Banking business requiring authorisation

The types of banking business requiring authorisation are exhaustively listed in section 1 (1) sentence 2 nos. 1 to 12 of the KWG. These mainly include the following:

• Deposit business within the meaning of section 1 (1) sentence 2 no. 1 of the KWG
• Pfandbrief business within the meaning of section 1 (1) sentence 2 no. 1a of the KWG
• Lending business within the meaning of section 1 (1) sentence 2 no. 2 of the KWG
• Discount business within the meaning of section 1 (1) sentence 2 no. 3 of the KWG
• Principal broking business within the meaning of section 1 (1) sentence 2 no. 4 of the KWG (see also Investment services)
• Safe custody business within the meaning of section 1 (1) sentence 2 no. 5 of the KWG
• Operating as a central securities depository within the meaning of section 1 (1) sentence 2 no. 6 of the KWG
• Assuming an obligation to repurchase previously sold loan claims prior to their maturity within the meaning of section 1 (1) sentence 2 no. 7 of the KWG
• Guarantee business within the meaning of section 1 (1) sentence 2 no. 8 of the KWG
• Cheque collection business, bill collection business and travellers’ cheque business within the meaning of section 1 (1) sentence 2 no. 9 of the KWG
• Underwriting business within the meaning of section 1 (1) sentence 2 no. 10 of the KWG (see also Investment services)
• Acting as a central counterparty within the meaning of section 1 (1) sentence 2 no. 12 of the KWG

This overview provides an initial point of reference for determining whether a certain business is subject to an authorisation requirement. The most relevant types of banking business are further detailed in BaFin’s guidance notices. A potential applicant seeking a final assessment in an individual case can submit an authorisation enquiry to BaFin.

Section 2 (1) of the KWG provides for exceptions to the general authorisation requirement in terms of banking business, such as for asset management companies and equity investment companies. These exceptions are also detailed in BaFin’s guidance notices.

A distinction must be made between banking business and financial services within the meaning of section 1 (1a) of the KWG, which also require authorisation. It should be noted that dealing on own account and proprietary trading, as financial services, require authorisation and have been made subject to detailed provisions under section 1 (1a) sentence 2 no. 4 and sentences 3 et seq. of the KWG and section 32 (1a) of the KWG. Details regarding the authorisation requirement for proprietary trading and the distinction between proprietary trading and dealing on own account are set out in a BaFin guidance notice.

A distinction must also be drawn between the authorisation process described below and the authorisation process for investment firms within the meaning of section 2(1) oft the Investment Firm Act (WpIG), as investment services may constitute both banking business and financial services. You can find details and a contact address for submitting an application for authorisation under Investment services.

The decision whether to grant authorisation is taken on the basis of national law (KWG). The KWG is supplemented by regulations, e.g. the German Reports Regulation (Anzeigenverordnung – AnzV) and the German Holder Control Regulation (Inhaberkontrollverordnung – InhKontrollV) as well as interpretive guidance such as the BaFin circulars on Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement – MaRisk) and on Supervisory Requirements for IT in Financial Institutions (Bankaufsichtliche Anforderungen an die IT – BAIT). In addition to these, directly applicable European legislation applies.

Authorisation process

Under section 1 (5) no. 1 of the KWG, the ECB is the supervisory authority within the meaning of section 32 (1) sentence 1 of the KWG that is responsible for granting authorisation if the authorisation is to encompass both deposit business and lending business, possibly in addition to other banking business or financial services. The SSM Regulation in conjunction with Article 4(1) No 1 of the CRR and the SSM Framework Regulation provide the legal basis for cooperation between the ECB and BaFin as the NCA. In accordance with the SSM Regulation, BaFin prepares a draft proposal if the applicant meets all conditions of authorisation under national and European law. BaFin acts as the entry point for the applicant and as single point of contact throughout the entire authorisation procedure.

If the authorisation is to encompass other banking business that does not include both deposit and lending business, BaFin is deemed the supervisory authority within the meaning of section 1 (5) no. 2 of the KWG and grants the authorisation within its own remit, without involving the ECB.

The authorisation procedure is subject to a fee, regardless of its result; i.e. a fee is charged even if the application for authorisation is withdrawn by the applicant or if authorisation is refused.

