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 2
Banking Supervisory law EU law German law Capital Requirement Regulation German banking act (KWG) (EU/575/2013) (regulates credit institutions, licences, Capital Requirement Directive supervisory rules, business rules for (2013/36/EU) banks, capital requirements) (implementation of Basel I, II and soon III, general European principles for banking supervision for credit and financial institutions) Bausparkassen are deposit taking credit institutions and fall under the German Banking Act and European Directives and Regulation 3
Banking Supervisory law EU law German law German Bauspar Act (BSpkG) No rules for from 16.11.1972 Bausparkassen at EU level (regulates Bausparkassen as specialised apply credit institutions, business is limited to savings collections for and granting Bausparkassen mortgage loans only, plus granting of certain housing loans, no investment activities, no payments services or other supervises banking business allowed) German Banking Supervisor German Bauspar Regulation (BspkVO) from 29.12. 2015 (stipulates ceilings for the investment of available funds and the granting of specific loans) 4
Banking Supervisory law Content of the Bausparkassen Act legal form of specialised § 1 Bausparkassen Act credit institution (public limited (1) Bausparkassen are credit institutions, whose business objective is to accept companies or under public law) bauspar deposits (Bauspareinlagen) from bauspar customers (Bausparer) and to grant bauspar loans (Bauspardarlehen) from these aggregate savings to bauspar specific audit and customers for housing finance activities. Only bausparkassen are authorized to supervision by the German conduct this aforementioned bauspar business (Bauspargeschäft). Banking Supervisor rules on permissible business activities 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 5
Banking Supervisory law 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, only 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 6
Banking Supervisory law 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 7
Banking Supervisory law 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 8
Banking Supervisory law 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 9
Civil law rules for saving and credit contract 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 Voluntary additional deposit their balance sheet position „ obligations towards guarantee by the private Bausparkassen customers “ Covers Bauspar deposits unlimited and other deposits < 250.000 € 10
Civil law rules for saving and credit contract 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 11
What is really necessary? It depends a. Should it be a regulated product b. Should it be regulated specialised credit institution? 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 12
What is really necessary? - 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 13
What is really necessary? 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 14
Any further questions? Christian König Head of Legal Affairs Tel: +49/30/ 59 00 91 515 koenig@bausparkassen.de www.bausparkassen.de 15
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