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European Federation of Building Societies

The European Federation of Building Societies is an association of specialised credit institutions (Bausparkassen) that promote and support the financing of homeownership. The Bauspar business is regulated by specific national Bausparkassen laws. In accordance with the strict legal requirements, Bausparkassen offer their customers contractual, long-term investment-based savings concepts for creating equity and grant them loans, secured by mortgages.
We support efforts to implement an effective risk-based approach to supervision by the relevant authorities in the area of preventing money laundering and terrorist financing.
Given the increasing importance of the sectoral risk assessment planned according to Guideline 4.3, we strongly advocate that the European Bausparkassen, due to their legally clearly limited Bauspar business, which focuses on real estate financing for consumers, as well as the resulting uniformly low risk level regarding money laundering and terrorist financing will be recognised as a separate sector in the future.
Bausparkassen are now active in many EU countries with around 40 million Bauspar contracts. In countries in which Bausparkassen operate, they play an important role in financing the acquisition and the energetic or age-appropriate modernisation of private real estate.
As specialised credit institutions, Bausparkassen are limited in their business to Bauspar saving and real estate financing. Bausparkassen, for example, do not have current accounts, do not issue credit cards or other payment cards, and do not conduct any securities business, so that many risky banking products are not offered by Bausparkassen.
The concept of Bauspar savings is based on the idea of pooling the savings of a group of savers to provide the necessary funds to finance homeownership in a shorter time than would be possible for individual savers. For this purpose, customers of Bausparkassen conclude a Bauspar contract for the required Bauspar sum. In doing so, they commit themselves to regular deposits of savings. If after about eight years 40% or 50% of the Bauspar sum have been saved, the savers are entitled to a Bauspar loan in the amount of the difference between the Bauspar sum and the saved credit. The saved equity keeps the financing burden within acceptable limits, while the fixed interest rate of the loan offers protection against rising market interest rates.
In relation to the need for a risk assessment at the sectoral level, which we also see, it follows that the European Bausparkassen, due to the structural peculiarities of the Bauspar business and due to the customer structure, with regard to money laundering and terrorist financing, consistently show "a less significant risk" than other credit institutions. Bausparkassen should therefore be recognised as a separate sector, at least as a separate subsector, within the meaning of the guidelines consulted and also within the meaning of II of the EBA guidelines on AML / CFT risk factors referred to in Guideline 38 (see our answer to question 3).
In any case, as specialised credit institutions operating in a low-risk environment, considering the risk-based approach, Bausparkassen should always be viewed as an industry cluster within the meaning of the guidelines consulted. For creating a cluster, only the risk level of the individual Bausparkassen should be taken into account, regardless of any different risks of group-affiliated institutions with different business areas and customer structures (see our answer to question 2).
We comment on some of the questions from the consultation paper as follows:

Question 1:
With regards to the amendment of 14 e)
We advocate that the following terminology remain unchanged
• „Obliged entities” instead of the proposed term „subjects of assessment”
and thus, we suggest deleting the following paragraph of the consulted Guideline 2 paragraph 8 (Definitions):
„Subject of assessment Means a credit institution or a financial institution or a cluster, categorised according to criteria laid down by the competent authorities.”
For ease of reading and better comprehension of the consulted guidelines the term „obliged entities” should be retained. Further, this term is absolutely common in the field on combating money laundering and terrorist financing. In particular, Directive (EU) 2015/849 also uses the term „obliged entity”.
Moreover, the replacement of the term „obliged entities” by the term „subjects of assessment” is not necessary to define the term „cluster”.
With regards to the amendment of 18 c) the following should be added to the proposed amendment of Guideline 4.1 paragraph 18

"Competent authorities should consider whether they will treat credit institutions or financial institutions in the same sector that form part of the same domestic financial group as one “subject of assessment” but should not cluster them. Clustering should be avoided if an institution differs from the other group institutions in terms of its business activities and therefore has a different level of risk than the other institutions in the domestic financial group.”

The efficiency of risk-based supervision should be improved by clustering credit institutions and financial institutions that have the same risk of being abused for money laundering or terrorist financing, regarding their business activities.

