The resolution of financial institutions and the surrender of banking licences are key processes in the financial services sector that ensure that financial institutions are closed in an orderly and efficient manner, in whole or in part, when they cease to operate. The return of the banking licence is the formal act by which a bank returns its permission to operate and ends its regulatory obligations.
Both the resolution of a financial institution under the resolution regime* and the cessation of certain or all financially regulated activities for business policy reasons may require a controlled wind-down of these activities under the supervision of the German Federal Financial Supervisory Authority (BaFin).
This raises commercial, operational-organisational and legal questions, which ideally need to be answered taking their interactions into account. At KPMG, we have developed solutions in interdisciplinary teams of experts as part of various projects.
In our experience, there are five main challenges, which we categorise in this article:
- (Technical) complexity and high operational effort throughout the entire settlement process
- Development of a viable wind-up plan including time and financial planning
- Complexity in the processing of IT systems
- Complexity in closing accounts and paying out all deposits
- Resource and capacity bottlenecks as the wind-down progresses
The general objectives of a wind-up include a structured and efficient wind-up process, ongoing compliance with all regulatory requirements until the banking licence is returned, but also the fair treatment of customers, partners and employees and the protection of the bank's reputation (also vis-à-vis the parent company if part of a group).
The following five central focal points must be taken into account as part of a wind-up:
Processing customer and product portfolio
• Settlement of the entire customer base by cancelling all accounts (incl. blocked/attached accounts) and paying out all deposits to the beneficiaries
• Processing of the entire product portfolio including credit and loan business
• Cancellation of the federal bank account including the payment function
Processing suppliers and contracts
• Termination of contracts with suppliers and service providers
• This process includes, among other things, negotiations on how and when the contractual relationship can be terminated (possibly prematurely)
HR dismantling
• Preparation of a social plan/balancing of interests plan
• Development of measures to retain key personnel
• Reduction in headcount in line with the ongoing downsizing of the business
• Creation and implementation of a communication plan
IT processing
• Selecting a suitable data retention provider and setting up a third-party data storage solution
• Carrying out the data migration
• Technical and organisational set-up of data processing after processing
Return of banking licence
• The prerequisite for the return of a banking licence is that banking business is no longer conducted
• Regular communication with and review by the supervisor
Typical challenges
- (Technical) complexity and high operational costs: The resolution of financial institutions requires the management of technical complexity and high operational costs.
- Development of a viable resolution plan: A comprehensive resolution plan, including timing and financial planning, is necessary to make the process structured and efficient.
- Ensuring compliance with regulatory and business requirements: Compliance with all regulatory and business requirements and guidelines as well as efficient communication with supervisory authorities is crucial for the smooth return of the banking licence.
- Complexity in closing accounts and paying out all deposits: Closing accounts and paying out all deposits, if necessary via a depository, as well as closing special cases such as frozen accounts (e.g. in the event of fraud or seizure accounts) may require a great deal of operational and sometimes manual effort.
- Resource and capacity bottlenecks: The gradual reduction in personnel can lead to resource and capacity bottlenecks that impair the settlement process.
- Complexity in IT processing: Data is often not clearly labelled and fully documented, which makes it difficult to identify data relevant to archiving and to clarify responsibilities regarding information on authorised requests after processing
KPMG procedure model
Our proven process model comprises three phases: preparation, the return of the banking licence and the operational wind-up of the bank.
We would like to take a closer look at three key topics below: Operational processing and dismantling of business operations, IT processing and parallel development of the archiving solution for data relevant to retention, as well as legal aspects.
The primary objective in winding up a bank is to return the banking licence. This presupposes that no more banking business is conducted, including the deposit business.
Therefore, the main priority in winding up the customer portfolio is to pay out all deposits to the beneficiaries and close the accounts within the agreed schedule while ensuring fair treatment of customers. Furthermore, the focus is on winding up the product portfolio (including the credit and lending business) and dismantling customer-related systems and the payment function.
Processing customer and product portfolio as well as the payment function
The development and implementation of suitable communication measures to inform all customers in good time about the closure of the institution, the associated closure of all accounts and the payout of all deposits are of crucial importance. In particular, the high operational effort and a usually ambitious schedule as well as compliance with all legal requirements pose major challenges.
The structured closure of customer accounts and the payout of deposits to the beneficiaries, for example by transfer to a reference account, require careful planning and preparation. External factors in particular must be taken into account, such as coordination with local authorities and courts, especially for the deposit of deposits for customers who do not respond despite cancelling their accounts. It should be noted that neither the German legislator nor the competent administrative authorities provide for regulations or established procedures to close a large number of non-responsive accounts.
