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Banking Business in Germany: 5th revised edition is now available

I am happy to announce that the 5th revised edition of Banking Business in Germany is now available. You can order it at „Fachverlag Moderne Wirtschaft“ (34,50 EUR). It is also available as an E-Book at ciando (28,50 EUR).

Cover picture of "Banking Business in Germany", 5th revisededition

Banking Business in Germany, new 5th revised edition


“Banking Business in Germany” is again a joint project of the Association of Foreign Banks in Germany and PwC.

From the Preface, written by Thomas Schäfer, Minister of Finance of the State of Hessen:

Now in its fifth edition, „Banking Business in Germany“ presents the legal and economic frameworks for the banking sector in Germany.


With the European Central Bank and the Bundesbank located here, Frankfurt is a leading location for international monetary and currency policy. And since the Single Supervisory Mechanism (SSM) has been placed under the auspices of the European Central Bank in November 2014, the financial centre of Frankfurt as a whole has become even more valuable and attractive for foreign institutions. And so, together with the European Insurance and Occupational Pensions Authority (EIOPA) and the European Systemic Risk Board (ESRB), Frankfurt is not only the centre of European monetary policy, but has also become a centre for regulatory authorities and supervisory agencies that can boast a competitive regulatory environment.

Over the last few years, the main objective of regulatory efforts at international, European and national level has been the rebuilding of trust in the financial markets. The creation of a Capital Markets Union and the implementation of new European requirements for financial market products are just two of the changes we will have to adapt to. I believe that Frankfurt should contribute towards achieving a change of direction: after years with a focus on regulation, it is now time for the simplification and optimisation of framework conditions. If these challenges can be actively addressed, I am confident that Frankfurt will be able to successfully defend its market position among the competition provided by global financial centres.


We welcome all financial institutions coming to Germany and contributing to this financial market, thereby enabling customers to choose from a diverse range of financial products.

I hope you will enjoy reading this publication and I cordially welcome you to Germany.


Three Iranian Banks enter the German market through Munich

Iranian Banks enter the German market through Munich

Eight months after the Implementation Day and we have witnessed improving trading relationships between Germany and Iran. In the first six months of this calendar year the export from Germany to Iran has increased by 15% compared to the last year. Several business delegations from the states of Bavaria, Hesse, and Baden-Württemberg have traveled just recently to Iran and the eagerly anticipated German business delegation – led by the German Minister for Economic Affairs and Energy, Sigmar Gabriel – will soon make its way to Tehran.

However, all these business improvements can not cover the lack of a proper functioning financial infrastructure for trade business between Germany and Iran. Due to still existing US banking rules many German banks do not dare to facilitate any Iran business.

As we were recently informed by the Bavarian business delegation – which was led by Bavarian Minister of Economic Affairs, Ilse Aigner – three Iranian banks (Sina Bank, Middle East Bank, and Parsian Bank) are planning to enter the German market through Munich. These banks will aim to provide banking facilitation to all German and Iranian trading customers which are already active in the market. Sina Bank, Middle East Bank, and Parsian Bank will then join the Iranian banks currently existing in Germany (Europäische Iranische Handelsbank, Sepah Bank Branch, Melli Bank Branch, Saderat Bank Branch). However, only one of these Iranian banks is today able to provide banking facilitation (Europäische Iranische Handelsbank). Hence, further trading banks are necessary to cover the great demand.

Having said this, any foreign bank entering the German market has to consider many legal and strategic issues. With respect to the Iranian banks coming to Germany one strategic question is the selection of the location. Munich is indeed a good selection since no Iranian banks are currently established in the Bavarian capital and due to the geographical closeness to the German Mittelstand and Italy. However, Frankfurt as the banking capital of Germany might be a better choice since it covers all necessary economic and regulatory requirements (e.g. the European and all German supervisory authorities are represented in Frankfurt plus the increasing importance of this city after BREXIT). But that is enough on the strategic topic. Let us face the more interesting regulatory question of branch vs. subsidiary.

