As time goes by …
Time is relative. But from a regulatory perspective the last four years since 2007 brought close to epochal changes. In nearly all areas of the financial industry the measures taken to scope with the financial crisis led to fundamental amendments and new regulations which already transformed the industry sustainably and will further do so in future.
What you can look forward to
Insofar it was high time to start a new edition of the English publication "Banking business in Germany", which was published last time 2007 as 2nd edition. The work offers its readers a detailed and comprehensive overview of Germany in general and its financial industry in particular, including the possible legal forms of an organisation in Germany, the relevant supervisory authorities and supervisory framework, and German tax law and labour relations. The book can be used as a helpful guide to the establishment of banks, branches or representative offices in Germany.
Also the new edition is developed in close cooperation between the Association of Foreign Banks in Germany (Verband der Auslandsbanken in Deutschland e.V.) and PwC. It is scheduled for January 2012.
According to the law of the Supervision of Payment Services (ZAG) Payment Service Providers are treated separately in terms of their permission and supervision. With the formation of ZAG-Institutes permission for activities requiring a permit has to be requested and the business organization is prepared for the operation under current supervision by BaFin and the German Bundesbank. It is necessary to first identify the activities requiring a license and document the results comprehensibly for the supervision.
The exact analysis of the business model, particularly the type of the intended payment services, provides the basis for every further action and is the prerequisite for the approval procedure. The business model will be checked in all facets of foundation and the subsequent operation of a ZAG institute and matched against all necessary requirements. The questions about the products and services as well as the development of the value chain are particularly in focus. Furthermore the organizational structure and processes, the demands on IT infrastructure and the factors influencing the business case are important. Planning for resources, costs and outsourcing as well as for necessary IT systems must be assessed.
The ZAG requires in particular that payment institutions at a smaller size will appoint at least one manager as a leader, as well that a certain starting or regulatory capital must be provided. All payment institutions are subject to the obligation of equity adequacy and are not obliged to deposit funds in a legal safety device which were accepted for the execution of payment. These funds are required by ZAG to be separated from other assets or protected by insurance. Furthermore, the regulatory and commercial requirements as well as tax issues will be considered in detail. After these prerequisites have been created, the licensing process with all the necessary activities follows. After licensing, the company proceeds to the operative business.
On 30 April 2011 the transitional provisions of the Payment Services Act (ZAG) are going to end. According to that, companies who already had a license to provide money transfer business and credit card business before 25 December 2007, and companies who have provided their activities in the area of payment services (for example, the payment authentication business) without a license before 25 December 2007 can make use of the transitional provisions until 30 April 2011. However, starting on 1 May 2011, they require a licence according to the Payment Services Act to carry out the respective payment services. This licensing procedure includes the submission of extensive documentation to the Federal Financial Supervisory Authority (BaFin). Amongst others the submission of documents concerning the proof of the required initial capital, the business plan including a budget planning for the first three fiscal years as well as a description of the internal control mechanisms and the representation of the organizational structure is necessary. Since BaFin has to decide about the application only within three months after the complete documentation was submitted and since it is no longer allowed to conduct payment services according to the Payment Services Act without respective authorization after the expiry of the transitional provision, there might be a need for action.
On 27 September 2010 the Federal Government published a draft legislation which will serve for the implementation of the Second Electronic Money Directive. The content of the Second Electronic Money Directive is interlocked in a substantial part with the Payment Services Directive and the business activities of payment institutions. The implementation of the Directive shall take place until 30 April 2011. According to the explanatory memorandum of the legislation it is intended to take account the particularities of the electronic money business by creating a special type of institution. Similar to the institutions that provide payment services, it is planned to separate the activities of electronic money institutions from the Banking Act and to regulate them in the Payment Services Act. According to the Second Electronic Money Directive, the classification as a bank is no longer necessary to operate this business.