Legal risk

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The legal risk ( English legal risk ) is the risk that an entity when concluding a contract a damage or economic loss due to incorrect application of laws arises. If, for example, due to non-compliance, incorrect application or violation of laws, one's own rights cannot be enforced or one's own obligations cannot be met, the legal risk has arisen. The legal risk can also arise through other actions or through negligent omission .


In principle, the legal risk affects all legal subjects, such as natural persons , companies or authorities . It is differentiated from the general life risk , in which someone acts causing liability, but does not have to take responsibility for it because liability for damage is denied. In social interaction, through environmental and natural influences, people are exposed to a multitude of risks, which they cannot completely avoid even with the greatest personal and external efforts. Some risks are legal risks that potentially endanger the risk taker. Risk takers are subject to legal risks if their trust in a certain legal situation is disappointed.

Areas affected by legal risks in industry are, for example, product liability or the environmental risks emanating from it . Legal risks can arise from incorrect or imprecise contract wording , contestable or void contract drafting or missing or incorrect exclusion of liability . They do not materialize until a legal dispute has arisen between the parties concerned. The legislature has identified two sectors in which it has prescribed special features for the treatment of legal risks.

banks and insurance companies

Banks and insurance companies in particular are exposed to high financial risks, which predominantly belong to the operational risks typical of banking or insurance and are comprehensively monitored by supervisory law. In addition, there is the group of legal risks for which the legislature felt compelled to make special regulations. This was mainly due to the fact that banks and insurance companies spend a not insignificant part of their business activities with legally relevant documentation and their business activities are often very strictly regulated.

With regard to legal risks, Basel II stipulated that the banking sector should only include the “potential obligation to pay fines, fines or penalties resulting from supervisory measures or agreements under private law”. According to § 25a para. 1 KWG must credit institutions have a proper business organization, "the compliance with the guarantees to be observed legal requirements and business needs of the Institute." An almost identical provision for Insurance in § 23 para. 1 VAG included. The purpose of both regulations is to ensure behavior in compliance with the law in these sectors.

Legal risks have been part of operational risks in banking since January 2014 and are therefore not part of the banking operations. The legal definition of operational risk in Art. 4 (1) No. 52 Capital Adequacy Ordinance (CRR) expressly includes legal risks.

Requirements for contracts

In the banking sector can be generalized concluded that the detailed provisions of the banking supervisory law attributable Kapitaladäquanzverordnung (CRR) at-eligible collateral , high requirements for legal certainty set. Art. 194 no. 1 CRR required for all collateral that banks the legal validity check "all relevant jurisdictions" and enforceability in and repeat for continuous enforceability of this test, if necessary. This applies to all types of collateral, such as financial collateral (Art. 207 No. 3 CRR), real estate collateral (Art. 208 No. 2a CRR), assignment of security (Art. 209 No. 2c CRR), other property collateral (Art. 210 a CRR), Credit pledges (Art. 212 No. 1b CRR), guarantees and credit derivatives (Art. 213 No. 1d CRR). "All relevant jurisdictions" understands banking supervision law to the effect that touched with the security agreements jurisdictions , occurred legislative changes or changes in the law must be considered.

Legal security can therefore be formally understood as the absence of legal risks. Legal Opinion (English legal opinions ) provide for contract creation that legal risks or confirm that the contracts at the time of the review lawfully (English legally ) valid (English valid ), bind (English binding ) and enforceable (English enforceable ) are.

Exclusion of legal risk

Actors do not become aware of every act or omission that they are threatened by a latent legal risk. That is acceptable as long as it does not materialize. If it does happen, measures to minimize or eliminate risk must be taken. People enjoy legal protection against acts of public authority ( Article 19.4 of the Basic Law) and the right to be heard ( Article 103.1 of the Basic Law). You can have your legal interests represented by lawyers ( lawyers , tax advisors , notaries , etc.). Notaries must point out legal risks within the notarization and exclude them. As a precaution, by taking out legal expenses insurance, people can largely ensure that their legal and litigation risks are covered. Companies usually have legal departments or can call in the responsible company association to eliminate legal risks. As a preventive measure, contracts and other documents must be drafted in such a way that they are legally effective and enforceable in every legal system at all times .

See also

Individual evidence

  1. ^ Thomas MJ Möllers, Protection of legal interests in environmental and liability law , 1996, p. 79
  2. Florian Fuchs, Close-out Netting, Collateral and Systemic Risk , 2013, p. 22
  3. Thomas Wolke, Risk Management , 2007, p. 206
  4. Item 644, footnote 91
  5. ^ Frank Stenner, Handbuch Automobilbanken , 2010, p. 96
  6. Martin Schaaf, Risk Management and Compliance in Insurance Companies , 2010, p. 127