Investment services, Ancillary investment services and secondary business

Investment services

• Principal broking business within the meaning of section 2 (2) no. 1 of the WpIG
• Underwriting business within the meaning of section 2 (2) no. 2 of the WpIG
• Investment broking within the meaning of section 2 (2) no. 3 of the WpIG
• Investment advice within the meaning of section 2 (2) no. 4 of the WpIG
• Operation of a multilateral trading facility within the meaning of section 2 (2) no. 6 of the WpIG
• Placement business within the meaning of section 2 (2) no. 8 of the WpIG
• Operation of an organised trading facility within the meaning of section 2 (2) no. 7 of the WpIG
• Contract broking within the meaning of section 2 (2) no. 5 of the WpIG
• Portfolio management within the meaning of section 2 (2) no. 9 of the WpIG
• Dealing on own account within the meaning of section 2 (2) no. 10 of the WpIG

Ancillary investment services

• Safekeeping and administration of financial instruments for the account of third parties, including related services (safe custody business) within the meaning of section 2 (3) no. 1 of the WpIG
• Granting loans or other credits to others to allow them to carry out investment services, where the enterprise granting the credit or loan is involved in these transactions within the meaning of section 2 (3) no. 2 of the WpIG
• Foreign exchange transactions that are connected to investment services within the meaning of section 2 (3) no. 4 of the WpIG

Secondary business

• Third-country (non-European Economic Area) deposit broking within the meaning of section 2 (4) no. 1 of the WpIG
• Limited safekeeping business within the meaning of section 2 (4) no. 2 of the WpIG
  Under section 15 (3) of the WpIG, an authorisation requirement also applies to proprietary trading (only available in German) that is conducted in addition to investment services as well as to proprietary trading under section 15 (4) of the WpIG if the undertaking conducts proprietary trading as a member or participant of an organised market or multilateral trading facility, or via direct electronic access to a trading venue, or with commodity derivatives, emissions allowances or derivatives of emissions allowances.
  Section 3 (1) and (2) and section 15 (5) of the WpIG provide for exceptions to the basic authorisation requirement regarding investment services.

Authorisation process

Submitting the application

The applicant must submit three copies of the application for authorisation in writing to the responsible BaFin unit (Kontaktstelle Erlaubnisanträge Wertpapierinstitute) in Frankfurt. By way of exception, it is also possible to submit two copies to the BaFin office mentioned above and one copy directly to the competent Regional Office of the Deutsche Bundesbank. One of the copies of the application documents intended for BaFin must be submitted in the form required (original or certified copy). For the two other copies, a simple copy of each will suffice.

For the purposes of processing the application for authorisation, it is helpful if all documents are also sent in electronic form to the e-mail address Erlaubnisantraege.Wertpapierinstitute@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 in the form of a data room.

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 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 English will be accepted.

As of 3 January 2018, Implementing Regulation (EU) 2017/1945 requires all investment firms to use common standard forms and templates to help to ensure a uniform procedure throughout Europe. It is mandatory to use the following forms (Annexes I to III to the Implementing Regulation):

• Application form for authorisation as an investment firm
• List of members of the management body
• Notification of information on changes to the membership of the management body, if applicable

It is not possible to submit an informal written application. If the prescribed forms are not used, then BaFin will reject the application as inadmissible and charge the applicable fees. Nevertheless, it is still possible to submit a new application if this occurs.

Within ten working days after the application is received, BaFin sends the applicant a confirmation of receipt containing further contact details.

Contents of the application

An application for authorisation must include all the information and documentation prescribed in Delegated Regulation (EU) 2017/1943 for each section of the application. In addition, BaFin may require further information for proceeding with the application in accordance with Article 4 of Implementing Regulation (EU) 2017/1945.