Branch vs. Subsidiary

As heard from the Bavarian business delegation and confirmed by several newspaper articles, at least two out of the three Iranian banks intend to set up a branch in Germany. Setting up a branch in Germany may be practical if the host authorities only allow a branch outside of the country rather than a subsidiary. With respect to Iran this is not the case. Setting up a branch in Germany is regulated by Section 53 German Banking Act (see also our publication “Banking Business in Germany, Market Access to Germany – legal and regulatory implications”  – for more in detail information and our market entry flyer ). As a rule-of-thumb, branches of foreign banks (non-EEA Member States) are treated in the same manner as subsidiaries (without benefiting from the Passporting Privilege) under European regulatory aspects.

Licensing Procedure

The licensing procedure, i.e. the necessary documents to be submitted and the provisions to be fulfilled in order to receive the banking license, is almost identical with respect to the procedure of establishing an institution / a subsidiary:

  • The entity must apply for a license to establish a branch in Germany, plus the branch’s two managing directors have to be trustworthy in the same manner as the managing directors of subsidiaries.
  • The license application must be enclosed with a regulatory business plan which is equivalent to the business plan of a subsidiary.
  • The competent authority is the Federal Financial Supervisory Authority (BaFin). The managing directors (at least two) shall undergo the same trustworthiness test as requested for managing directors of subsidiaries. The head office and the shareholders must prove to be reliable.
  • In addition to the required documents for a subsidiary, BaFin may ask for further documents and information especially with respect to the head office.

The European Passporting Privilege

The so-called passporting procedure is based on the Banking Directive 2006/48/EC. This provision established the ‘supervision by the State of origin’ and settled the issue that the branches of CRR credit institutions from EEA-Member States may operate within the EU and EEA without the need of an additional license. However, this Passporting Privilige only entitles a CRR credit institution form an EEA-Member state to establish branches within the EU and EEA without the need to apply for additional permission. This Passporting Privilege is not available for banks of non EEA-Member States such as Iran. Therefore, if the Iranian banks intend to set up only a branch in Germany they will close the door to the European market.


Iranian banks may consider strategic issues (e.g. selection of the location) and regulatory rules before planning the market entry to Germany.

As we have seen here the regulatory rules for setting up of a branch are more or less identical with the requirements for setting up a subsidiary. However, only a subsidiary of a bank of a non-EEA-Member State can benefit from the Passporting Privilege rather than a branch of a bank of a non-EEA-Member State. Therefore, one may choose to set up a subsidiary in Germany and to benefit from the Passporting Privilge. Only by doing this the German market entry may become an European market entry.

Amendment of the Building Society Act (Bausparkassengesetz) introduces new refinancing possibilities for Building Societies

The amendment of certain fundamental legal foundations for the supervision of Building Societies as e.g. amendments of the German Banking Act required modifications of the Building Society Act. Furthermore, the business environment for the Building Societies’ business has changed: a low interest level in the capital market is accompanied by a strong demand for residential property financing.

The amendment of the Building Society Act was published in the federal gazette on 28 December 2015 and entered into force the day after. Inter alia, it introduced the possibility for Building Societies to issue mortgage backed bonds (Hypothekenpfandbriefe) to allow a competitive refinancing. For this purpose, Building Societies in principle need a licence according to the Pfandbrief Act. They need a higher amount of core capital as the amount required by the Building Society Act (minimum 25 million EUR) and have to fulfil the additional risk management requirements according to the Pfandbrief Act. The fulfilment of these conditions has to be stated in the licence application.

Please find here the link to the Second Act amending the Building Society Act.

Please find here more details to the amendment of the Building Society Act, e.g. with respect to the new risk management provisions.



Revised version of the Payment Service Directive

The European Parliament has adopted the revised version of the Payment Services Directive (PSD2) on October 8th, 2015. Before it can be published in the Official Journal of the European Community, the Directive still needs to be approved by the Council of Ministers of the European Union. After the approval, the Directive has to be implemented into national law within two years by the member states.

The revision of the Payment Services Directive will lead to amendments and adoptions of previous Directives and Regulations as well as the German Payment Services Supervision Act (ZAG).

One aim of the PSD2 is to make the electronical payments safer and more secure as well as more comfortable for European consumers. Hence “payment initiation services providers” and “account information service providers” will also be subjected to regulatory supervision by the BaFin. In addition they will have to undergo a licensing procedure at the BaFin.

Kleinanlegerschutzgesetz: Regulations for FinTechs (Part 2)

The German legislature ratified the final draft of the Kleinalegerschutzgesetz, Germany’s new investor protection law, which became effective 10 July 2015 (see also my previous blog on the early stages of the early stages of this law making process). However, not all the provisions were implemented in July; exceptions apply on the provisions of Art 13 (1) and (2), which come into effect on 1 January 2016 and 3 January 2017 respectively.

