Financial services requiring authorisation

The financial services requiring authorisation are exhaustively listed in section 1 (1a) sentence 2 nos. 1 to 12, sentences 3 and 4 of the KWG. These essentially include the following services:

• Investment broking within the meaning of section 1 (1a) sentence 2 no. 1 of the KWG
• Investment advice within the meaning of section 1 (1a) sentence 2 no. 1a of the KWG
• Operation of a multilateral trading facility within the meaning of section 1 (1a) sentence 2 no. 1b of the KWG
• Placement business within the meaning of section 1 (1a) sentence 2 no. 1c of the KWG
• Operation of an organised trading facility within the meaning of section 1 (1a) sentence 2 no. 1d of the KWG
• Contract broking within the meaning of section 1 (1a) sentence 2 no. 2 of the KWG
• Portfolio management within the meaning of section 1 (1a) sentence 2 no. 3 of the KWG
• Dealing on own account within the meaning of section 1 (1a) sentence 2 no. 4 (a) to (d) of the KWG
• Third-country (non-European Economic Area) deposit broking within the meaning of section 1 (1a) sentence 2 no. 5 of the KWG
• Crypto custody business within the meaning of section 1 (1a) sentence 2 no. 6 of the KWG
• Foreign currency dealing within the meaning of section 1 (1a) sentence 2 no. 7 of the KWG
• Factoring within the meaning of section 1 (1a) sentence 2 no. 9 of the KWG
• Financial leasing within the meaning of section 1 (1a) sentence 2 no. 10 of the KWG
• Investment management within the meaning of section 1 (1a) sentence 2 no. 11 of the KWG
• Limited safekeeping business within the meaning of section 1 (1a) sentence 2 no. 12 of the KWG.

This overview is designed to provide an initial point of reference for determining whether a certain business activity is deemed to be financial services subject to an authorisation requirement. The most relevant financial services 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 (6) of the KWG provides for exceptions to the general authorisation requirement. These exceptions are also detailed in BaFin’s guidance notices.

Certain financial services and certain types of banking business also constitute investment services. For more detailed information on the business activities that are classified as investment services, please see the webpage on this topic. This webpage also includes additional information on the contents of an application for authorisation and on the authorisation procedure and also provides the forms required for submitting an application for authorisation.

Leasing and factoring

Undertakings wishing to enter into financial lease agreements as the lessor and to manage asset-leasing vehicles within the meaning of section 2 (6) sentence 1 no. 17 of the KWG on a commercial basis, or on a scale which requires commercially organised business operations, need authorisation from BaFin in accordance with section 32 (1) sentence 1 in conjunction with section 1 (1a) sentence 2 no. 10 of the KWG. The same applies, in accordance with section 32 (1) sentence 1 in conjunction with section 1 (1a) sentence 2 no. 9 of the KWG, to undertakings wishing to continuously purchase claims on the basis of standard agreements on a commercial basis or on a scale which requires commercially organised business operations (factoring). Financial leasing and factoring are special forms of credit business to which the law affords privileged treatment by excluding them, for example, from the capital and liquidity requirements applicable to credit business (see section 2 (7a) of the KWG).

Authorisation process

Submitting the application

For detailed information on the contents of the application for authorisation and the documents to be submitted, please see the “Notice on the granting of authorisation to provide financial services pursuant to section 32 (1) of the German Banking Act” of the Deutsche Bundesbank.

On the legislative level, the authorisation requirements are set out in sections 32 and 33 of the KWG as well as section 14 of the German Reports Regulation (Anzeigenverordnung – AnzV); a number of simplified requirements apply to factoring and leasing institutions. There are, for example, no minimum capital requirements in this case. Special requirements under company law regarding share capital remain unaffected.

In derogation of section 14 (1) of the AnzV, it suffices to submit one copy of the application to BaFin (Bonn office) and one copy to the competent Regional Office of the Deutsche Bundesbank. A third copy is not necessary. Furthermore, only the copy intended for BaFin must be submitted in the form required by law (original or certified copy). The copy to be submitted to the Deutsche Bundesbank can be a simple copy. If a third party has been appointed to submit the application for authorisation and to conduct the authorisation procedure, the application must also include the original power of attorney that has been signed by the applicant.

Please be advised that German is the official language at BaFin. In individual cases, it must be discussed and agreed with BaFin whether documents in another language (especially English) will be accepted.

A fee of EUR 4,646 is charged for the granting of authorisation. A fee may also be charged for the discontinuation of an authorisation procedure, taking into account the effort expended. For more detailed information, please see the „Besondere Gebührenverordnung des Bundesministeriums der Finanzen zur Finanzdienstleistungsaufsicht (Finanzdienstleistungsaufsichtsgebührenverordnung – FinDAGebV)“ (only available in German) and the associated schedule of fees.