Once the applicant has submitted a complete application, a period of six months begins in accordance with section 33 (4) sentence 1 of the KWG. Within this period, BaFin must inform the applicant whether authorisation is granted or refused. The duration of the overall authorisation procedure depends on the individual case, however, and is significantly determined by the complexity of the planned business model, the quality and the completeness of the documents submitted.

Granting of authorisation involving the ECB

© BaFin

Pre-filing

Prior to formally submitting their application for authorisation (pre-filing phase), interested parties can contact BaFin with regard to their intended business activities. In the context of this initial discussion, it is possible to address questions such as regarding the application documents to be submitted, the amount of the initial capital and the quality of the capital items intended to serve as initial capital and own funds, or the professional qualifications of the prospective managing directors. The pre-filing phase gives the applicant and BaFin the chance to communicate their mutual expectations and is designed to enable the applicant to submit an application for authorisation that is as complete and as high-quality as possible and that fulfils the statutory requirements as far as possible.

At the same time, it is likewise recommended that the applicant should make initial contact with the compensation scheme responsible for the future institution. In Germany, the Compensation Scheme of German Banks (Entschädigungseinrichtung deutscher Banken GmbH – EdB) is the competent body for private banks. Links to the websites of further compensation schemes can be found under Additional information at the end of this page.

Application

Under section 14 (1) of the AnzV, the application for authorisation must be submitted to BaFin in writing and in triplicate. The documents to be submitted for the application are specified in sections 32 et seq. of the KWG in conjunction with section 14 of the AnzV and the Holder Control Regulation. These include, for example, the actual application for authorisation, “information on reputation” forms, CVs, certificates of criminal record, excerpts from the German Central Trade and Industry Register (Gewerbezentralregister) and officially certified copies of foundation documents, articles of association, register excerpts and copies of identity documents. There is no application form available for this purpose, but a checklist is provided below for orientation, listing the information required and the annexes to be submitted.

The documents required for processing the application are processed electronically. For this reason, it is helpful to send all documents also in electronic form to the e-mail address licensing@bafin.de. In this context, please note the instructions for using the secure and encrypted e-mail communication system. If individually agreed, there are also other means of securely submitting documents in electronic form, such as a data room.

Once the application for authorisation has been submitted, BaFin first assesses the formal completeness of the application in accordance with section 32 (1) sentence 2 of the KWG. When assessing the application, BaFin makes every effort – in consultation with the Deutsche Bundesbank and, in the event of an application for both deposit and lending business, in consultation with the ECB – to conclusively obtain all the information and documents required for assessing the application as quickly as possible and contacts the applicant if additional documentation is necessary. To speed up the processing of the application, BaFin also seeks to address questions regarding individual topics of the application (business plan, business organisation, outsourcing, etc.) in a Q&A process together with the applicant at an early stage.

Assessment

On the basis of the documents submitted with the application for authorisation and the additional information provided by the applicant, BaFin assesses the application by applying criteria such as the following:

• Initial capital: When an institution is established, it must demonstrate that it is endowed with a minimum or initial capital, which will depend on the nature of its intended business. If it intends to engage in both deposit and lending business, a minimum capital of EUR five million is required. The amount of the funds to be kept available at the beginning of the business activity largely depends on the business plan and is determined on a case-by-case basis.
• Requirements for managing directors: Credit institutions must have at least two managing directors, who must be suitable and of good repute (“fit and proper”). Furthermore, the prospective managing directors must be able to dedicate sufficient time to performing their functions and observe the maximum number of directorships. Suitability means that the persons concerned have acquired sufficient theoretical knowledge during their professional careers to date and have relevant practical experience to enable them to implement the envisaged business model as well as leadership experience. For additional information, please see the BaFin guidance notice on managing directors under the German Banking Act (Kreditwesengesetz – KWG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Investment Code (Kapitalanlagegesetzbuch – KAGB) (only available in German).
• Requirements for the holders of qualifying holdings: The applicant must also disclose any holders of significant holdings in the planned institution and the size of any such holdings. A qualifying holding within the meaning of section 1 (9) sentence 1 of the KWG in conjunction with Article 4 (1) (36) of the CRR is a direct or indirect holding in an undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking. The holders of a qualifying holding and their statutory representatives or representatives as defined in the articles of association, too, must also be fit and proper and meet the demands required in the interest of ensuring sound and prudent management of the institution.
• Business plan: The application must contain a viable business plan indicating the nature and the scope of the planned business, the projected figures, the organisational structure, the risk management and the planned internal control mechanisms within the meaning of section 25a of the KWG in conjunction with the Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement – MaRisk). In assessing the application, BaFin checks whether, based on the business plan submitted, the applicant will be able to comply with the prudential requirements. These include both the (minimum) requirements for capital and liquidity and the necessary organisational arrangements for enabling the institution to conduct its business in a proper manner.