1. New rules

The Kleinanlegerschutzgesetz introduces the following major changes:

  • Specification and Extension of the obligation to publish a prospectus,
  • An obligation to provide specific information also after the public offering ends,
  • A ban on advertisement for public places (e.g. public transport, public posters and flyers),
  • Establishment of a ‘product governance’ process,
  • Additional powers and obligations for Germany’s supervisory authority, the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).

However, some important exceptions apply to specific FinTechs or financial technology companies.

2. Exemptions for crowdfunding/crowdinvesting

Investments provided through a financial instrument which do benefit from the following described exceptions will require a prespectus approved by BaFin. This prospectus will be valid only for 12 months maximum and will have to be updated afterwards, with BaFin approving the update.

For crowdfunding/crowdinvesting projects up to EUR 2.5 Million a prospectus is not needed, as Long as the equities are offered through an internet market place and each Investor (investment companies excluded) is only investing up to EUR 1,000 (or up to EUR 10,000 once the investor proves that he owns assets of more than EUR 100,000). However, the provider is obliged to provide to each investor with a “Key Information Document” (Vermögensanlagen-Informationsblatt).

3. Exemptions for “social projects”

Also for the investment in so-called social projects (projects for the common good of the society) the prospectus exception as described for crowdinvesting projects applies here as well. There is also no provisions for a certified annual report for the issuer. Having this said, there are strict requirements for “social projects” such as a cap for loan interest, no inducements allowed etc.

4. Exemptions for non-profit organisations

No prospectus (as mentioned for crowdfunding and “social projects”) is neeeded for projects with non-profit orgainizations and religious communities. There is also no requirement for a certified annual report. No accounting standards need apply for projects up to an investment sum of EUR 250,000.

5. Additional BaFin powers

Through the Kleinanlegerschutzgesetz, BaFin is not only allowed to supervise crowdfunding entities, but it is obliged to supervise the collective consumer-protection. BaFin has just established seven new departments covering consumer-protection issues. Therefore even when FinTech (e.g. crowdfunding, crowdinvesting) is not offering regulated banking/payment services and does not need to offer an approved prospectus. BaFin will still supervise such entity due to its obligation to support the collective consumer-protection.

Consultation of the guidance notice for managing directors – The main focus is on material requirements

Part of the European harmonisation process is the development of uniform requirements concerning the managing director. They are also the key aspect of the consultation of the guidance notice of the Financial Supervisory Authority (BaFin) of 19th January 2015. There are some modifications:


BaFin drafted separated guidance notice for the scope of the Banking Act (Kreditwesengesetz), the German Payment Services Supervision Act (Zahlungsaufsichtsgesetz) and the Investment Act (Kapitalanlagenschutzbuch) and a separate guidance notice for the Insurance Supervision Act (Versicherungsaufsichtsgesetz). Hence BaFin expects a more clear structure.


Prospectively forms are enclosed to the guidance notice (concerning personal statements, ancillary activities, changes and participations). In BaFin’s opinion this should need to a simplification of the whole process. This new approach should be a helpful support, especially for the preparation of documents, information and declarations.

Material requirements:

BaFin takes special considerations on the material requirements of the managing director. The material requirements play a major role especially competence, reliability and multiple mandates of the managing director. Until now there has been only an indication of material requirements in relation to the Insurance Supervision Act. In addition applicants needed to receive more material requirements on the basis of secondary literature. In our opinion, including material requirements into the guidance notice simplify the process for the applicant. At the moment it is not possible to estimate what the consequences are for the supervisory authority practices in relation to approval and notification procedures.

BaFin will publish the final guidance notice soon.

Swiss banks: New chances for market entry in Germany by means of a simplified regulatory framework

FINMA and BaFIN finally came to an agreement regarding all the required concrete measures for the so called “Simplified Exemption Procedure”. Thereby the regulatory framework for the market entry of Swiss banks in Germany will be facilitated.


In the past, Swiss banks going for a business activity in Germany without establishing a physical presence were required to meet several conditions which made conducting business operations more complicated. In particular, Swiss banks had to involve a locally active German / EEA bank for the customer identification of private clients.

