You took over the Federal Financial Supervisory Authority in Germany (Bafin) in the summer of 2021 with the task of giving it more assertiveness in the wake of the Wirecard scandal, as the then Finance Minister Olaf Scholz put it. If you were to take stock today, just under five years later: how would you most specifically describe the changes at Bafin, and in which areas do you continue to come up against structural limitations?
I think the message was clear five-plus years ago: the German financial system, which is one of the most important in Europe, needs a supervisor that has earnt widespread respect for an approach which is tough when it needs to be. And that reputation we needed to rebuild.
I think you can see over the intervening years that there are many proof points that this is the trajectory we are on. We have made supervision more intrusive, and we have proven that we are willing to step in at an early stage when we see things that need to be corrected.
At the same time, we have made ourselves more transparent. You can read on a weekly basis what measures we have taken in the various parts of the financial sector.
That leverages the measures themselves to show the financial industry what our standards are, what we expect, what we do not tolerate, and that at an early stage. It is very much a case of picking the right measure for the right problem.
Sometimes that means being prepared to restrict the growth of companies whose control systems are not adequate. Sometimes that means putting third-party monitors in place where you have widespread problems, including in consumer protection issues. Sometimes that means intervening in communication in the capital markets, as you have seen over the last couple of weeks.
So, there is a whole set of examples where, if the supervisor has the right culture, you get in early. And then, with transparency, you can have a preventive effect that reaches more than just the individual institution.
You also asked where there are still challenges. Obviously, it is very hard to measure supervisory effectiveness, because you are in the prevention business. You do not know what you have prevented, and even if you have an idea, you cannot always communicate that. But I think there are enough proof points to show that our effectiveness has increased.
A supervisor needs also to deliver a very efficient and speedy service to those parts of the market that require an answer, a licence or an approval.
That is something we still need to work on: making sure that our time to market, if you like, is what it should be and what it can be. That means being prepared to focus very much on the essential risks and the essential issues.
At the presentation of your report „Risks in Focus 2026“ on 28 January 2026, you drew a conclusion based on two conflicting findings: banks and insurers are profitable and well-capitalised, yet at the same time it is becoming increasingly likely that financial stability will have to pass a stress test. How should an economist interpret this tension, and what does it mean for the role played by a supervisory authority in supposedly calm times?
We still have this dichotomy between the external factors in our risk environment and how markets perceive and value those risks. Markets struggle to perceive and value many of those risks and therefore have tilted on the optimistic side.
That means that naturally there are asymmetric risks in the market environment and the danger of a rapid switch in market sentiment. Changes in market sentiment are per se not problematic. It is fast, correlated changes in market sentiment that put turbulence into markets, which can then flow back into the financial system.
At the same time, what you have at the moment are basic business conditions which, for many financial institutions, in particular banks, are very benign. You have a relatively normal interest rate environment. In most jurisdictions interest rates look unlikely to sink short-term to the levels we saw in the past. So, you have a solid environment for interest-rate-margin-driven business models.
Financial institutions that have a focus on trading do well in times of high market activity and volatility. Across the board, you can see that the more trading-oriented a financial firm is, the better its results have been over the recent period. In a way, they have gained from the volatility of the crisis. And what we also have are resilient balance sheets, with the safety levels that have been built up over the past years. So, you have a good starting point for the financial sector, but you have a very tricky environment with things that could change fast and in a turbulent manner.
On the other side, you have the danger of economic stagnation, which in the end has a steady negative effect on credit quality and therefore on bank profitability. However, unless we end up in a very deep recession, that is unlikely to be a stability issue for the banking sector.
So, there are these two sources of worry: potential short-term turbulence and longer-term recession. And in the middle, you have the baseline scenario where we are right now, in which the financial industry is not only resilient, but also nicely profitable.
Since 2024, Bafin has enhanced its market analysis system, ALMA, with a machine-learning algorithm. You have stated that this has made the results of the analysis system more accurate. What does this step mean for the working methods of a modern supervisory authority: is the operational reality shifting from reactive case handling towards data-driven, forward-looking supervision, and what new demands does this place on your own staff?
I think your example shows that this is not something that is particularly new and driven only by generative AI. Machine learning algorithms have been part of data analysis for a long time.
As you pointed out, we have integrated them in our daily work in various ways, which has improved our ability to identify potential outliers. A lot of our work is based on the supervision of markets or large numbers of smaller financial institutions, which generate a lot of data. The idea is to find the proverbial needle in the haystack and to identify the indicators that say: „We should be looking more closely here.“
We have more than a thousand small banks in Germany, for example. What we need is an ability to identify, out of this population, those that maybe are not as benign as we thought in their risk profile.
