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Clarification of the administrative practice in relation to section 32 (1) sentence 1 of the KWG

Pursuant to section 32 (1) sentence 1 of the German Banking Act (KWG), a written permit is required for anyone who wants to conduct banking or financial services in Germany on a commercial basis or to an extent that requires a commercially established business operation. I am assuming that there is "conducting banking business or providing financial services in Germany" not only when the provider of the service is domiciled or habitually resident in Germany, but also when the provider of the service is domiciled or habitually resident in Abroad and has targeted the market in Germany in order to repeatedly and commercially offer banking transactions or financial services to companies and / or persons who have their registered office or habitual residence in Germany.

Providers from non-EEA countries who want to sell banking and financial service products in Germany in a targeted manner must therefore have a subsidiary in order to obtain the necessary license (Section 32 (1) in conjunction with Section 33 (1) sentence 1 no. 6 KWG) or set up a branch (Section 32 (1) in conjunction with Section 53 KWG) in Germany. In principle, this also applies to providers from EEA countries who cannot use the so-called European passport for their banking and / or financial services offered in Germany. The businesses operated under license are to be booked in the German business unit; the accounts and custody accounts opened as part of the business relationship are to be kept with this unit.

For companies from the EEA states - under the requirements of Section 53b KWG (so-called notification procedure / European passport) - in addition to the option of setting up a branch (Section 53b (2) KWG), there is also the option of conducting business that requires authorization cross-border trade in services - without a corresponding domestic presence - (Section 53b (2a) KWG).

There are no restrictions on the so-called passive freedom to provide services 1, d. H. the right of domestic residents and companies to request services from a foreign provider on their own initiative. Transactions that have come about on the initiative of the customer do not result in an authorization requirement under Section 32 (1) KWG.

The recording of cross-border banking and financial services primarily affects the private customer segment as well as the (mass) business customer segment, since foreign companies from third countries regularly want to tap into new customer groups through targeted measures in Germany. In particular, it should be noted that the foreign institutions concerned have a broader framework for structuring their business activities in connection with the regulation of Section 25a (2) KWG and the recognition of the admissibility of outsourcing in the distribution and processing of banking and financial services. For example, the banking business can continue to be performed by the foreign subsidiary / sister / parent company on the basis of an agency agreement concluded with the domestic parent / subsidiary / sister company, which then carries out the business in the name and for the account of the domestic parent / subsidiary / Sister company provides to customers.

The interpretation explained here has no further effects on the activities that representative offices within the meaning of Section 53a KWG are permitted to carry out. Even according to the previous legal situation - in the absence of permission from BaFin - the representative offices were not allowed to provide any banking and / or financial services requiring authorization, in particular not to be involved in the initiation, conclusion or processing of banking transactions and financial services. Such physical branches in Germany must be limited to representative functions.

Incidentally, the foreign provider knows whether he intends to enter a foreign market in order to offer banking and financial services products in Germany. He must therefore expect the application of German supervisory law. The connecting features developed in the past remain important for the proof of a corresponding intention. In this context, the criteria mentioned by the European Commission on questions of interpretation about the free movement of services must be observed as well as the standards that the supervisory authorities responsible for the Internet sales of foreign investment units and for offers of securities over the Internet developed before the creation of the BaFin ( Letter from BAKred dated June 2nd, 1998, replaced by BaFin circular 1/2007 of January 5th, 2007 as well as BAWe announcement on the Securities Prospectus Act of September 6th, 1999).

In order to take account of the need for legal certainty, I will present examples of typical case constellations for the cross-border provision of banking and financial services, for which I assume a permit requirement under Section 32 (1) KWG. I then state in detail the standard requirements under which I can grant individual exemption in accordance with Section 2 (4) KWG for certain business areas.

The criteria listed here in more detail reflect the standards to be applied by me and can be applied accordingly to comparable situations. In view of the variety of contractual and actual arrangements, however, I reserve the right to examine each individual case, in which I will assess the question of the licensing requirement as part of an overall assessment.

1. Relevant case constellations that justify a license requirement under Section 32 (1) KWG

In principle, a permit requirement according to Section 32 (1) KWG must always be assumed if a foreign company intends to target the market in Germany in order to contact companies and / or persons who have their registered office or habitual residence in Germany, repeatedly and commercially to offer the banking transactions listed in section 1 (1) sentence 2 and / or the financial services listed in section 1 (1a) sentence 2 KWG.