In its assessment, BaFin also takes into account an opinion issued by the (statutory) compensation scheme under section 32 (3) of the KWG that will be responsible for the future institution. An opinion is also obtained from the competent Regional Office of the Deutsche Bundesbank.

If authorisation is not requested for both deposit business and lending business, BaFin decides whether to grant authorisation if the applicant meets the conditions applicable under national and European law.

If authorisation has been requested for both deposit business and lending business, BaFin prepares a draft proposal for the ECB based on its assessment if the applicant meets the conditions applicable under national and European law. Through intensive dialogue between BaFin and the ECB, efforts are made to clarify possible critical issues at an early stage during BaFin’s assessment. Once its own assessment is complete, the ECB sends its recommendation for decision and BaFin’s draft proposal to the ECB’s decision-making bodies – the Supervisory Board and the Governing Council of the ECB – who then decide on the application.

Authorisation

In authorisation procedures for other banking business that do not include both deposit and lending business, BaFin grants authorisation and sends the notification of authorisation to the applicant. In authorisation procedures that include deposit and lending business, the ECB grants authorisation. Once the Supervisory Board has taken its decision and the Governing Council does not object to the Supervisory Board’s decision, the notification of authorisation is sent electronically to BaFin (the notification of authorisation is solely available as a PDF file) and then forwarded by BaFin to the applicant in the form of a printout.

Only once the notification of authorisation has been received can the applicant commence business activities and enter them in the commercial register.

When granting authorisation, BaFin also informs the applicant of the competent compensation scheme if the institution is required to pay contributions in accordance with the provisions of the German Deposit Guarantee Act (Einlagensicherungsgesetz) and the German Investor Compensation Act (Anlegerentschädigungsgesetz).

BaFin publishes the fact that authorisation has been granted in the Federal Gazette (Bundesanzeiger) and on its website in the database of companies.

After sending the notification of authorisation, BaFin sends the applicant the fee notice.

If the institution does not make use of the authorisation within one year after it is granted, the authorisation will expire in accordance with section 35 (1) sentence 1 of the KWG.

After authorisation

Once business has commenced, the newly established institution is subject to ongoing supervision by BaFin and the competent Regional Office of the Deutsche Bundesbank. If the institution fulfils at least one of the criteria specified in the SSM Regulation for significant institutions – which is generally the case for institutions with total assets of more than EUR 30 billion – that institution is subject to direct supervision by the ECB under the Single Supervisory Mechanism.

As part of the supervision of less significant institutions, BaFin and the Deutsche Bundesbank analyse an institution’s business performance based on the supervisory reports to be submitted on a regular basis. In addition to evaluating the audit reports on the annual financial statements and any special inspections, BaFin and the Deutsche Bundesbank generally hold discussions with the newly established institution on a regular basis.

BaFin and the Deutsche Bundesbank then use this information to prepare a risk profile for each institution every year. The risk profile classifies each institution according to the categories “quality of the institution” and “potential impact of a solvency or liquidity crisis of the institution on the stability of the financial sector”. This overall assessment is used to derive the supervisory measures to be taken and determine the intensity of supervision based on the principle of proportionality.

As part of the supervisory review and evaluation process (SREP), BaFin and the Deutsche Bundesbank assess whether the institution’s capital adequacy can sufficiently cover existing or foreseeable risks (SREP capital quantification) and determine an institution-specific capital requirement, if necessary, that is more extensive than the statutory requirements and thus serves to back additional risks.

Contact

Guidance and contact details for enquiries regarding a potential authorisation requirement for intended business can be found under Contact.

Please send any general enquiries regarding the granting of authorisation and the electronic submission of the application for authorisation to licensing@bafin.de.

The application for authorisation and other written communication must be sent to the following postal address: