As part of the framework of the risk and prevention management for the Deposit Protection System of German private banks, the Auditing Association conducts an audit of applications to join the Association in order to determine whether the prerequisites for participation in the Deposit Protection Fund (ESF) in accordance with § 3 Section 1 of the Deposit Protection Fund Statute are met (Admission Procedure).
Existing and newly-established CRR credit institutions as well as already existing institutions, which are not CRR credit institutions yet, but have submitted a relevant application for an extended banking license, are eligible to apply for admission to the Auditing Association. In the case of a newly-established credit institution and license extension, the admission procedure can be carried out parallel to the licensing application.
The admission procedure is subject to a fee and consists of a request for information from referees, the execution of an admission rating and the assessment of the admission application including the business plan. With regard to already existing CRR credit institutions and institutions – i.e. the applying institution is subject to supervision according to the German Banking Act (KWG) – an additional on-site audit (admission audit) takes place with the same objective and same contents as a deposit protection audit.
Core Assessment Criteria of the Admission Procedure are:
- the result of the rating assessment (a rating of at least BBB+ must be attained in accordance with the Deposit Protection Fund Statute),
- the financial solidity of the applying institution, i.e. sound financial condition and - in line with the (intended) business model and the risk profile of the applying institution - adequate capital (solvability and risk-bearing capacity), if applicable, including the ability to offset starting losses,
- an acceptable, plausible and sustainable business model and
- a proper business organisation in accordance with banking benchmarks taking the core elements as well as the special features of the applying institution’s business activities into appropriate consideration.
Furthermore, the applying institution must have at least two managing directors who are suitable at a personal and specialist level and who are reliable and trustworthy. If there are owners of a qualifying holding - in accordance with former § 1 Section 9 of the German Banking Act - in the applying institution, any such owner is subject to an additional assessment of his creditworthiness, reliability and respectability (Ownership Control Procedure). In the case of legal entities as shareholders, this also includes those acting on behalf of these individual entities.
Admission may be granted subject to conditions designed to limit risk. These conditions serve especially to guarantee the adherence to the essential conditions and business objectives stated on the application for admission, which serve as a basis for admission of the member bank.