts regarding the individual's integrity. Accordingly, there is a rebuttable presumption of reliability that is displaced only where credible evidence to the contrary exists.

Relevant indicators of potential unreliability may include, in particular criminal investigations or convictions, offences involving dishonesty or financial misconduct, tax offences; and previous supervisory or regulatory enforcement measures.

Both professional suitability and reliability constitute continuing regulatory requirements. They must therefore be satisfied not only at the time of the initial appointment but throughout the entire period during which the individual performs the relevant key function.

(1) Institutional Obligations and Personal Responsibilities of Management Body Members

Compliance with the substantive requirements set out in Section 25e(1) KWG is safeguarded at two distinct levels.

First, pursuant to Section 25e (2) KWG, institutions are required to take all necessary measures to ensure the proper performance of key functions, including replacing a key function holder who no longer satisfies the statutory requirements.

Second, Section 25c (4a) no. 7 KWG expressly establishes this governance responsibility as a personal duty of the members of the management body. Management body members must ensure that the institution maintains appropriate policies, procedures and governance arrangements capable of ensuring ongoing compliance with Section 25e (1) KWG at all times.

At group level, an identical responsibility applies to the management body members of the parent undertaking pursuant to Section 25c (4b) sentence 2 no. 7 KWG.

(2) Requirements Applicable to Policies and Procedures

The required policies and procedures must, at a minimum, include an ex ante suitability assessment prior to appointment, periodic reassessments during tenure; and event-driven reassessments whenever circumstances arise that may materially affect the original suitability determination.

Ad hoc reassessments may become necessary, for example, where criminal investigations become known, new conflicts of interest arise, or significant changes occur in the scope of responsibilities associated with the function.

In practice, institutions should in particular:

• establish a formal process for identifying key functions;
• implement internal policies defining responsibilities, reporting lines, assessment criteria and documentation requirements;
• comprehensively document suitability assessments and the management of conflicts of interest in order to provide evidence to supervisory authorities upon request; and
• develop appropriate processes, particularly within large institutions, to ensure compliance with the notification requirements under Section 24(1) nos. 15b and 16 and Section 24(2a) KWG, including the reporting of newly emerging circumstances that may materially affect the original suitability assessment.

For ex ante suitability assessments, institutions may, for example, use standardised questionnaires that are subsequently updated and completed at regular intervals.

Consistent with EBA/GL/2021/06, institutions should take into account their size, internal organisation, and the nature, scale and complexity of their activities when designing and implementing internal policies and procedures.

Significant institutions within the meaning of Section 1(3c) KWG, and potentially also certain non-significant institutions within the meaning of Section 1(3) sentence 2 of the Institutsvergütungsverordnung (InstitutsVergV), should generally maintain more sophisticated policies and governance frameworks. Non-significant institutions may adopt proportionately simplified arrangements.

(3) BaFin's Powers of Intervention

Where a holder of a special key function fails to satisfy the requirements of Section 25e(1) KWG, BaFin may, pursuant to Section 25e(3) KWG require that the individual not be appointed to the relevant position, require that the individual be removed from the position; or require the institution to implement all necessary measures to ensure compliance with the statutory requirements.

In addition, BaFin may rely on its general supervisory powers under Section 6(3) KWG. In cases of continued non-compliance, BaFin may also impose periodic penalty payments pursuant to Section 50(1) KWG, expressly including payments imposed directly on holders of key functions.

Through BRUBEG, the German legislator has introduced a comprehensive standalone fit and proper regime below management body level, creating an immediate need for action across the banking sector. Institutions are required to establish a structured process for identifying key function holders, develop institution-specific suitability profiles for relevant positions, and implement robust governance, assessment and documentation frameworks. Large institutions must additionally integrate the newly introduced notification obligations into their governance arrangements and regulatory compliance processes. Given BaFin's extensive powers of intervention and enforcement, institutions are well advised to address the new requirements at an early stage.

At the same time, institutions should closely monitor ongoing regulatory developments at the European level. During the second quarter of 2026, the EBA and ESMA conducted a joint consultation on revised Joint Guidelines on the Suitability Assessment of Members of the Management Body and Key Function Holders of Credit Institutions and Investment Firms (EBA/CP/2026/03). The consultation reflects the amendments introduced by CRD VI and implements these changes through the European supervisory framework of so-called soft law. Its objective is to further strengthen and harmonise the EU fit and proper regime applicable to the governance of credit institutions and investment firms. Taking into account the feedback received during the consultation process, it is expected that the revised Guidelines will provide additional clarification regarding, inter alia suitability requirements, including relevant knowledge of material ESG risks and sustainability-related factors, the application of the supervisory principle of proportionality when assessing suitability and reliability, the frequency of periodic reassessments of suitability and reliability, and reporting obligations vis-à-vis the competent supervisory authorities. The revised Joint Guidelines are expected to enter into force six months after publication of all official language versions and no later than 31 December 2026.

In parallel, the EBA has published draft Regulatory Technical Standards ("RTS") establishing minimum requirements concerning the content of suitability questionnaires, curricula vitae and internal suitability assessments that institutions must submit to competent authorities pursuant to Article 91(1d) CRD VI. Pursuant to Article 91(10) CRD VI, these RTS are intended to harmonise submission requirements across the European Union and reduce inconsistencies arising from divergent national approaches. We will continue to monitor these developments closely and keep you informed of further regulatory and supervisory developments.