Apply for a German Banking Licence

It is necessary to fulfil many requirements to open a bank in Germany. The German Banking Act (Kreditwesengesetz – KWG) sets out, among other things, the requirements for establishing a bank or acquiring a German banking licence. In the following, we will discuss the business models possible in the banking sector, the requirements attached to a banking licence, and explain when you are entitled to be granted a licence.

Business Models in the German Banking Industry

Anyone wishing to provide a service in the banking sector in Germany “requires written permission from the supervisory authority” (§ 32 (1) KWG). Whether a German Banking Licence is required depends on the planned business model and the structure of the services. In principle, based on the facts of the individual case, it must be decided whether a permit is required and what type of permit is necessary.

A distinction is made in the business models requiring a German Banking Licence between banking transactions and financial services, securities, payment and e-money institutions. “Banking business” consists of activities in connection with the granting of loans, deposit transactions (cf. § 1 (1) sentence 2 no. 1 KWG) and much more. To conduct banking business, a corresponding Banking Licence must be available. Whether such a licence is granted depends on the decision of the Federal Financial Supervisory Authority (BaFin) as a national institution under public law and, if applicable, the European Central Bank (ECB). The latter and the BaFin grant the licence for deposit and lending operations. The national supervisory authority alone decides on the granting of a German Licence in other cases. The individual banking transactions subject to a licence requirement are set out in § 1 Para. 1 Sentence 2 KWG.

Financial services (cf. § 1 (1a) sentences 2, 3 and 4 KWG) are not considered “banking businesses”. However, a German Banking Licence is also required to provide services in the context of asset investment and those related to leasing or factoring. Therefore, acting as a financial services institution is only possible with a German Banking Licence. According to § 1 (1a) sentence 2 no. 6 KWG, cryptocurrency transactions are among the financial services requiring a licence. Furthermore, § 15 para. 1 Securities Institutions Act (WpIG) states that a licence from the Federal Financial Supervisory Authority is required for securities services (§ 2 para. 2 WpIG), ancillary securities services (§ 2 para. 3 WpIG) and ancillary transactions (§ 3 para. 4 WpIG). This also applies to payment services (§ 10 (1) sentence 1 ZAG) and the operation of e-money transactions (§ 11 (1) sentence 1 ZAG).

However, the Banking Act also stipulates which activities and companies do not require a licence from the Federal Financial Supervisory Authority. Some exceptions are named in § 2 KWG. The lawyers at our law firm will be happy to check whether a licence from the supervisory authority is required in your case. Please, do not hesitate to contact us for our legal support.

The German Federal Financial Supervisory Authority (BaFin) and, if applicable, the European Central Bank (ECB) examine whether they can grant a banking licence. A banking business or financial institution must submit the relevant application for permission in writing to the Federal Financial Supervisory Authority (BaFin) to obtain a banking licence. The Federal Financial Supervisory Authority then examines whether all requirements have been met. § 33 (1) sentence 1 German Banking Act (KWG) regulates the refusal of a licence. The conditions for granting a banking licence are derived from the reasons for refusal listed in the norm above. Accordingly, the Federal Financial Supervisory Authority (BaFin) must be provided with evidence of the requirements listed in the standard and other documents that BaFin also requires when an application is submitted.

The applicants must prove the following aspects:

• Presence of the necessary funds for business operations, in particular, sufficient initial capital,
• Two suitable and reliable managing directors,
• Head office in Germany,
• Existence of a business plan (budget planning),
• Description of the planned business model,
• Submission of any contracts likely to be concluded.

The initial capital required depends on the intended business model and other circumstances. The required capital must be freely available at the time of application and may not come from a loan.

The professional suitability and reliability of the business manager are also of central importance in the application process (§ 1 Para. 2 KWG). This requirement results in particular from the fact that the qualification of the managing director must not only be available and proven at the time of application. Applicants should also note that BaFin’s permission can be withdrawn later if the applicants no longer meet the requirements.

Whether the applicant meets the conditions can be determined by the Federal Financial Supervisory Authority during the required annual audit reporting. What is required is sufficient knowledge and practical experience concerning the planned business model and the activity as a manager. However, the specific requirements to be fulfilled by the applicant depend on the business model and the scope of the enterprise. Therefore, the assessment is made on a case-by-case basis.

A business manager is considered unreliable if certain circumstances could impair their activities. During the examination of the applicant’s reliability, this person’s conduct is considered in many respects. In particular, criminal offences committed by the business manager and administrative violations are essential. The applicant will be deemed unreliable if they commit any transgressions against the relevant regulations, resulting in not being issued a banking licence.

Suppose a person is not granted a licence by the Federal Financial Supervisory Authority (BaFin) or has not applied for such a licence in the first place and nevertheless engages in any of the activities described above that require a licence. In that case, they may be threatened with the following:

• Prohibition of business operations,
• Liability to pay damages to clients,
• Prosecution by the public prosecutor’s office,
• Payment of a fine.

If you are engaged in one of the activities described above and do not have a corresponding permit, please do not hesitate to contact us. The attorneys at Schlun & Elseven Rechtsanwälte will review your case and illustrate your legal options.