For customers and beneficiaries who cannot be reached as part of the communication measures for a variety of reasons (e.g. moving away, no interest, death, etc.) and whose deposits therefore cannot be paid out without further ado, an application for deposit must be filed with the relevant local court. These measures represent a very high and usually manual operational effort for banks.
Processing of customer-related products (including credit and loan business)
A further objective in the context of winding up the banking business is to reduce the loan portfolio and discontinue all incoming lending activities, particularly in connection with instalment loans and overdrafts. The following issues in particular need to be addressed in this context:
Settlement of the payment function and cancellation of the Bundesbank account
With the cancellation of the payment function at the Bundesbank, the possibility of processing payments via the Bundesbank is terminated.
The following aspects are affected by the cancellation of the payment function:
It is important to observe the cancellation periods and conditions set out in the contract with the Bundesbank to ensure that the cancellation is carried out properly. Cancellation is usually effected by written notification to the Bundesbank.
As part of the winding up of the business, including IT, all outsourcing or procurement of services from external partners and service providers must be recognised and terminated as soon as they are no longer required for the remaining operations. Contracts with suppliers and service providers must also be terminated. This process includes, among other things, negotiations on how and when the contractual relationships can be terminated prematurely if necessary.
As part of the HR process, the reduction in headcount is to be understood in line with the ongoing reduction in business. The following topics need to be considered:
A gradual reduction in staff entails resource and capacity bottlenecks, which can be solved by commissioning external service providers and consultants to support the overall project from a conceptual and project management perspective as well as in the context of day-to-day operational tasks.
In addition to the dismantling of business activities, a controlled dismantling of IT is also necessary. An organised and coordinated approach is important as legal retention obligations for the relevant data must continue to be complied with beyond the wind-up date. As part of the orderly dismantling of IT, the data relevant to retention must be identified and migrated to the archiving solution. The migration must be monitored and the responsibilities for the period after the institution has been wound up must be clarified in good time.
The IT wind-down process can basically be divided into five phases. These are accompanied by a support phase, which serves to coordinate with the business wind-down taking place at the same time. The sixth and final phase covers operations after the wind-down. The following project plan provides an overview of the most important building blocks and project phases:
At the beginning of the project, it must be clarified what the responsibility structures will look like after the company has been wound up. Essential questions include the long-term and secure archiving of data. In addition, it must be determined at an early stage who will be responsible for the timely deletion of the data and for processing legitimate enquiries after the wind-up. This role can be assumed by a data trustee, for example. The clarification of subsequent responsibilities forms a central basis for the further course of the project.
A suitable IT provider must be found to set up and operate the technical infrastructure of the archive solution. This provider must fulfil the regulatory requirements of the financial sector and be solvent enough to minimise the risk of default for the next 10 years. As part of a "Request for Proposal" (RfP), the framework conditions can be defined and a pre-selection of providers can be made. Once the final IT provider has been found, the corresponding contractual basis must be created. If it was decided during the clarification of responsibilities that a data trustee should be appointed, a suitable contractual partner must also be found here.
In order to prepare the data for archiving, the scope of the specifications to be taken into account must be defined. In addition, corresponding data categories must be created depending on the specifications to be complied with. It is therefore important to develop a storage and deletion concept for archiving.
As part of analysing and documenting the existing IT landscape, it is important to identify those systems and storage locations that contain data relevant to retention. Special requirements apply to those systems that fall under the additional requirements of the principles of proper accounting and documentation ("GoBD") and the resulting extended documentation requirements.
An IT infrastructure must be prepared for the archiving of retention-relevant data. Appropriate precautions must be taken to ensure the security of the data.
As soon as technical dependencies on business activities have been resolved for a system, the corresponding front ends for customers or internal employees can be switched off. Once it has been ensured that the data is static, it can be prepared for migration. Once the data has been migrated to the archive system, it is validated for completeness and integrity. This iterative process is carried out for each system and for all retention-relevant data until all data has been fully archived.
All systems that are no longer required and whose data has been fully archived can now be completely dismantled. Contracts for operation and maintenance can now be cancelled.
To support the processing of post-processing requests, it is advisable to define scenarios for the most common requests (such as requests for account statements, annual tax certificates, investigation requests and tax audits). If possible, specific user interfaces ("UIs") can be developed to make it easier to respond to enquiries in the future.
Appropriate user documentation should also be created for the period after the wind-up so that people who are not familiar with the company or the wind-up project are also able to carry out their tasks. Complete project documentation is also important in order to fulfil regulatory requirements and meet potential audits.