In market supervision, you obviously have thousands, if not millions, of transactions, and you are looking for suspicious patterns. There are the traditional ways of receiving those indicators: an auditor, a market participant or a whistleblower pushes information in our direction. We have our own inspection activities. But complementing that with what we can take out of the data has been a very important part of supervision for a long time.
Now the question is how you integrate these tools to the best effect in this chain of analysis. What that does not do is replace the judgement of the supervisor.
We will never have the ability to inspect everything. If we can have technological help to identify what we should be looking at more closely, that is a huge help. It leaves more time for our supervisors to use their judgement and to achieve the outcomes we are looking for.
I think that is obviously going to be the case in very many of these expert-based organisations. Technology will help us reduce the amount of time spent preparing decisions and increase the amount of time available for taking decisions. That is where I see the dividend from digitalisation. It can obviously also make us a bit more efficient at the same time, but I do not think this makes us redundant.
In June 2025, you admitted to the Financial Times that Bafin had not met all the expectations placed on a regulator in the Wirecard case. Since then, the FISG has, amongst other things, granted the authority of extended powers in the area of financial statement auditing, including search and seizure powers, and the previously two-tier financial statement auditing process has been consolidated within Bafin. From your current supervisory perspective: where do you see the institutional reform having progressed the furthest, and what weaknesses do you believe still persist in the German or European supervisory framework?
You have obviously picked a very important area. The setup that we had in Germany in the past was not really fit for purpose.
We now have a process which is significantly more effective. We have many more staff. They are conducting many more investigations, sometimes on a routine, rotating basis, but often based on specific or data-driven indications that we have. We also have many more findings. Some of them are relatively technical; some of them are very material to investors.
At the same time, based on the competences that the new legal setup has given us, we have increased transparency and used our ability to announce when we are making checks on financial reporting other than on a routine basis. Why? To make that transparent to the market.
If we have a partial finding before we have completed our inspection of the accounts, we have the ability to communicate that to the market, as long as it is robust. We have done that in several cases, so we are also earlier to market with what we find.
Obviously, financial statement enforcement is a backward-looking activity, so speed is of the essence. If you want to have a forward-looking preventive effect, you need to be able to say something about things that have been reported in the recent past. Speed and transparency are just as important as depth of analysis. I think we are now able to combine both.
That does not mean that you are in a position as an accounting supervisor to stem criminal energy at its source. This will always occur in a broad economy to some scale. The idea is to be able to find those issues which are of material importance to investors as soon as the suspicions mount. That is our ambition in this part of our activity, as in all others.
Do you have a specific weakness in mind which the German or European supervisory framework currently has?
There are always things that you can improve. One of the things that I think is also correctly politically on the agenda is the complexity of the European framework.
Europe is a complex setup because it is creating rules and supervising against those rules based on the input of many jurisdictions with different backgrounds and different types of financial markets. In dealing with that complexity, you obviously create cost and inefficiency.
I think that is one of the things in the European financial sector that drags on competitiveness, and it also impacts small institutions more than large institutions. We have a lack of proportionality in the system.
I also think that on the supervisory front, we have a complex setup of many agencies, including the interplay between the European and national levels. We must be careful that this is not too costly. The benefits we get from changing supervisory structures must outweigh the costs of having more supervisors on an issue.
There are success stories, such as the Europeanised supervision of large banks by the ECB. But there are other things which are complex and can be costly. We have to be careful not to try to achieve harmonisation at the cost of a very, very dense rulebook.
In your opening remarks at the launch of the „Risks in Focus 2026“ report, you mentioned, among the exogenous risk drivers, the potential for disappointment regarding progress in artificial intelligence, on which, as you stated, many valuations and growth forecasts depend. As a supervisor, what specific indicators would you interpret as early warning signs, and what would be the transmission channels through which a correction would feed through to the real economy?
That is obviously a great question, and I guess everybody would like the answer.
What we see at the moment is a very concentrated bet on the realisation of the benefits of certain artificial intelligence approaches, which runs down through a whole value chain: from AI firms to software firms, to chip providers, to data centre providers, to energy providers. There is an enormous increase in capacity being planned for and being financed.
Therefore, the potential for disappointment is high, and not all of these ideas and not all of these companies are going to make it. The current situation is rather similar to the dot-com boom. Back then, that was an enormous hype, overinvestment, and a crash in perception. But at the same time, this era still changed the way we do business.
I think you will probably see something similar here. What are the leading indicators?
One of the things to watch is the quality of credit and how that is changing, because a lot of this boom is credit-fuelled, and much of that is coming through private credit markets, which are growing very rapidly.
We have to watch very carefully what is going on in credit markets, including outside the banking system, to try to have an idea where the potential is for sharp corrections, which would then blow back on the banking system.