  • Lending business / loan syndicate
The way in which the negotiations on borrowing came about is usually decisive for assessing the requirement to obtain a permit in accordance with Section 32 (1) KWG. If the foreign institution in Germany specifically addresses the market in order to contact companies and / or individuals who have their registered office or habitual residence in Germany repeatedly and in a business-like manner to offer loan agreements, I generally assume that the person who is subject to authorization is responsible Operation of the lending business (Section 1 Paragraph 1 Sentence 2 No. 1 KWG).

If, on the other hand, only existing customer relationships are continued or the initiative to conclude loan agreements comes from the customer from the outset, as is regularly the case with large business customers or institutional investors, this does not result in a license requirement (passive freedom to provide services).

In principle, these standards also apply to the assumption of loans within the framework of loan consortia. In practice, however, the establishment of a consortium is often preceded by a so-called "beauty contest" initiated by the borrower, during which several banks apply for the mandate with their concepts tailored to the borrower. A consortium is usually only formed when the borrower's conditions are specified in more detail. A loan consortium is then formed based on his or her individual needs and grants a loan tailored to this borrower. Such an approach falls under the passive freedom to provide serviceswhich is not affected by my administrative practice.

For the transactions based on an underwriting contract, it is also crucial how the underwriting contract was concluded, i. H. whether the foreign institute had previously targeted the German market in order to offer its services here. The decisive factor is whether the initiative comes from the foreign institute or the German issuer. If - which is not usual with regard to the area of ​​institutional investors and large customers - the foreign company should target the German market with its range of services, the takeover of financial instruments would be at one's own risk as Issuing business subject to authorization (Section 1 (1) sentence 2 no. 10 KWG), the so-called issuing consortium as Financial commission business requiring a license (Section 1 (1) sentence 2 no. 4 KWG) or the "best efforts underwriting" / so-called. Agency consortium as Final brokerage that requires authorization (Section 1 (1a) sentence 2 no. 2 KWG).
  • Customer visits by (freelance) employees of a foreign institute
In cases in which a foreign institute wins new customers in Germany for the banking and / or financial services it offers through targeted visits from potential customers, I assume one Permission requirement of the foreign company.
If, on the other hand, the demand for such visits comes from the customer, as is often the case with institutional investors in particular, such a case constellation is subject to the passive freedom to provide services.
  • Placement by domestic institutes / (freelance) employees
If a foreign institute wins new customers in Germany through the establishment and use of a sales organization via domestic institutes / (freelance) employees, one of them is Permission requirement of the foreign company for the banking and / or financial services offered to the customer. This also applies if the institute working in Germany or the (freelance) employee working in Germany himself has a permit for the mediating activity.
A targeted "turnaround" to the German market occurs when the contractual ties (e.g. through framework or cooperation agreements) or the actual structure of the business relationships between the foreign institution and the domestic institutions (e.g. credit institutions, Financial portfolio manager or investment broker / contract broker) or let the (freelance) employees conclude that the foreign institute uses the domestic institute / (freelance) employees as a sales network for the services offered. This can usually be assumed if a large number of intermediaries work exclusively for the third-country company. This can also be the case if a commission is granted for the transfer of customers or the banking and / or financial services of the institution located abroad are advertised to the customers.
  • Third country deposit brokerage
If the customer is in the way of passive freedom to provide services turns to the (third-country deposit) broker and he is not bound by framework or cooperation agreements etc. to certain third-country deposit-taking credit institutions, I see no room for the acceptance of a license requirement of the foreign institution; however, the domestic broker carries out the third-country deposit brokerage that is subject to authorization (section 1 (1a) sentence 2 no. 5 KWG).
However, if the contractual ties (e.g. framework or cooperation agreements) or the actual structure of the business relationships between the foreign institute and the domestic broker suggest that the foreign institute uses the domestic broker as a sales network, a Permission requirement of the foreign (third-country) deposit-taking credit institution.
Foreign companies that operate the money transfer business often set up accounts with domestic credit institutions in order to process the money transfer business with domestic customers through these accounts. It is crucial for the authorization requirement that the domestic clients and final beneficiaries are given the opportunity to issue or receive payment orders for the financial transfer business by using the domestic account. The order is placed or the final beneficiary is notified of the receipt of payment by telephone, fax, email or letter. From the point of view of those involved, it is usually unimportant whether the account is accessed from within Germany or from abroad. Against this background, this case is considered to be in accordance with Section 32 (1) KWG Operation of the money transfer business requiring a license viewed domestically.
If potential customers based in Germany are addressed by foreign companies directly by post or by fax / e-mail in order to offer them banking and / or financial services, I assume one Permission requirement of the foreign institute.
If, on the other hand, a foreign company continues to provide its customers with information about its product range within the framework of already existing business relationships (this will regularly be agreed in the basic contract), such a case constellation usually falls under the passive freedom to provide services and does not lead to a license requirement. This also applies to those case constellations in which customers turn to the foreign company on their own initiative and obtain a wide variety of offers for examination, as is often the case with institutional investors.
With regard to offers on the Internet that relate to banking and / or financial service products, the decisive factor is whether the services offered on the Internet are geared towards the German market according to the content of the website. If a company uses special information or active advertising measures on the Internet to target the German market in order to offer its banking and / or financial services, a permit must be assumed.
The alignment of a website is not based on the technical dissemination on the Internet, but on the basis of the content of the homepage or. of online activities as part of an overall assessment. In principle, the criteria that have already been developed for the sale of foreign investment units on the Internet or can be used for offers of securities on the Internet (letter from BAKred dated 02.06.1998 as well as the BAWe announcement on the Securities Sales Prospectus Act of 06.09.1999, each posted on the internet at www.bafin.de).
A so-called disclaimer is just one of many different indicators. Further indications for the assessment of whether Internet offers are aimed at residents arei.a. the domain name, language, product description, financial or other country-specific customer information and legal framework, price information and payment methods as well as the naming of German contact persons. In particular, the fact that the banking and / or financial services offered are actually sold to customers based in Germany speaks for a targeted offer on the German market.
Decisive for the assessment of whether certain advertising measures require a permit is - regardless of the type and form of distribution - the content of the content. Advertisements that already contain statements about the respective service should no longer be placed without a permit to conduct business in accordance with Section 32 (1) KWG. It is different, however, for advertisements that are only of general advertising character.
So I go with a general application from an institute that z. B. only contains a name / sympathy advertisement such as "XY-Bank Beste Bank", does not already assume that this institute is targeting the market in order to offer potential customers specific banking and financial services. If, on the other hand, an advertisement already refers to the conclusion of contracts for certain products or does the advertisement name individual services offered by the foreign institute, such as B. "XY-Bank top conditions for time deposits", I assume an operation in Germany that requires a permit.
The delimitation in individual cases may not always be clear, but the foreign institute regularly takes further steps after the application in order to actually be able to provide the relevant services to the potential customers "attracted" by the advertising. In this respect, for the assessment of the authorization requirement, I must make an overall assessment of whether it can still be assumed that the customers on their own initiative, i.e. H. have approached the foreign institute as part of the passive freedom to provide services.

2. Possibility of exemption according to Section 2 (4) KWG

According to § 2 para.4 KWG, there is the option of exempting foreign institutions from the licensing requirement pursuant to Section 32 (1) KWG and other provisions of the KWG for certain business areas.

1. Requirements for an exemption in accordance with Section 2 (4) KWG

The legal requirement for an exemption is that "the company does not require supervision because of the type of business it conducts". Therefore, an exemption under Section 2 (4) KWG can only be considered if BaFin can deny the need for supervision that exists in connection with the conduct of banking and financial services business.

This is usually only the case if the company is approved by the competent authority (s) in its home country effectively according to international standardssupervised and the competent authority (ies) in the country of origin with BaFin working together / working together satisfactorily.

In addition, the applicant company has a Certificate from the competent home state authority (s) to be submitted in which this confirms / confirms to BaFin,

  • that the foreign company concerned has been granted a license for banking and / or financial services that it intends to provide cross-border in Germany,
  • that there are no supervisory concerns against the commencement of the intended cross-border services in Germany and
  • in the event that such concerns arise at a later date, this will be communicated to BaFin.

If a third country company also has Brancheswho are located in other third countries and want to operate across borders in Germany, expands the confirmation of the home state supervisory authority to the effect that

  • that so far no problems have arisen in the cooperation with the respective supervisory authorities of the countries in which the branches are located, that there are no regulatory complaints with regard to the business activities of the branches (individual designation required) and that problems or complaints that arise later are reported to BaFin. In addition, it must be shown to what extent there is adequate supervision, in particular with regard to corporate insolvency and money laundering prevention, in the countries in which the branches are located.

Another requirement is that the company making the application appoints an authorized recipient in Germany.

