In the financial sector, in addition to individual employment contracts, working conditions can be subject to various industry related statutes and regulations, collective bargaining agreements and works agreements.

Laws and regulations

As a reaction to the global financial crisis, the participants of the 2008 G20 summit in Washington, including Germany, agreed on the establishment and implementation of global standards of regulation, cross-border supervision and management to avoid conflicts of interest and to create an early warning system to avoid a repetition of the financial crisis.

In response to this resolution, the Financial Stability Board (FSB) published principles for sound compensation practices to be implemented by national governments.

In Germany, these principles were implemented through several statutes, in particular, with regard to remuneration:

  • Regulation on Supervisory Requirements for Institutions’ Remuneration Systems (Institutsvergütungsverordnung / InstitutsVergV) for credit institutions and financial services institutions
  • Remuneration Regulation for the Insurance Industry (Versicherungs-Vergütungsverordnung – VersVergV)
  • Sec. 37 Act on Capital Investment (Kapitalanlagegesetzbuch / KAGB) via national implementation of an EU directive with regard to capital portfolio and investment funds management
  • Amendment of Sec. 87 German Stock Corporation Act (Aktiengesetz / AktG) as a result of the Act on Appropriateness of Management Board Remuneration

The fundamental purpose of these principles is to impose compensation systems that do not incentivise employees and directors to assume inadequate risks. This is achieved by focusing on long-term contributions of employees, reduced variable remuneration components compared to the amount of fixed pay, deferred payouts of variable remuneration, clawback provisions, certain requirements with regard to severance payments and specific disclosure requirements.

In addition to the regulatory requirements, employment and labor law requirements have to be complied with when implementing such clauses.

Collective bargaining agreements

Further working conditions, such as provisions with regard to the type of activity (e.g. salesforce or back office, tariff scales / salary group and grading, special payments such as holiday pay or Christmas bonuses, working time, partial retirement, etc.) are subject to various collective bargaining agreements. These include:

  • Collective bargaining agreements for the public and private banking sector
  • Collective bargaining agreements for the private insurance sector
  • Collective bargaining agreements for cooperative banks

Works agreements

In accordance with local law, several working conditions can also be subject to works agreements. With regard to financial institutions, in practice, it is most relevant that compensation schemes as well as whistleblowing guidelines and procedures (see below) can only be implemented following consideration of the works councils’ co-determination rights.

Side note: Whistleblowing

In contrast to many common law systems, in Germany whistleblowing has neither been widely used, nor have rules or regulations been enacted in this regard until 2 years ago. In particular raising whistleblowing concerns externally raises issues relating to contractual fiduciary duties and obligations of protection and consideration between the employment parties.

  • With effect from July 2016 the German legislator has introduced a regulation to protect whistleblowers within the financial services sector, i.e. companies under the supervision of the German Federal Financial Supervisory Authority (BaFin). Under the Act on Financial Services Supervision (Finanzdienstleistungsaufsichtsgesetz / FinDAG) which came into effect following requirements of European law, BaFin provides a centralised reporting system for receiving whistleblower complaints (both anonymous or otherwise), of alleged violations of supervisory provisions within the financial sector. The Act stipulates that employees working for banks, financial services institutions, insurance companies, capital management companies, stock-listed companies subject to the German Securities Trading Act (Wertpapierhandelsgesetz / WpHG) and pension funds, who report potential or actual breaches of law may not be held liable for this either by their employer under employment law or by the state under criminal law, unless the notification was false and issued intentionally or by gross negligence.
  • Internal whistleblowing policies and procedures are not only subject to general requirements, such as employment and data protection law, but also to further regulations, for example the German Securities Trading Act (WpHG) and German Banking Act (Kreditwesengesetz / KWG).