After processing (depending on the clarification of responsibilities), the data trustee is responsible for compliant data storage. The core tasks include coordination between the data trustee and the IT provider regarding the deletion of data in accordance with the defined deletion concept and responding to legitimate enquiries from third parties.
What makes us special is that we don't just think about regulatory dismantling projects from a functional or technical perspective. Our interdisciplinary teams work closely with our law firm's lawyers from the outset - this is how we ensure that legal requirements are seamlessly integrated into operational implementation. An overview of the basic legal framework and an example of a special topic that we encounter time and again:
- continue to exist indefinitely as deposits subject to authorisation and thus prevent the "return" of the banking licence.
5 success factors for efficient processing
Early planning
Timely planning and preparation for the wind-down and the return of the banking licence are crucial for a smooth process. Early planning also includes putting together an integrated and interdisciplinary team to take over the operational management of the wind-down, including the phased takeover of corporate functions, the shutdown of IT and the clarification of legal issues arising in this context.
Project Management Office
The provision of a competent project management office to control the entire handling of all work packages is essential.
Efficient communication
Early and efficient communication with the supervisory authority and, if necessary, with courts and public authorities by experts is important to speed up the process.
Detailed personnel plan
It is necessary to draw up a detailed personnel plan for the orderly reduction of resources along the wind-up process, while ensuring continuous operations, including measures to secure management and key personnel.
Communication & action plan
The development of a detailed communication and action plan for the structured closure of accounts and repayment of deposits is crucial for a successful wind-up.
Our services - our added value
We are happy to support your project from the preparation and planning phase through the handling of the entire customer and product portfolio, including the deposit business and customer-related IT systems, right up to the return of the banking licence.
- We support you during the preparation and planning phase of the wind-down and the return of your banking licence to ensure a smooth and successful process.
- With holistic project management and our comprehensive technical expertise, we manage all work packages and ensure the smooth and efficient implementation of your project.
- We offer you comprehensive operational support in winding up your customer and product portfolio, processing all deposits and closing all accounts, including blocked and seized accounts. We also support you in dismantling customer-related systems and in cancelling the payment function and accounts with the Bundesbank.
- As part of the IT wind-up, we assist you in selecting a suitable provider for data storage, support the migration of your data to secure storage and ensure the technical and organisational set-up to guarantee efficient handling of the data after your bank has been wound up.
- We will assist you with all regulatory and legal issues when you return your banking licence and ensure compliance with all legal requirements. In addition, we offer you support in clarifying tax law issues and handle communication with supervisory authorities and courts.
KPMG offers comprehensive support throughout the entire wind-up process from a single source, including legal and tax issues - we utilise our KPMG network for this. Our efficient communication with regulators and our market-leading position in regulatory and compliance enable us to accurately assess the regulatory impact. We have completed several bank resolution and licence return projects and bring this experience to your project. We are familiar with the regulatory framework and can quantify the effort involved in winding up. We also offer strategic advice and support in the reorganisation of credit institutions and give our personal commitment to provide you with the best possible support.
Your contacts
Bernd Oppold
Partner, Financial Services
KPMG AG Wirtschaftsprüfungsgesellschaft
Marc Pussar**
Partner
KPMG Law Rechtsanwaltsgesellschaft
Christine Müller
Partner, Financial Service
KPMG AG Wirtschaftsprüfungsgesellschaft
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* In the 2007/2008 financial crisis, governments had to rescue large banks from collapse in order to protect the financial system from further damage. It was quickly agreed worldwide that there must be a global resolution regime to wind up institutions whose failure could have a significant negative impact on financial markets and the real economy. With the events surrounding the failure of Silicon Valley Bank and the emergency takeover of Credit Suisse in spring 2023, the debate on how to deal with banking crises once again attracted a great deal of attention."
Resolution authorities were therefore created to enable orderly resolution. The Single Resolution Board ("SRB") and the Federal Financial Supervisory Authority ("BaFin") are the resolution authorities responsible in Germany. As the national resolution authority, BaFin is responsible for German institutions that are not categorised as significant by the European Central Bank (ECB). BaFin is also responsible for financial market infrastructures with a banking licence. As a resolution authority, it is also responsible for central counterparties with and without a banking licence. In contrast to BaFin, the SRB is only responsible for the resolution of CRR credit institutions. It is responsible for institutions that are categorised as significant by the ECB, are cross-border or for which responsibility has been transferred to the SRB.
** The legal services are provided by KPMG Law Rechtsanwaltsgesellschaft mbH.