In March 2025, your authority suspended new business by the Frankfurt-based stablecoin provider Ethena, citing serious shortcomings in the organisation of its operations and breaches of MiCAR requirements. At the same time, you regularly emphasise that Bafin is striving to build a strong tech ecosystem in Germany and Europe, and that innovation is firmly anchored in the strategic objectives for 2026 to 2029. Where exactly do you draw the line between fostering innovation and protecting consumers and financial stability, and what would a provider like Ethena have had to do differently to be authorised?
That is our daily business: drawing the line between something which is detrimental to consumers and cannot be fixed, and business models which deserve a fair chance in the market, where the market will decide whether they succeed or not.
In the newly regulated world of stablecoins, we have authorised projects which definitely belong in the second category: they deserve a fair chance, they are responsibly led, and they fulfil the requirements. As you said, in one project we saw activities and a setup which were a long way away from being able to meet requirements. There are some cases which are black and white and relatively easy to judge.
But when it comes to innovative business models, there are many cases which are not quite as black and white. Smaller and younger companies need to learn what it means to be regulated.
For us, it means trying to engage with innovators at an early stage and showing them the way to fit their activity into the regulatory world. That can often be a very iterative process. It can sometimes take a bit of time because innovative business models, by their nature, are not just copies of something that has been done before. We also have to think: Are there risks that we have not seen before? How do you mitigate those risks? And then, in dialogue with the provider, we find a way to market.
We do have a strong technology-driven ecosystem in Germany: from the relatively established technology-driven players in the banking market and direct banks, neobanks, to the brokerage market, where we have really leading European players, which have been growing very fast. Fintech „made in Germany“ has to be a quality label. We are not interested in weakening standards in order to have more providers with that label. And in order to get that label, you need to be prepared to invest enough to deserve it.
One of your warnings when outlining the risks in focus 2026 concerned the interdependence of German banks and insurers with foreign private debt vehicles. You said that dangers lurked here outside the traditionally regulated banking sector. If the risk lies structurally outside your direct supervisory remit: is this primarily a supervisory or a regulatory problem, and what levers does a national supervisory authority have at its disposal when the main risk is cross-border and lies within the shadow banking sector?
I think what is always important, even if you see a regulatory issue, is not to just lean back and say: „Well, somebody else needs to solve this problem.“
The next downturn in the credit cycle will come under essentially the current regulatory regime. That means that we have to supervise what we can.
Obviously, we have a very good line of sight on regulated financial companies. Therefore, we have a duty to understand their connections to the private markets. That is definitely possible.
Making sure that this interface is well controlled and well managed, and that our supervisory approach there is intensified, is something that we can and will do. Obviously, this happens under the lead of the European agencies, because here we are talking about the big players.
We have seen over recent weeks and months that big players with their engagements in this market have lost significant amounts of money. Not threatening amounts of money, but hundreds of millions in individual cases of private credit provision.
So, there is a real reason to intensify supervision. And we can, of course, work on what we would like to be able to see more of. But we cannot wait for regulation to change.
First of all, we supervise those parts of the system that lie under our jurisdiction. That includes banks that provide credit to non-banks which are financing in the private markets. It also includes insurers. We are looking at their asset allocation and asking whether, in the search for yield, they have invested in assets that they understand too little or where they are not expert enough to manage the risks.
That is an important part of insurance supervision: making sure that the core financial system remains robust, even if the private markets go through a cyclical downturn.
Since your annual press conference in May 2025, you have been advocating for less complexity, greater proportionality and principle-based rather than rule-based regulation, including the announcement that Bafin would not fully implement certain European guidelines in Germany if necessary. At the same time, there are signs of a trend towards less stringent banking regulation in the US, whilst in Switzerland, following the collapse of Credit Suisse, there is debate over stricter capital adequacy rules. How does Europe position itself within this triangle, and where do you draw the line between sensible simplification and a race to the bottom in supervisory standards?
First of all, you have to make a clear distinction between how strict standards are and how complex they are. I always make the analogy with traffic rules: simple and effective rules like the speed limit, compared with the complexity of traffic signs in an urban environment, where at a certain point extra signs do not contribute to safety anymore. They may actually distract you from keeping your own behaviour in traffic safe.
So, complexity and calibration, if you like, are two separate things. What we should not do is change the calibration of the safety systems we have in the financial market, particularly capital requirements and liquidity requirements. That has served us very well in recent times because these are safety buffers.
We have seen over recent times that there have been multiple external shocks, but they have not transmitted to the banking system as a whole. That is because we have built up a level of resilience which we did not have in the past. We should not touch this.
At the same time, as we discussed earlier, rulebooks have become complex and dense. They are often applied, not in their full complexity, but in a high level of complexity also to small and simple firms.
Switzerland led the way with a totally different approach to regulating small banks. We very much support that idea for Europe as well. Because, as you said, Europe and Germany in particular have many small financial institutions which do not need to be regulated with the same complexity as the large players.