The non-exhaustive list below provides details on the information and documentation to be submitted under Delegated Regulation (EU) 2017/1943:

a) General information under Article 1(b)

The information in accordance with Article 1 (b) of Delegated Regulation (EU) 2017/1943 must be provided for

• Investment services and investment activities according to the definitions in Section 2 (2) and section 15 (3) and (4) of the WpIG
• Ancillary investment services according to the definitions in section 2 (3) no. 1, 2 or 4 of the WpIG
• Secondary business according to the definitions in section 2 (4) of the WpIG

Applicants must also indicate any intention to conduct proprietary trading within the meaning of section 15 (3) of the WpIG and section 15 (4) of the WpIG.

The applicant intending to provide one or more of the following ancillary investment services has to notify them and refer to the following definitions set out in section 2 (3) no. 3, 5 to 7 of the WpIG:

• Advice to undertakings on capital structure and industrial strategy, and advice and services offerings relating to mergers and acquisitions
• Producing or distributing recommendations or suggestions for investment strategies within the meaning of Article 3(1) (34) of Regulation (EU) No 596/2014 (investment strategy recommendation) or investment recommendations within the meaning of Article 3(1)(35) of Regulation (EU) No 596/2014 (investment recommendation)
• Services related to underwriting business
• Services related to an underlying instrument within the meaning of subsection (8) no. 2 or no. 5 and that are connected to investment services or ancillary investment services.

When providing information on investment activities, it is necessary to state whether it is intended to engage in banking book activities or trading book activities, or if no business on own account will be conducted. In cases where it is intended to only engage in banking book activities, it is also necessary to apply for authorisation for proprietary trading under section 15 (3) of the WpIG. Here it should be noted that even in cases where it is intended to only conduct proprietary trading with financial instruments to be held for the banking book, a catalogue must be maintained detailing the segregation of trading book activities from the non-trading book activities.

Please refer to section 2 (5) of the WpIG for the financial instruments that must be specified in the application.

b) General information under Article 1(c)

Existing legal persons that have already been founded must furnish evidence their existence by submitting a certified extract from the commercial register (Handelsregister) or cooperative society register (Genossenschaftsregister). Partnerships or legal persons that are not yet registered must submit certified copies of their formation documents, articles of partnership/association or statutes as well as the planned rules of procedure for the management board.

c) Information on capital under Article 2

In addition to the details specified in Article 2, BaFin expects CRR credit institutions domiciled in an EEA state to provide confirmation that the initial capital has been paid and is freely available to the managing directors, unencumbered by rights of third parties. In the case of undertakings already founded, up-to-date confirmation must be provided by an external auditor regarding the existence of the required initial capital. Please note that the reference in Art. 5 a) iii) of Delegated Regulation 2017/1943 is to be understood as a reference to Regulation (EU) 2019/2033.

d) Information on shareholders under Article 3(b)

If the authorisation procedure requires assessment of qualified holdings, the applicable legislation in this case is Delegated Regulation (EU) 2017/1946; please refer to Articles 3, 4 and 5.

If no qualifying holding within the meaning of Article 4(1)(36) of the Capital Requirements Regulation (CRR) is held in the institution, then no more than the 20 largest shareholders must be identified in accordance with Article 3(a) of Delegated Regulation (EU) 2017/1943.

Furthermore, any details that suggest a close link within the meaning of section 2 (12) of the WpIG between the institution and other natural persons or undertakings must be specified.

e) Information on the management body and persons who direct the business under Article 4(a)

In the case of legal persons, the management body within the meaning of Article 4 refers to the management board or the respective managing director as well as the statutory or voluntary supervisory body. The term “persons who direct the business” also extends to key function holders, should any exist, such as the head of a major branch. The requirements regarding information on the internal management functions and internal control systems – such as details of the heads of the compliance unit, internal audit function or accounting unit – are set out in Article 6(c)(i).

The curriculum vitae to be submitted under Article 4(a)(iii) must indicate the exact months the respective position was held, must be complete and truthful and must not contain any gaps. It must be personally signed and dated.

The information required under Article 4(a)(i), (ii), (iv), (v) to (ix), (xi) and (xiii) may be submitted by way of the form “Information on reputation and adequate availability” under Delegated Regulation (EU) 2017/1943 in addition to the form “List of members of the management body” (Annex II to Implementing Regulation (EU) 2017/1945).

