License applications for financial services

Challenges

In Germany, the provision of financial or payment services almost always requires a regulatory license under the German Banking Act (Kreditwesengesetz, KWG) or the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG). That means that in order for an industrial or trading company to establish its own bank, leasing company or payment services provider as a captive within the group, it must be granted such a license by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and the Bundesbank.
To apply for said license, they must, among other things, disclose the intended business strategy, the organizational and operational structures including the methods to comply with regulatory requirements, such as the separation of functions, as well as the planned IT infrastructure and the mechanisms for managing risks associated with the activity.
Moreover, in order to be granted a supervisory license under the KWG and the ZAG a holder control procedure must be performed. This process involves an assessment of the regulated legal entities and natural persons along the future holding structures in terms of their reliability and financial soundness. Additional checks serve the prevention of money laundering and terrorist financing. The holder control procedure may involve a great deal of communication and persuasion on the part of the regulated parties, especially when the holding structures within a group are very complex.
Last but not least, the KWG and ZAG place extensive requirements on the qualifications of the senior management. A license under the KWG and the ZAG is therefore only granted if the professional and personal requirements are proven to be met. That is why BaFin must be notified whenever a new senior executive is appointed.