We need a much more differentiated approach based on the size and complexity of the institution. And even for the largest institutions, there are some things where you have unnecessary complexity, which grows with time.
One of the things you have to do with regulation is repeatedly review it and decide whether you still need it.
That is what we do on a regular basis.
It’s like cleaning out your cellar every now and then.
We also need to check that, when we have new regulatory initiatives, we are not overloading in either complexity or tempo, and that we are proportionate to the risk we are dealing with.
There have been some very positive regulatory initiatives in Europe over recent years: new regulation around crypto, new regulation around operational resilience and cyber resilience. But we have to make sure that each new initiative is only as complex as it needs to be to reach its goal, and that we do not have too many initiatives which maybe are not so essential.
It is a question of the cumulative effect of complexity.
Your own career path has taken you through a wide variety of roles: you studied mathematics and management studies at Cambridge, began your career at a management consultancy in London, then spent around fifteen years at Credit Suisse and UBS in various positions, including as CEO of UBS Securities Japan and, most recently, as CFO of UBS’s Wealth Management & Swiss Bank division in Zurich, before moving to the supervisory side at FINMA in 2010. What did you take away from the move from the regulated side to the regulatory side, and what advice would you give today to someone starting a career in finance who is still unsure whether to pursue a path in banking, regulation or a hybrid field?
Everybody has their own preferences and their own career to manage. My experience has been that you always profit from being open to opportunities as they arise and from moving outside your comfort zone, whether that is geographically or in terms of the type of work you are doing.
That enriches you dramatically and enables you to use experience that you have built up and acquired in a different domain. That is one of the key things in any career: making sure that you are open to opportunities and that you do not have a closed mind.
You should also not think too vertically, as if you start here, go up a ladder, and your ambition is to end up at the top of that ladder. Careers are not something that you can really plan in that way. Careers are things that you have to manage yourself, and you have to make the most of the opportunities that arise.
It was a great opportunity for me to use my experience from the banking sector in public service, in the supervisory world, which is endlessly fascinating. What we are doing, helping to ensure that the financial system is stable, fair and can be trusted, is something that motivates all of us on a daily basis.
We do not have to ask about purpose. Our purpose is obvious.
My view is always to make sure that you make career choices based on what will be the most enjoyable route and where you are going to learn the most. If you always make career choices based on monetary reward, then something will be missing. You may lose flexibility, and you may miss out on things that are actually more rewarding and will enrich you over time.
The more different things you do, the more useful you are later in your career to a variety of potential employers.
So, I would just say: make sure that you do what you really want to do, not what you think you ought to do, and maybe not what your family thinks you should be doing or what you feel the expectations are. Do what you really want to do and make sure you take the chances as they arise.
The supervisory world is a world that you can join at any point in your career. As supervisors, we profit very much from people who have had experience in or around the financial sector, either in financial firms, audit firms or consulting firms.
So, to make a successful career as a supervisor, you do not have to start as a supervisor. But obviously we are also an attractive place for people wanting, as we discussed, to do things like work with data, work with methods and bring a fresh approach to the way we have an impact on the financial system.
It is precisely at the intersection of finance, technology and regulation that many of our readers will build their careers. From your perspective: What do you consider more important today: technical depth in a discipline such as law, quantitative analysis or technology, or the ability to bridge these disciplines? And which skill do you consider to be underestimated?
Everybody is different. One of the things that is very important for an organisation, and something that we do, is to make sure that there are good opportunities for technical experts, but also good opportunities for people who are good leaders and want to develop their leadership skills, and for people who can make connections between disciplines.
The wider your leadership role, the more important it is to have a broad understanding and to be able to make the connections. A good leader is not necessarily the most expert person in his or her domain.
The broader your role, the more you realise that you cannot be an expert in everything you are responsible for as a leader in an organisation. You can maybe be an expert in one part of it, but not in all parts of it.
Not everybody is equally suited to all roles. It is also about knowing yourself and understanding: Am I somebody who gets enjoyment, and therefore creates the most value, from a very deep understanding of a relatively narrow area? Or am I somebody who enjoys contributing to decisions based on a broad set of inputs and factors, and who wants to develop a leadership career?
Everybody is different. It is about knowing your own strengths, playing to those strengths, and finding an organisation that lets that happen.
What we have to be careful of in the modern world, which is technically complex, is that we do not lose the emphasis on leadership qualities and human qualities and only value the technical. I think it is detrimental to the performance of organisations if you only value the technical.
At the same time, naturally, to compete and to be the best in our fields, we need experts. We need people who are born to be experts, and we need to promote them and give them opportunities.
That is what we do in our organisation. We have two tracks: you can go up an expert track, or you can go up a leadership track. It is very important to us to identify the right people for the right track.
