The German Federal Financial Supervisory Authority, BaFin, released an industry survey on Monday indicating that German financial institutions are confronting total realized and potential financial burdens of approximately 7.01 billion euros related to so-called "cum-ex" and "cum-cum" dividend arbitrage transactions.

The survey encompassed 267 banks, 542 insurance companies, and 58 securities institutions. It revealed that 73 banks, 21 insurers, and 12 securities service providers reported having participated in such transactions or currently facing related investigations.

Of the total burden, roughly 4.82 billion euros is linked to "cum-cum" trades. In these transactions, foreign investors transfer shares to domestic institutions that are not subject to capital gains tax just before the dividend record date to avoid dividend tax, reclaiming the shares after the ex-dividend date while paying a fee to the domestic entity. A further 2.2 billion euro burden stems from "cum-ex" trades, which exploit system delays to rapidly cycle shares around the dividend date, creating the illusion of multiple legitimate owners to claim multiple tax refunds on a single tax payment.

BaFin noted that about 59% of the burden, or approximately 4.1 billion euros, has already been paid or provisioned for by the relevant institutions. The remaining 41%, equating to around 2.9 billion euros, represents potential future outlays. To address future risks, institutions have set aside provisions of 638 million euros for "cum-cum" and 288 million euros for "cum-ex" exposures.

The regulator stated that no surveyed institution currently faces an existential threat as a result. However, BaFin made clear it will conduct in-depth reviews of the governance structures, tax risk management, and individual accountability at the involved companies, and may take supervisory action against individuals in key positions where concerns are identified. This survey marks BaFin's fourth such inquiry since 2017.