The 7th amendment to MaRisk (minimum requirements for risk management) in the financial sector contains several regulatory updates that affect financial service providers. To shed light on the situation, we have summarized the changes that are in store for companies below.
Regulation of the Real Estate Business
The 7th amendment to MaRisk is a major enhancement of the regulator regime that applies to financial service providers. In addition to newly introduced key aspects such as the consideration of ESG risks or the adoption of the EBA guidelines for monitoring credit approvals, the new requirements also include adjustments to regulations for managing real estate business.
But what exactly does “real estate business of financial service providers” mean? It is often confused with credit approval for real estate financing. In this case, however, it is important to note that the banks themselves act as real estate investors instead of merely financing transactions. In the last decade, real estate-related business has skyrocketed and emerged as a new, lucrative source of income, in light of low interest-rate policies by central banks.
Why Were the New Regulations Introduced?
Since the real estate business is still quite a young discipline in the financial sector, there are also comparatively few legal requirements and controls. The increased interest among financial institutions and the resulting large amounts invested are also highly susceptible to crises and can suffer heavy damage in case of a risk event. While detailed regulations have applied to the credit approval process for some time now, for example, there were no separate guidelines for real estate transactions. They have now been introduced as part of the 7th amendment to MaRisk in the form of a new model, BTO 3.
Content and Significance of the Requirements
Like the other topics involved with MaRisk, the new section also establishes guidelines. In other words, the banks are given a framework within which they can act. The aim is to define lean, principled rules for the organizational structure and the processes. Requirements of the lending business are also applied on a large scale to the requirements of the real estate business. The new rules will ensure that investments are preceded by a well-founded valuation and risk analysis and that portfolio properties are monitored.
The requirements must be met by all banks that have a real estate business volume of more than 10 million euros and/or whose balance sheet total in the real estate business exceeds two percent.
The new requirements are defined in the separate part 3 of MaRisk. The core content is summarized clearly below:
