Obtaining a banking license in Germany

Submission of application for banking or financial license in Germany

The present article describes the process of submitting application for obtaining license for banking or financial services in Germany.

Obtaining any banking license in Germany is subject to the regulation of the KWG (Kreditwesengesetz).

The law provides for three categories of institutions:

Credit institutions;

Financial institutions;

Financial enterprises, to which different license requirements apply.

Credit institutions are enterprises that carry out banking activities on a commercial basis or at the scale that requires business undertaking organized with due consideration of commercial interests.

Banking activities in Germany

In the German Law "Banking activities" is defined as: "Any activity listed in section 1, paragraph 1".

Such activities include the following:

Acceptance of funds (deposit-taking activities);

Conducting banking activities for commercial purposes requires obtaining license. Conducting business is qualified as activity for commercial purposes, if it is carried out within certain period of time and for the purpose of making profit. However, the trade turnover of business has no impact on the license requirement, so even "small" banks need the license.

Section 2 of the Law contains a list of certain organizations that do not fall within the definition of the credit institution and therefore do not require banking license to conduct banking activities.

For example, enterprises that carry out such activities exclusively in relation to their parent companies, subsidiaries or affiliated (dependent) enterprises.

Certain types of banking companies, such as specialized credit institutions that do not intend to carry out any deposit or crediting activities, may submit application for a limited banking license, in contrast to an unlimited, full license.

Institutions that provide financial services are enterprises providing financial maintenance on a commercial basis or to the extent that requires business undertaking organized with due consideration of commercial interests, but they are not credit institutions.

Financial services are defined in section 1, paragraph 1 of the Law and include, inter alia, investment brokerage activities, purchase and sale of financial instruments for others (contractual brokerage services), and investment portfolio management.

Providing financial services with the purpose of gaining income requires obtaining license issued in written form.

Enterprises engaged in banking activities or providing financial services are referred to in this article as "institutions".

Purchase and sale of financial instruments (primary brokerage services). Granting of loans (crediting);

Financial enterprises are enterprises that are not institutions, but carry out activities related to banking, such as factoring, leasing and investment advice. Since financial enterprises do not conduct banking activities and do not provide financial services, they are not required to obtain license under section 32 of the German Law.

Obtaining banking license in Germany - supervisory authority

The supervisory authority responsible for issuing banking licenses is the Federal Department for Financial Supervision of Germany (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) or, in the case of licenses for activities with regard to accepting deposit and crediting (i.e. "credit institutions", as defined in Capital requirements regulation (CRR)), it is the European Central Bank (ECB).

Application for banking license should be submitted in writing to the BaFin or the ECB, depending on the applicable requirements, and accompanied by documentation confirming that the requirements for obtaining license have been met.

Conditions for granting license in Germany

Below is a brief overview of the conditions for granting banking licence under sections 32 and 33 of the German Law. There are also special rules for opening branch offices of foreign institutions and for payment institutions. In accordance with the German Law, institutions that provide financial services and credit institutions can carry out activities in any legal form available under German law except, in the case of credit institutions, in the form of individual proprietorship (Einzelkaufmann).

Large commercial banks, as a rule, operate in the form of (publicly traded) corporations (Aktiengesellschaft, AG) and smaller banks in the form of limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH). Partnerships (offene Handelsgesellschaft, oHG), limited partnerships (Kommanditgesellschaft, KG) and limited partnerships with a GmbH as sole general partner (GmbH & Co. KG) are also admissible. The forms AG, GmbH and GmbH & Co. KG have the advantage that the shareholders or partners with limited liability, as the case may be, are generally not personally liable for the debt of the entity.

Depending on the legal form of the entity, the license holder is either a legal entity or an individual.

In the case of partnership (oHG) or limited partnership (KG), it is generally accepted that the license is held by the personally liable partners, who each require license. Any new partner that enters the partnership in a personally liable capacity must also obtain license. Participants in the partnership who are not personally liable, such as limited partners and silent partners, do not require license.

In the case of corporations and limited liability companies (AG and GmbH), the license belongs to a legal entity. A change in the shareholders, therefore, does not affect the license. In the case of a limited partnership with a GmbH as the sole general partner (GmbH & Co. KG), the license is held by the GmbH, being the sole liable partner.

Due to its personal character, the license cannot be transferred through singular or universal succession. This implies that a new license is required in the event of a change in the legal form, for example, in the case of a merger or transformation from a partnership into a corporation. A new license is also required for any other transfer of banking or financial services activities to a legal entity or natural person that does not already have license.

Initial capital

The initial requirement for minimum capital depends on the nature of the planned business activity and is stipulated in detail in section 33 of the German Law.

Nature of entrepreneurial activity

Initial capital requirement

Credit institutions (as defined in the CRR)

€5 million

Institutions providing financial services and banks engaged in transactions with securities that carry out commercial activities at their own expense

€730,000

Institutions providing financial services that do not carry out commercial activities at their own costs

€125,000

Investment advisers, investment brokers, contract brokers, investment portfolio managers, brokers of multilateral trading systems and enterprises that conduct placement activities with respect to financial instruments (provided they are not authorized to obtain right of ownership or possession of the clients’ funds and securities, and do not carry out commercial activities at their own expense)

€50,000

Investment advisers, investment brokers, contract brokers registered as insurance brokers in accordance with the Directive 2002/92/EC on insurance mediation and fulfilling the requirements of paragraph 3 of Article 4 of this Directive (provided they are not authorized to obtain ownership or possession of funds and securities of clients and do not trade financial instruments at their own expense in the process of providing financial services)

€25,000

Regardless of the initial requirement for capital, credit institutions that carry out activities for accepting deposits or investment fund activities, and financial institutions providing financial services as listed in in Parts 1 to 4 of Section 1 (a) of the German Law (investment brokerage, contract brokerage, portfolio management or trading at own expense) are obliged to ensure the security of all deposits.

In order to fulfill this obligation,such institutions must join one of the organisations set up by the various German banking groups in order to provide security for investors in case of a member institution’s insolvency (Einlagensicherungsfonds), in accordance with section 32 (3) and (3a) of the German Law and section 2 of the Deposit Guarantee and Investor Compensation Act (Einlagensicherungs - und Anlegerentschädigungsgesetz).

For private commercial banks, the respective organisation is Entschädigungseinrichtung deutscher Banken GmbH. In general, each institution should appoint at least two senior managers (Geschäftsleiter). The members of the institution’s future management should be considered credible and demonstrate their professional qualifications. Integrity, trustworthiness should be demonstrated not only by the management, but also by holders of a qualified participating interest, as well as, in the case of an incorporated entity, a legal representative and, in the case of a partnership, a general partner.

The business plan and organizational structure

must demonstrate that the institution is in a position to fulfill the requirements of section 25a of the German Law, including, among other things:

List:

A suitable arrangement for managing, monitoring and controlling risk.
- An established business organization, an appropriate internal control system and adequate security precautions with respect to electronic data processing.
- Records of completed commercial transactions, enabling full and continued supervision by the competent supervisory body.
- Guarantees, as appropriate for the respective business activities and customers, against money laundering and other fraudulent activities that are to the detriment of the relevant institution.
Law & Trust International offers its services in obtaining license for banking activities in Germany.

Such license is necessary for all companies involved in banking sphere, namely: mortgage organizations, microcredit offices, large partnerships, issuing loans and accepting of users' capital on the storage.

Consultations, as well as additional information are available by phone, chat or during personal conversation in the office of the company.

For practical purposes, trustworthiness is assumed unless any disproving facts are established. The BaFin considers the submitted references, relies on its previous experience with the relevant person in that person’s former capacity as a manager of another institution and checks against criminal records. Professional qualifications in this context means the theoretical and practical knowledge of the relevant business activity, as well as managerial experience.

Consequently, the required degree of professional qualification depends on the commercial activity for which the license is to be issued. A person is considered to have the professional qualifications necessary to manage an institution if he/she has three years’ managerial experience at an institution of a comparable size and type of business. Such experience is considered managerial if the person worked in management or at a level immediately below management. As a general rule, senior managers are expected to have sufficient experience, in particular with respect to lending business activities. In conclusion, professional qualifications are in each case assessed on an individual basis and with regard to the particularities of the respective institution.