Clifford Chance

Updated German Outsourcing Requirements

12 February 2021

Following Wirecard AG's fraudulent activities and subsequent insolvency, with its adverse economic impact on institutional investors as well as small investors, Germany devised an action plan for combating financial reporting fraud and strengthening controls over financial markets. The action plan is legislatively transposed in the governmental draft law on "the strengthening of the integrity of the financial market" (Finanzmarktintegritätsstärkungsgesetz – FISG). One aspect of the multifaceted Draft relates to outsourcing, inadequacies of which also became apparent in the Wirecard AG case. The Draft introduces new rules to the German Banking Act (Kreditwesengesetz, "KWG") for outsourcing, substantially enhancing how outsourcing is to be conducted and managed. Importantly, the new rules are targeted not only at German credit and financial services institutions but also explicitly at the outsourcing service providers themselves (including their sub-contractors), irrespective of where they are geographically located. The new rules timely reflect (and partly go beyond) the approach thereon under the EBA's guidelines on outsourcing arrangements. This briefing gives an overview of the new outsourcing rules for banking and financial services in Germany.

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