BaFin licence – commercial banking, financial and payment services in Germany have to apply for licences. A licence is now required for almost all commercial financial activities. Today’s § 34c GewO is only applicable in very few cases according to § 34f GewO.

BaFin crypto licence: The supervisory authority published a full statement on various business models for the first time on 19 December 2013. Since 2020, the holding of cryptocurrencies is subject to authorisation.

In the following article, you will learn which requirements you have to fulfil in order to obtain a BaFin licence. In addition, the lawyers of the Herfurtner law firm explain to you which transactions are subject to authorisation.

Table of contents

  1. When is the BaFin licence necessary?
  2. BaFin licence: Requirements
  3. How are violations punished?
  4. How high are the costs for a BaFin licence?
  5. BaFin licence: What information is required?
  6. When do transactions require a BaFin licence?
  7. BaFin Crypto Licence for Commercial Trading
  8. Bitcoins are units of account
  9. BaFin licence: Contact Herfurtner law firm

You would like to apply for a BaFin licence for your company and have legal questions? The lawyers of the Herfurtner law firm will take care of the application for you and provide an initial cost estimate.

When is the BaFin licence necessary?

It is not uncommon for smaller companies to provide financial services (e.g. investment brokerage or asset management) without the appropriate licence from the Federal Financial Supervisory Authority.

According to the German Banking Act (KWG), the Payment Services Supervision Act (ZAG) or the German Investment Code (KAGB), a BaFin licence may be required. If a service provider in this country wants to hold crypto assets in custody on behalf of consumers, it has needed a Bafin crypto licence since 1 January 2020.

Other services related to the blockchain, such as the storage of cryptocurrencies, also require a BaFin crypto licence if they are traded commercially. In addition, it is required to operate Bitcoin ATMs or crypto exchanges where proprietary trading or financial commission trading in crypto assets takes place.

Anyone offering financial advice or trading services with cryptocurrencies also needs a BaFin licence. In addition, it is more common for companies based outside Germany to have to apply for a permit under certain circumstances.

Offers aimed at German buyers have this effect. The European passporting system does not apply to the crypto market in Europe. Therefore, providers cannot simply operate in other EU states with the permission of their home country.

Banking and financial services

Regulatory law relies heavily on the BaFin permit, also called BaFin licence, BaFin approval or also KWG licence. Many banking and financial services require explicit authorisation by the Federal Financial Supervisory Authority (BaFin).

In the area of online trading and digital banking, the BaFin licence poses a number of complex regulatory difficulties (fintech).

Exemptions from the licensing requirement

In addition to the licensing requirements, various exemptions are provided for in the relevant laws.

According to Section 32 of the German Banking Act (Kreditwesengesetz, KWG), anyone who conducts banking business as part of a group or only provides investment and acquisition brokerage, brokerage business or investment advice as a financial service under a liability umbrella is not required to obtain a licence.

The licensing requirements are explained to you in detail, including any exemptions from the licensing requirement and any possibilities to change the intended activity in such a way that the licensing requirement is not affected.

Payments with Bitcoins without a BaFin licence

Customers who use Bitcoin to pay their bills do not need a permit from BaFin. Since an entrepreneur can simply take Bitcoin as a means of payment for their services or products without needing a BaFin licence, this is an option open to everyone. Banking or financial services do not require a permit if only these transactions are carried out.

BaFin Licence: Requirements

In this section, we will inform you about the requirements that must be met in order to obtain a BaFin licence. In addition, we explain which documentation obligations you must fulfil.

Qualification of the company management

A decisive factor for BaFin accreditation is the qualification of a company’s management.

A good example of this is the fact that BaFin only grants a licence for banking business, a licence for financial services or a licence according to the German Capital Investment Code to a person who fulfils the professional and personal requirements according to the relevant legal provisions.

Minimum capital of 50,000 euros

A minimum amount of capital is required for a successful application for a BaFin licence. In the case of financial services companies, the minimum capitalisation is 50,000 euros, and as much as 25,000,000 euros in the case of Pfandbriefe.

In order for these cash funds to be available at the time of application, they must not have been financed in any way by the company, either directly or indirectly through a loan.

BaFin licence: Documentation of licensing

Anyone offering financial advice must thoroughly research and document. This includes the preparation of contracts and compliance manuals carefully drafted by the advisor himself.

In addition, the increasing digitalisation of the financial industry, known as “FinTech”, raises various regulatory difficulties.

In addition, MiFiD II brought with it many regulatory obligations. Financial service providers have been increasingly exposed to liability issues since MiFiD was transposed into national law a few years ago.

BaFin licensing: requirements are changing

Licensing requirements are constantly changing. This limit can quickly be exceeded if further service components are added to the pure use of Bitcoins.

So there is no getting around a BaFin licence if you are not only a miner, buyer and seller of Bitcoins, but also a market participant who contributes in some way to maintaining or creating the market. Mining pools are also affected by this issue.

BaFin and the respective competent public prosecutor’s office have investigated such “proprietary traders” because a BaFin licence, which was required in the opinion of the authorities, was missing.

High demand for BaFin licences

The number of offences for which a BaFin licence is required has expanded as more financial markets outside the banking sector are regulated. A BaFin licence is now required by more and more companies and types of business.

Those who do not consider themselves financial service providers in the narrow sense may be affected by the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz, ZAG).

Depending on the business concept, other online services that carry out money transfers (e.g. crowdfunding platforms) may also require a BaFin licence under the ZAG.

BaFin licence: How are violations punished?