However, it is not compatible with the concept of cluster to group institutions with the same level of risk and regard them as one obliged entity in terms of supervision if institutions belonging to a group have different business models resulting in a different level of risk.

At least for the purpose of clustering according to Guideline 4.1, only the risk level of the individual institution should be taken into account, without taking into account any deviating risks of institutions belonging to the group. If higher or lower risks of the other institutions belonging to the group were to be taken into account in the clustering, this could de facto lead to the exclusion of a risk-appropriate clustering for similar institutions of a sector, insofar as these institutions are part of a domestic financial group.
With regards to the amendment of 21 n)

As long as Bausparkassen are not recognised as a separate sector, the following clarification should be added to the consulted Guideline 4.2 paragraph 38 with regard to the Bauspar sector:

"Depending on the size of a sector and the nature of the subject of assessment within this sector, competent authorities should consider subdividing sectors into sub-sectors. This may be necessary where a sector consists of very different subject of assessments because a significant proportion of the assessment subjects have similar characteristics and business models that differentiate them from the rest of the sector. Similar characteristics include, but are not limited to, the types of products and services offered, the distribution channels used and the types of customers they serve. Sub-sectors may include money remitters, private banks and brokerage firms, which are sub-sectors of payment institutions, credit institutions and investment firms respectively. Bausparkassen may also be recognised as a sub-sector due to their limited business model. To get an idea of the sectors and sub-sectors and their specific characteristics, competent authorities should refer to II of the EBA guidelines on AML/CFT risk factors."

EBA’s classification of sectoral guidelines does not consider the economic importance of Bausparkassen and their little significant risks of being used for money laundering or terrorist financing according to their limited business model.

We assume that Bausparkassen could be considered as belonging to sector 9 for retail banks according to II of the EBA guidelines on AML/CFT risk factors. However, compared to retail banks, Bausparkassen always have a less significant risk for the following reasons below. Against this background, Bausparkassen should be recognised as a separate sector or at least as a separate sub-sector:

• The business activity is limited to Bauspar savings for the purpose of real estate financing and pension schemes as well as to the granting of real estate loans for the purpose of acquiring residential property or for the age-appropriate or energy-efficient modernisation of private real estate.
• Bausparkassen do not grant consumer loans that can be used at will. They also grant no time loans and no credit lines. Bausparkassen exclusively grant loans for housing finance activities, which are secured by a mortgage. They do not maintain current accounts or payment accounts. This means that disposals of Bauspar accounts by the holders themselves or other third parties (e.g., in the form of a direct debit) are excluded. Disposals are only possible within the framework of the General Bauspar Conditions with the express consent of the Bausparkasse.
• Bausparkassen also do not allow cash deposits or cash withdrawals.
• Savings and redemption payments are made on a cashless basis almost exclusively via a domestic account.
• The savings payments on Bauspar contracts are contractually limited. The customer's monthly savings represent small amounts corresponding to between 3 ‰ and 10 ‰ of the agreed Bauspar sum. The savings interest is not placed at the customer's free disposal but credited to the Bauspar account
• The credit balance saved on Bauspar contracts, which is used to accumulate equity capital for real estate financing, can only be called up many years after the Bauspar contract has been allocated. In this case, a Bauspar loan can be granted for housing purposes in the amount of the difference between the Bauspar sum and the Bauspar credit balance. If the Bauspar contract is terminated, notice periods of several months apply for the disbursement. During the term of a Bauspar contract, partial disbursements from the Bauspar contract are excluded.
• Occasional transactions do not occur at Bausparkassen: Payments into Bauspar accounts are made exclusively within the framework of an existing business relationship.
• Long-term savings on Bauspar contracts and, if applicable, also repayments on Bauspar loans is subsidised by the state in most Member States in order to promote the acquisition of residential property.
• A Bausparkasse knows its Bauspar customer usually for many years. Bauspar contracts are regularly concluded after a personal conversation and are designed for many years.

The recognition of Bausparkassen as a separate sector or at least as a separate sub-sector would contribute to strengthening the efficiency of risk-based supervision.
Kathrin Holler
E