2. Scope of the cross-border banking transactions and financial services that can be exempted under Section 2 (4) KWG

Taking into account the above-mentioned prerequisites, the areas that BaFin considers to be exemptable under Section 2 (4) of the KWG are specified in more detail below. However, the exemption is an individual decision in which the respective circumstances of the business transaction must be taken into account. In view of the various contractual and actual forms of business processing, it must be checked in each individual case under which conditions an exemption according to Section 2 (4) KWG can be granted. In addition to the prerequisites presented here, additional requirements may arise in individual cases from supervisory, in particular from anti-money laundering aspects

  • Institutional investors / interbank transactions

In relation to institutional investors and between banks (with the exception of the financial transfer business), all banking transactions and financial services that require a permit in accordance with Sections 32, 1 (1) and (1a) of the KWG can be exempted.

In the opinion of BaFin, institutional investors are:

  • Federal government, states, local authorities and their institutions,
  • Credit and financial services institutions within the meaning of Section 1 Paragraph 1 and Paragraph 1a KWG, including capital investment companies within the meaning of Section 2 Paragraph 6 of the Investment Act (InvG),
  • private and public insurance companies and
  • Corporations within the meaning of Section 267 Paragraphs 2 and 3 of the Commercial Code.
  • Private customers
With private customers (with the exception of the financial transfer business) are in principle all Banking transactions and financial services subject to authorization in accordance with Sections 32, 1, Paragraph 1 and Paragraph 1a of the KWG, if the transactions are based on the Brokerage of a domestic credit institution occurrence. In addition, in principle, even if the business is beyond the Placement of an EEA institute come about if the scope of the license corresponds to that of a domestic credit institution and the activities of the EEA institute are covered by the so-called European passport (Section 53b KWG).
Once the customer relationship has been initiated via a domestic credit institute or an EEA institute, the cross-border company can then contact the customer directly for future (individual) transactions as part of the existing business relationship.

3. Exemption procedure in accordance with Section 2 (4) KWG

The application for exemption in accordance with Section 2 (4) KWG must be submitted in writing to BaFin by the company. Unless otherwise agreed with individual foreign supervisory authorities, the application must be submitted2 - regularly attach the following documents:

  • Copy of the articles of association or the articles of association;
  • Proof of the company's entry in the register, insofar as this is required;
  • the most recent annual financial statements including all related documents (such as management report, audit report), insofar as these had to be prepared;
  • Personal details of the applicant or of each manager of the applying company (board member / managing director): surname, all first names, maiden name, date and place of birth, home address, nationality, maiden name of the parents

as

  • a declaration by the applicant or each manager of the company making the application (member of the board / managing director), whether criminal proceedings are pending against him, whether criminal proceedings have been pending against him because of a crime or misdemeanor or whether he or a company he manages is a debtor Was or is involved in insolvency proceedings or a procedure for submitting an affidavit or in comparable proceedings ("declaration of impunity");
  • in the form for such a declaration can be found on the website http://www.bafin.de;
  • detailed description of the intended business activity, which in particular must contain the description of the specific business transaction as well as the planned market presence in Germany and the designation of the customer groups that are to be addressed; in addition, to the extent that this is relevant to the intended business activity, it must be explained how the money and securities transfer will be processed;
  • (Sample) contract forms and (sample) agreements that are to be used in the planned business activity in Germany;
  • Appointment of an authorized recipient in Germany;
  • Certificate from the competent authority (ies) of the home state that has carried out the tasks listed in Section 2.a. meets the requirements set out in this leaflet.3

4. Conditions and obligation to pay fees

The exemption under section 2 (4) of the KWG can be subject to conditions and is required in accordance with section 14 of the Federal Financial Supervisory Authority Act (Finanzdienstleistungsaufsichtsgesetz - FinDAG) in conjunction with section 2 (1) no the allocation of costs according to the Financial Services Supervision Act - FinDAGKostV - subject to a fee. As a rule, the fee for exemption in accordance with Section 2 (2) No. 1a FinDAGKostV and for refusing an exemption in accordance with Section 3 (2) sentence 1 FinDAGKostV is € 5,000. The withdrawal of an application for exemption in accordance with Section 2 (4) KWG after the factual processing has commenced in accordance with Section 14 FinDAG in conjunction with Section 3 (1) FinDAGKostV is also subject to a fee; a fee range of € 50 to € 2,500 is generally provided for this (Section 3 Paragraph 2 Clause 2 and Paragraph 4 FinDAGKostV).

5. Others

The provisions of the Money Laundering Act (GwG), according to which all credit and financial services institutions - including those to which certain provisions of the KWG do not apply in accordance with section 2 (4) of the KWG - must fulfill specific duties of care against money laundering and the financing of terrorism (identification , Recording and retention obligations, the obligation to report suspicious cases and to create adequate security measures against money laundering and the financing of terrorism) is pointed out. For further details, reference is made to the relevant publications on the Internet site http://www.bafin.de.

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