Changes regarding reporting obligations pursuant to the German Foreign Trade and Payments Regulation (AWV)
Within the scope of the establishment of credit or financial institutions external sector statistics reporting is still to be observed. This topic is subject to substantial changes from July 2013 on.
From this date on the reports could only be filed electronically. Apart from that, the content of the reporting will be extended in order to meet the increased needs for information on both, national and international level. Additionally, there will be changes with respect to the persons subject to external sector statistics reporting obligations.
Extended Reporting Requirements based on the ‘Financial Information Regulation’
Within the context of the establishment of a credit or financial institution the proper compliance with the German reporting regulations has to derive already from the respective application documentation. That means, one should deal with the German reporting duties at a very early stage. Even EU-Branches pursuant to Sect. 53b German Banking Act should be aware of German reporting requirements since they are also obligated to submit regulatory reports to a certain extent.
On the 28th of February 2013 at the second/third reading, the German Bundestag passed the High Frequency Trading Act. Now that the new act has gone through, the definition of own account trading in the German Banking Act (KWG) will be expanded to the High Frequency Trading. Furthermore, organizational and behavioral responsibilities will be formulated.
Through the expanded definition all High Frequency traders are subject to the supervision of the German Financial Supervisory Authority (BaFin) and necessarily require a license in accordance with the section 32 of the German Banking Act (KWG). These also apply to indirect and direct trading participants, such as those who use the infrastructure of a domestic bank.
Attention should be paid to traders on own account who under current law are subject to the Regulatory Capital Requirements and the Liquidity Requirements of the German Banking Act (KWG) and therefore the High Frequency Trading has to backed by capital in the future.
The Act provides transitional provisions of six months for domestic companies, which becomes a financial services institution caused by the expansion of the ‘own account trading term’, if they file a complete permit application in accordance to the section 32 German Banking Act (KWG). For foreign companies a transitional provision applies for nine months.
While the last post addressed the issue of capital requirements (see below), the present blog deals with the question to which extent an AIFM may outsource functions already in the course of the licensing procedure (and later when conducting the business as licensed entity).
The outsourcing or delegating of tasks by an AIFM is possible as far as the outsourcing structure can be justified on objective grounds and certain other conditions, such as a written contract, are fulfilled.
Currently the entry requirements for suppliers from third countries such as Switzerland are set in the framework of national legislation, leading to national differences concerning the necessary prerequisites.
As part of the revision of MiFID in the future also market access for providers of investment services from third countries should be regulated consistently across the EU. Sales to retail clients, including retail clients who have requested to be treated as professionals shall be possible only if a branch in the EU has been established. Therefore, cross-border sales to retail clients will not be possible any more.
Funding required for running the business
As already posted on June 2012 (see below), from July 2013 on all collective investment schemes, which are not already covered by the UCITS Directive [Directive for the regulation of collective investment undertakings; Directive 2009/65/EC] are regulated by the AIFMD. Therefore fund managers of so-called “alternative” funds, such as private equity funds or hedge funds generally are required to obtain a license for their activities.
There are numerous requirements that have to be met in order to obtain an AIFM-license by the Federal Financial Supervisory Authority (BaFin). One of these conditions is the availability of adequate capital.
The formation of a new development bank is faced with many difficulties particularly in those countries most in need of support from such a state institution. As a result of this, the demand for innovative solutions within this field is constantly growing, especially in emerging markets and developing countries. Solutions enabling these economies to establish a domestic development bank are particularly sought-after. However, the often poor rating poses an unsurmountable difficulty to the bank’s refinancing strategy, thus undermining the states’ abilities to establish a viable bank. Innovative strategies secure favourable refinancing conditions by collateralization for development banks.
In order to offer financial services today, companies usually require a banking license and are therefore subject to the supervision of the BaFin. However, there are financial services which can be exempted from the supervision and are therefore not bound to license requirements. These businesses named “Financing Without a Bank” are often ancillary or secondary businesses, which can be offered as a complement to the core business. A possible release of the license requirements depends on the business volume of the respective company.
-External Factors Influencing the Decision to Establish a Bank -
Industrial companies are thinking to establish their own bank or have established their own bank already. The motifs to found a bank can be totally different.
The range of existing bank products and services does not always correspond to the needs and requirements of the respective company. Through the acquisition of an own banking license, the company is able to develop new financing models for either internal or external purposes and can also create company specific products and services. Furthermore, companies with high refinancing needs may then obtain access to low interest ECB loans if applicable. Additionally, they get the possibility to place liquidity reserves and other cash assets profitably. Consequently, new value creation possibilities can be revealed through an own banking license.
The support of development banks in countries which are further developed regarding industry and infrastructure is frequently aimed at the financial assistance of SME’s (Small and Medium Enterprises) as they often serve as an economic pillar with regard to the middle class of the respective country. Additionally, development banks grant means to foster innovations, to encourage exports or to subsidize municipalities and regional projects such as the expansion of infrastructure and environmental protection etc. .
An own development bank is a very sustainable instrument in order to strategically set up and establish the support in a country.