An extract from the Federal Central Criminal Register under section 30 (5) of the Federal Central Criminal Register Act (Bundeszentralregistergesetz – BZRG) or, in the case of EU citizens, under section 30b of the BZRG must be submitted as an official certificate within the meaning of Article 4(a)(v). BaFin expressly reserves the right to require further official documentation. In addition, an extract from the Central Trade and Industry Register under section 150 of the German Industrial Code (Gewerbeordnung – GewO) must also be submitted.

Assessing the application

Completeness

Once the application for authorisation has been submitted, BaFin first assesses the formal completeness of the application under section 15 (1) of the WpIG. When assessing the application, BaFin makes every effort – in consultation with the Deutsche Bundesbank – to conclusively obtain all the information and documents required for assessing the application as quickly as possible. If additional documentation or information is necessary, the relevant competent Regional Office of the Deutsche Bundesbank or BaFin contacts the applicant.

Once the application for authorisation has been submitted in full by the applicant, a period of six months begins within which BaFin must inform the applicant whether authorisation is granted or refused (section 16 (3) of the WpIG). 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.

Contents

On the basis of the documents submitted with the application for authorisation and the additional information provided by the applicant, BaFin examines the application by applying the following criteria among others:

• Capital requirements (section 18 (1) no. 1 of the WpIG and section 17 of the WpIG )
  The resources needed for business operations, in particular sufficient initial capital in Germany, must be available.
• Requirements for managing directors (section 18 (1) no. 2, 4, 5, 6 and 8 of the WpIG and section 20 of the WpIG)
  An investment firm which in the course of providing investment services is authorised to obtain ownership or possession of funds or securities of customers must have at least two managing directors. In all other cases, one managing director is sufficient. The managing directors must be sufficiently available to the institution on more than in an honorary capacity. There must be no facts that give rise to doubts regarding the managing directors being fit and proper. Under section 20 (1) of the WpIG, a prerequisite for the knowledge, skills and experience of managing directors is that they have adequate theoretical and practical knowledge of the business concerned, have managerial experience and be able to dedicate sufficient time to performing their functions.
• Requirements for holders of qualifying holdings (section 18 (1) no. 3 of the WpIG)
  The owners or legal representatives or partners of an undertaking which holds a qualifying holding (section 2 (23) of the WpIG) in an investment firm must satisfy the requirements to be set in the interest of the sound and prudent management of the institution. In particular, this requires them to be fit and proper.
• Requirements for the proper business organisation (section 18 (1) no. 10 of the WpIG)
  The investment firm must be prepared or be in a position to make the organisational arrangements necessary for the proper operation of the business for which it is seeking authorisation. This includes all the relevant provisions under the WpHG and the associated legal texts that have been issued.

In its assessment, BaFin also takes into account an opinion issued by the (statutory) compensation scheme under section 16 (1) sentence 1 of the WpIG that will be responsible for the future institution. An opinion is also obtained from the competent Regional Office of the Deutsche Bundesbank.

Granting authorisation and imposing fees

Only when the authorisation has become effective can the applicant commence business activities and have them entered in the commercial register.

When granting the 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 the BaFin website in its database of companies.

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 19 (1) no. 1 of the WpIG. The authorisation also expires (section 19 (1) no. 2 of the WpIG) if the institution is granted a license in accordance with section 32 (1) sentence 1 of the German Banking Act (KWG).

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. BaFin sends the applicant the fee notice at the same time it sends the notification of authorisation. For more information on this subject, please see the Regulation relating to the Imposition of Fees and the Allocation of Costs pursuant to the Act Establishing the Federal Financial Supervisory Authority (Verordnung über die Erhebung von Gebühren und die Umlegung von Kosten nach dem Finanzdienstleistungsaufsichtsgesetz – FinDAGKostV) and the associated schedule of fees.

After authorisation is granted

Once business has commenced, the investment firm is subject to supervision by BaFin and the competent Regional Office of the Deutsche Bundesbank.

Contact

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

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

Please direct any general enquiries regarding the granting of authorisation and submitting the application for authorisation, along with the other documents required, to: