The aim of this seminar paper is to illustrate the topic “Legal requirements of risk management in Germany”. An insight into the legal requirements of risk management in a company, e.g. banks and insurances, will be provided. Furthermore, a practical example of risk management at Daimler AG will be described in the following section. Finally, the paper closes with a personal conclusion.
The term “risk” is described in literature in many different ways. Risk is being described as a possible deterioration compared to an ex-pected result (loss or damage risk). According to the law “Corporate Sector Supervision and Transparency Act” it means, that a company aspires to fulfil their goals. On the way there are several factors of risk that should be taken into account. The purpose of risk management is to identify, estimate and avert possible risks during a process. Originally, big American companies created risk management out of their insurance policy. Their goal was to significantly reduce insurance premium.
Table of Contents
1 Introduction to Risk Management
1.1 Definition of Risk and Risk Management
1.2 The necessity of Risk Management
1.3 Functions of Risk Management
2 Legal Requirement of Risk Management
2.1 Corporate rules
2.1.1 Corporate Sector Supervision and Transparency Act
2.1.2 German Accounting Standards Committee
2.1.3 Risk management in accordance with IDW PS 340
2.1.4 Corporate governance rules
2.1.5 German Corporate Governance Code
2.2 Requirements for banks
2.2.1 Capital Accord - Basel II
2.2.2 The German Banking Act
2.2.3 Minimum Requirements on Risk Management
2.2.4 Solvency regulation
2.3 Requirements for insurance
2.3.1 Insurance Supervision Law (VAG)
3 The scope of KonTraG to other legal forms
4 Practical example of Risk Management at Daimler AG
5 Conclusion
Objectives and Key Themes
This paper aims to illustrate the legal framework governing risk management in Germany, with a focus on corporate, banking, and insurance regulations. It explores how legal requirements mandate the establishment of monitoring systems to ensure company continuity and assesses the practical implementation of these systems through a case study of Daimler AG.
- Legal requirements for risk management in Germany.
- Corporate governance and supervisory obligations.
- Banking and insurance-specific risk regulations (Basel II, KWG, VAG).
- Implementation of monitoring and early warning systems.
- Practical risk management processes within large automotive corporations.
Extract from the Book
2.1.1 Corporate Sector Supervision and Transparency Act
In the 90s there were numerous corporate crises that led to impose additional requirements by the legislator to the management board members, CEO and supervisory bodies (cf. Schneck 2010: pp. 33). The law “Kontrolle und Transparenz von Unternehmen (KonTraG)” (Control and Transparency in Business act) was passed by the German Parliament on 5th March 1998 (cf. Springer Gabler 2015: www.wirtschaftslexikon.gabler.de).
The Act was validated in May 1998. KonTraG is not an independent law, it is rather complementary to other laws. Additionally to the KonTraG the “German Stock Corporation Act”, the “German Commercial Code”, “Disclosure Act” and the “Cooperatives Act” have been changed. Since the introduction of KonTraG, several goals were defined such as the observation of a risk situation or the recognition of undesirable developments in processes at an early stage. As a result of these goals, the cooperation between the Supervisory Boards, Management Boards and the chartered accountants should be increased. With the merger of regulations, trust will be strengthened and protected within the company (cf. Schneck 2010: pp. 33).
The main change by the KonTraG is the paragraph § 91 para. 2 AktG. The German law describes: “The management board shall take suitable measures, in particular surveillance measures, to ensure that developments threatening the continuation of the company are detected early”1 (§ 91 para 2 AktG)
Summary of Chapters
1 Introduction to Risk Management: Defines the core concepts of risk and the necessity of risk management for preventing bankruptcy and ensuring long-term success.
2 Legal Requirement of Risk Management: Details the primary legal foundations, including corporate statutes, banking standards like Basel II, and specific insurance regulations.
3 The scope of KonTraG to other legal forms: Discusses how the regulations of the KonTraG extend beyond public corporations to affect medium-sized enterprises and other legal structures.
4 Practical example of Risk Management at Daimler AG: Applies the theoretical risk management components to the real-world operational context of a multinational automotive manufacturer.
5 Conclusion: Summarizes the vital importance of risk management as a legally mandated and agile tool for maintaining control and identifying potential dangers within a company.
Keywords
Risk Management, KonTraG, Basel II, Corporate Governance, German Banking Act, VAG, Risk Identification, Risk Assessment, Monitoring Systems, Daimler AG, Legal Compliance, Management Board, Supervisory Board, Financial Stability, Early Warning System
Frequently Asked Questions
What is the primary focus of this paper?
This paper examines the legal requirements for risk management in Germany, focusing on how companies, particularly in the banking and insurance sectors, must comply with national regulations.
Which legal acts are central to the research?
Key legal frameworks discussed include the KonTraG (Control and Transparency in Business Act), the German Stock Corporation Act (AktG), the German Commercial Code (HGB), and the German Banking Act (KWG).
What is the core objective of the risk management systems described?
The primary goal is to identify, estimate, and avert potential risks at an early stage to ensure the company's continued operation and financial stability.
What scientific methods are applied in the paper?
The author uses a literature review of existing corporate laws and standards, followed by a descriptive case study of Daimler AG to demonstrate practical application.
What is covered in the main section of the paper?
The main section covers legal requirements for corporations, specific rules for the banking and insurance industries, the extension of the KonTraG to other legal forms, and an practical example of Daimler AG.
What are the main keywords for this study?
The study is characterized by keywords such as Risk Management, KonTraG, Basel II, Corporate Governance, and Compliance.
How does the KonTraG influence the duties of a management board?
The KonTraG, specifically § 91 para. 2 AktG, mandates that the management board implement suitable surveillance measures to detect developments threatening the continuation of the company early.
What are the three pillars of the Basel II framework?
Basel II consists of three pillars: minimum capital requirements, the supervisory review process, and enhanced disclosure to improve market transparency and stability.
- Citation du texte
- Usman Ghafoor (Auteur), 2016, Legal Requirements of Risk Management in Germany, Munich, GRIN Verlag, https://www.grin.com/document/317912