A letter and a request for a statement are usually sent to BaFin if a financial service provider behaves unlawfully. Companies and persons acting on their behalf face harsh consequences if they offer banking transactions, financial services or payment services without the appropriate licence.

In addition, customers who have been harmed by an unauthorised service can file a lawsuit against the company. according to the Federal Supreme Court, § 32 of the German Banking Act (KWG) is a so-called protective law. For this reason alone, anyone who violates the KWG is liable for damages.

No one who has previously offered services without a permit may be considered “reliable” in the sense of being granted a permit. Competition can also take action against unlawful business practices by suing for injunctive relief.

If a company violates the injunction, an administrative fine of up to 250,000 euros can be imposed prohibiting the continuation of the activity.

What are the costs for a BaFin licence?

The fees for applying for a BaFin licence can vary greatly. In addition, there are the costs for processing at the licensing authority, which are set out in an annex to the FinDAGKostV, as well as legal costs. In order to obtain a licence for a particular financial service or transaction, a fee must always be paid.

Assume that the supervisory authority charges between 2,000 and 17,000 euros in fees for licensing procedures for financial services. The range for the granting of a permit for banking transactions, on the other hand, is between 5,000 and 20,000 euros. This corresponds to Section 32 (1) of the German Banking Act (KWG).

For foreign notes and coins business, finance leasing and factoring as well as third-country deposit brokering, BaFin charges a fee of 2,600 euros if the licence is only applied for to provide these services. The fee may also be increased for lengthy licence applications.

The hourly rate of a lawyer, on the other hand, is strongly influenced by the time needed for coordination and interaction with the client and the competent authorities.

BaFin licence: What information is required?

A financial services provider must submit a large amount of information to BaFin as part of the authorisation procedure for the granting of a BaFin licence. The following documents and information must be disclosed.

  • All relevant financial matters
  • Special contracts with consumers
  • General terms and conditions
  • A detailed explanation of the risks associated with each planned action

Due to the complexity of the legislation on money laundering, authentication (KYC) and risk management, a thorough understanding of traditional banking law or banking supervisory law is required here.

BaFin licence: Transactions

Transactions are subject to authorisation in the following cases.

  • Anyone who collects money from a large number of persons and invests it for the benefit of these persons in accordance with a predefined investment plan also requires written permission from BaFin, as prescribed in § 32 of the German Banking Act (KWG).
  • A permit from BaFin or a permit pursuant to Section 20 of the German Investment Code (KAGB) is required if a so-called investment fund is established and managed and the assets under management reach a certain amount.
  • In addition, a permit from BaFin is required if customer payments are to be accepted and forwarded to a third party as part of the business activity (so-called payment services).
  • Anyone working on a business project involving topics such as crowdfunding, crowdinvesting, crowdlending, bitcoin and tokens or payment transaction and trust services should keep the permission requirement in mind.

BaFin is not the only organisation that conducts in-depth market research on potential new business concepts. Registrations with the competent authorities are sometimes a welcome opportunity for competitors to eliminate unwanted competition.

Under current law (Section 339 KAGB and Section 54 KWG), negligent conduct may be sufficient to be punished for operating companies requiring a licence or providing services.

If the directors of the company did not inquire about the possibility of an intervening authorisation requirement, they have acted negligently. In addition, the perpetrators face civil claims.

BaFin Crypto Licence for Commercial Trading

BaFin Crypto Licence: In connection with the use of innovative payment systems or “e-money”, the question of a banking supervisory licence also arises. According to the BaFin’s interpretation of the KWG, digital currencies such as Bitcoin or so-called “crypto-assets” can also be considered financial instruments.

A licence from BaFin is required for the commercial trading, brokering, custody and safekeeping of Bitcoins and comparable cryptocurrencies for third parties.

Even non-profit organisations are not free from financial supervision. This is because they must comply with the regulations of the KWG when taking out or granting loans. When passing on cash, the strict rules of the ZAG may apply under certain circumstances.

BaFin crypto licence: Bitcoins are units of account

Even though the term “digital currency” is often used for Bitcoin, this is not legally correct. As long as a central bank issues them, the term “currency” or “money” can be used for a unit of payment. This is not the case with Bitcoins.

In the meantime, the Federal Financial Supervisory Authority (BaFin) has classified Bitcoins as “units of account” within the meaning of the German Banking Act (KWG), which means that they are at least comparable to other foreign currencies.

Bitcoin, Ether and the rest of the so-called crypto-assets have been defined by BaFin as of 2019. Cryptocurrencies are a type of digital asset that can be privately traded or invested in. According to the authoritative source, a crypto-asset can also be another type of financial instrument.

BaFin licence for trading platforms

The permission to operate crypto trading platforms (Crypto Exchanges) is, as expected, a big issue. In the event that cryptocurrencies themselves are traded commercially as a commodity, BaFin will likely seek to regulate them.

Problems with the EBA

The European Banking Authority (EBA) has so far advised its clients on virtual currencies. Unlike BaFin, however, the EBA’s statements have no obvious legal consequences. An authoritative source merely points out that cryptocurrencies like Bitcoin entail a variety of legal and tax consequences.

The government frequently warns customers that they can lose money on questionable trading platforms, for example if the operator operates without the necessary legal authority and/or commits criminal offences.

BaFin licence: Contact the Herfurtner law firm

The lawyers of the Herfurtner law firm will support you even before the foundation of your company and represent you vis-à-vis the competent supervisory authorities (in particular BaFin and Bundesbank).

Their task is to determine whether you need a permit for your project, and if so, what type of permit you need and what requirements must be met.

The authorisation procedure can be made more efficient and time-saving by thorough preparation of the application.