Since 2013, there have been efforts by the Swiss Confederation and the Federal Republic of Germany to intensify cross-border cooperation in the financial sector. For that purpose, the so called “Memorandum to procedural aspects of cross-border activities in the financial sector” was established. One of the objectives of this Memorandum is enabling Swiss banks with cross-border customer relations to a simplified market entry in Germany, similar to the institutes of the EEA region.

However, this method put forward for the simplified market entry could not be applied yet, although the political will to establish the process was there. Nonetheless, the specific guidelines, which laid down the obligation for banks and the role of the FINMA and the BaFin in the practical implementation and a common understanding on the application of the money laundering law had yet to be completed.

Since July 4, 2015 all the conditions are now met and Swiss banks can take the so called “simplified exemption procedure” at BaFin before engaging in business in Germany in the future. In particular, no Swiss bank has to involve a locally active German / EEA bank anymore.

New 5th edition of Banking Business in Germany is due for 2016

As time goes by …

Although it seems to me as if the 4th edition of Banking Business in Germany was finalised only yesterday: The regulatory pace is still high and changes the framework of the financial services market day by day. So the authors from Association of Foreign Banks in Germany (Verband der Auslandsbanken in Deutschland e.V.) and PwC will convene once more over the next months in order to implement the latest developments into a new 5th edition of this practical guide for foreign banks establishing a subsidiary or a branch in Germany.

So I would like to encourage you to send in the comments below your feedback on the current 4th edition as well as your suggestion for anything we should take into consideration when we start to make up our minds on the content for the new 5th edition of Banking Business in Germany.

The new 5th edition is due for 2016.

EU-Passport: BaFin publishes forms for notification procedure

CRR-credit institutions or securities trading firms may conduct banking business or provide financial services in another EEA state via a branch or by providing cross border services without being obliged to apply for a license at the host member state’s competent authority. As a precondition, the company has to be licensed by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin), the license has to cover the planned business in the host member state, the company is efficiently supervised in Germany and undertook the notification procedure at BaFin.

The concept of the EU-Passport is not new as it was already introduced into the German Banking Act (Kreditwesengesetz – KWG) in 1992 based on the 4th KWG-Amendment implementing Directive 89/646/EEC into German law. CRD IV (Directive 2013/36/EC) continues this fundamental concept of freedom of establishment and freedom to provide services. CRD IV appoints the European Banking Authority (EBA) to develop draft regulatory technical standards and draft implementing technical standards in order to detail the information to be given to the competent regulatory authority and to establish standard forms, templates and procedures.

Based on these standards and templates developed by EBA, which were published in the Official Journal already in 2014, BaFin published the forms „EWR-Dienstleister: Formular zur Dienstleistungs-Notifizierung“ (Services Passport Notification Form) and „EWR-Dienstleister: Formular zur Notifizierung einer Zweigstelle“ (Branch Passport Notification Form) on 16 July 2015.

In case a CRR-credit institution or securities trading firm licensed in Germany plans to conduct banking business or to provide financial services in another EEA state via a branch or by providing cross border services, these forms have to be used for the notification procedure according to section 24a KWG in connection with section 12 Regulation Concerning Reports and Submission of Documentation under the Banking Act (Anzeigenverordnung – AnzV).


Revised Directive on Payment Services (PSD2)

There is new activity within the project to update and amend the provisions of the Directive on Payment Services. On 5 May 2015, the Parliament and Council agreed on a new proposal for a revised version of the Directive on Payment Services following trilogue negotiations between the Commission, the European Parliament and the Council of Ministers.

Already in July 2013, the Commission had drafted a proposal for a “Directive of the European Parliament and of the Council on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC” (so-called PSD2).

According to this proposal some actual regulated exemptions of the current German Payment Services Act would be limited. The German Payment Services Act is based on the current available EU-Regulation (PSD) which will be repealed by the new one.

That means, companies which are currently allowed to use an exemption, might need a regulatory licence to provide their services in future. In case of a licence requirement these companies would be under the supervision of BaFin. This would lead to massive consequences for the company. Hence the respective company should take care of the possible consequences and changes at a very early stage.

Although the new directive needs to be implemented into German law first – since an EU directive is not directly applicable in Germany – in the past, the German legislator has been constantly making efforts to transform EU directives into German law faithfully.