Assessing the application

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

• Managing directors: The managing directors of an institution must be fit and proper, i.e. have the required professional qualification and be of good repute to manage an institution and must dedicate sufficient time to performing their functions. The documents to be presented are set out in the Guidance Notice on Managing Directors in accordance with the Banking Act (Kreditwesengesetz – KWG), the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the Investment Code (Kapitalanlagegesetzbuch – KAGB) („Merkblatt zu den Geschäftsleitern gemäß KWG, ZAG und KAGB) (only available in German).
• Supervisory boards (if any): If supervisory boards are planned or required by law, the documents under the Guidance Notice on Members of Supervisory Boards in accordance with the Banking Act and the Investment Code („Merkblatt zu den Mitgliedern von Verwaltungs- und Aufsichtsorganen gemäß KWG und KAGB) (only available in German) must be appended to the application for authorisation for the members of those boards.
• Applicants and holders of qualifying holdings: In addition, the applicant or applicants and each natural or legal person that holds a qualifying holding in the future institution is also assessed individually by BaFin as part of the authorisation procedure. A qualifying holding is deemed to exist in particular when the entity concerned holds 10% or more of the capital and/or voting rights in the institution or can otherwise exercise a significant influence over the management of that institution. Significant influence exists, for example, where an entity is entitled – irrespective of the distribution of voting rights – to appoint the majority of the institution’s management bodies. Where an entity has an indirect holding in an institution via an intermediate company, the entity’s share in the holding is calculated by breaking down the intermediate company’s direct holding in the institution based on the entity’s holding in the intermediate company. Therefore, if an entity holds 20% in a company which itself holds 50% in the institution, the entity holds a calculated 20% of 50% (which makes 10%) of shares in the institution and thus has a qualifying holding. Additional details are set out in the Guidance Notice on the Qualifying Holding Procedure (Merkblatt zur Inhaberkontrolle) (only available in German).
• Business plan: The application must also include a viable business plan detailing the nature of the intended business operations, the organisational structure and the planned internal control mechanisms. The requirements for proper business organisation within the meaning of section 25a of the KWG in conjunction with BaFin Circular 05/2023 (BA) on the Minimum Requirements for Risk Management (MaRisk) (only available in German). The application must also include the projected balance sheets and projected profit and loss accounts for the first three full financial years after the commencement of the business operations that are subject to the authorisation requirement. The projected figures must separately identify the expenses calculated for the authorisation procedure, ongoing supervision by BaFin (cost allocation) and the annual audit. In accordance with sections 340 et seq. of the German Commercial Code (Handelsgesetzbuch - HGB), the projected figures must be drawn up in compliance with the German Regulation on the Accounting of Banks and Financial Services Institutions (Verordnung über die Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute - RechKredV) (only available in German). The nature and scope of the refinancing of the business model must be included to an adequate extent.

After authorisation is granted

For institutions providing financial leasing and/or factoring, information regarding the most important regulations and reporting requirements once authorisation has been granted is available an overview provided by the Deutsche Bundesbank. The last column, marked “Group V”, is relevant for leasing and factoring institutions.

Leasing and factoring institutions are required to switch their accounting to the special provisions for credit and financial services institutions and to appoint an auditor to conduct an annual audit of their annual financial statements. Institutions must also fulfil various regular and ad hoc reporting requirements, such as the quarterly notifications of large exposures and loans of EUR 1 million or more to the Deutsche Bundesbank.

The institution is required to meet the organisational requirements under the KWG for proper business organisation and to implement the provisions on the prevention of money laundering, terrorist financing and the prevention of other criminal offences.

The newly authorised institution is required to bear the costs for the audit of the annual financial statements and the personnel expenses and non-staff costs for implementing the reporting requirements, the content-related and organisational requirements (see in particular the Minimum Requirements for Risk Management – MaRisk) and the ongoing documentation. In addition, the costs incurred by BaFin that are not covered by fees, reimbursements or other revenues are allocated to the institutions on a pro-rata basis, depending on size. Under section 16g (1) no. 2 of the German Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG), the minimum allocation amount to be paid by leasing and factoring institutions liable for cost allocation is currently EUR 1,300.

Contact

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

General enquiries regarding authorisation and the submission of an additional electronic copy of the application for authorisation (please note: the electronic copy does not replace the original but merely serves to simplify the processing) can be addressed to one of the following two mailboxes, depending on the (planned) registered office:

Please send your application for authorisation (along with the documents required) and other written communication to the following postal address:

General enquiries regarding the granting of authorisation may also be addressed to the competent Regional Office of the Deutsche Bundesbank. The required second copy of the application for authorisation (along with the documents required) must also be submitted to this address.

Crypto custody business

In Germany, crypto custody business is a financial service subject to the authorisation requirement. Crypto custody business comprises the custody, management and protection of crypto assets or private cryptographic keys used to keep, store or transfer cryptoassets.

The German Act Implementing the Amending Directive on the Fourth EU Anti-Money Laundering Directive (Gesetz zur Umsetzung der Änderungsrichtlinie zur Vierten EU-Geldwäscherichtlinie) (Federal Law Gazette I of 19 December 2019, p. 2602) has introduced crypto custody business into the German Banking Act (Kreditwesengesetz – KWG) as a new financial service. Since the entry into force of the Implementing Act on 1 January 2020, companies seeking to provide such services have required authorisation from BaFin.

The authorisation procedure for crypto custody business is generally based on section 32 (1) of the KWG, which is why both the authorisation procedure and the future ongoing supervision of these institutions is comparable to the procedures and processes in place for other financial services.

For further information on crypto custody business, comprehensive information on the specific requirements for authorisation and additional guidelines relevant for such business activity, please see the webpage devoted to this topic.

Contact

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

Companies considering applying for authorisation can contact either BaFin or the competent Regional Office of the Deutsche Bundesbank at an early stage. Please direct any such enquiries and other general enquiries regarding authorisation to BaFin (electronically or by post) at the following addresses:

General enquiries regarding the granting of authorisation may also be addressed to the competent Regional Office of the Deutsche Bundesbank.

All financial services institutions supervised by BaFin can be found in the company database.