Licensing requirements under the German Banking Act (KWG)

Anyone wishing to conduct banking business or provide financial services on a commercial basis in Germany requires written permission from the Federal Financial Supervisory Authority (BaFin) in accordance with Section 32 para. 1 of the German Banking Act (KWG).

Companies from the non-financial sector are also frequently subject to licensing requirements. In particular, companies must be careful that they do not engage in lending business, deposit business or guarantee business in the course of refinancing. Since 2009, factoring and leasing companies have also been subject to the licensing requirement.

In addition to the licensing requirement, the KWG specifies numerous exemptions from the licensing requirement. For example, those who conduct banking business exclusively within a group of companies or who only provide investment brokerage, placement business or investment advice as financial services under a regulatory umbrella (so-called tied agent) do not need to have a licence pursuant to Section 32 para. 1 of the German Banking Act (KWG).

It is often difficult to distinguish between business models that require a licence and those that do not. Therefore, a detailed examination of the individual case is always necessary.

If no corresponding licence from BaFin is held for the relevant business and no exceptions apply, BaFin has reason to assume that unauthorised business subject to licensing requirements is being conducted. In this case, BaFin will investigate the facts by means of extensive requests for information and, if the suspicion is confirmed, will prohibit the respective company from doing business.

Our range of services includes:

• Conducting licensing proceedings pursuant to § 32 para. 1 of the German Banking Act (KWG);

• Legal representation in the event of information, prohibition or liquidation orders by BaFin due to unauthorised operation of business subject to regulation;

• Counselling of regulated companies with regard to compliance with their regulatory obligations;

• Conducting owner control proceedings in connection with the intended acquisition of significant shareholdings.