Banking Regulations in Germany (BaFin) And The EU

The BaFin is Germany's financial regulator, i.e. it regulates Germany's financial world. By now, the majority of activities in the banking sector require a BaFin license. Small companies do, at times, offer services for which they would require a BaFin license - without having one. Doing so is punishable under German law and we strongly advise against it.

The best way to avoid any issues with the BaFin is checking before starting operations in Germany. An experienced and qualified financial regulation lawyer can prove as a great advantage. However, at times, companies are offering financial services without a valid BaFin-license and get contacted by the BaFin. We can help with such cases as well.

Please also note that a BaFin license is often valid for just the particular purposes you listed in your application. Chances are, you need a new license when offering new financial services.

If a financial service provider pursues unauthorized business, this is usually brought to the attention of the company by a letter from BaFin and a statement is requested. The provision of banking transactions, financial services or payment services without the required permit can have serious consequences for the companies concerned and the persons acting:

• Even merely acting negligently without the required permission pursuant to Section 54 of the German Banking Act (KWG) or Section 31 of the German Banking Supervision Act (ZAG) is punishable by law.
• Anyone who has once knowingly provided such services without a permit can no longer be classified as "reliable", which may stand in the way of a permit being granted in the future.
• In addition, competitors can sue for injunctive relief against unauthorized business. The company will then be prohibited from continuing its business operations by temporary injunction on pain of an administrative fine of up to EUR 250,000.
• Finally, there is the threat of civil claims by customers who have suffered damage as a result of services provided without authorization. According to the German Federal Court of Justice, Section 32 of the German Banking Act (KWG) is a so-called "protective law". Anyone who commits this violation of the KWG is liable for damages for this reason alone.

The costs for applying for a BaFin license can vary greatly. In addition to the lawyer's fees, there is also a processing fee at the licensing authority itself, the amount of which is determined by the annex to the so-called FinDAGKostV. The amount of the fee depends on the specific financial services or banking transactions for which a license is sought.

In our experience, the fee charged by the supervisory authority for a license pursuant to Section 32 (1) of the KWG ranges between EUR 2,000 and EUR 17,000 in the case of licensing procedures for financial services, while the range for the granting of a license for banking transactions is between EUR 5,000 and EUR 20,000.

If, on the other hand, a license is only granted for the provision of

• third country deposit brokering,
• foreign exchange business,
• factoring and
• finance leasing

the BaFin fee is a uniform EUR 2,600. In the case of extensive license applications, the fee may also be higher. The amount of the lawyer's fees, on the other hand, depends to a large extent on the time required for coordination and correspondence with the client on the one hand and the authority on the other.

We help you examining if your buisness requires a license and prepare you as good as possible to obtain one, by elaborating on points such as:

• What kind of financial service(s) will you offer? Do you already plan to implement additional services in the forseeable future? Where could potential conflicts arise?
• What personal requirements do you have to meet and how much capital is required?
• Which risk control measurements should be implemented and how do you integrate them with compliance guidelines?
• What model contracts should you submit to BaFin?

You should also know that consultation regarding capital markets investments requires you to observe certain documentation laws. Money laundering, authentification (both are part of KYC - Know your customer) and risk management are further important points.