KWG, WPIG, MaRisk, BAIT and other laws and regulations
Anyone providing financial services in Germany requires a permission from the German supervisory authority BaFin. Depending on the service, it is subject to various types of laws or regulations. Therefore, market participants must fulfil various requirements for the initial authoritzation and during ongoing business.
What types of laws and regulations exist?
Among others, the following laws and regulations exist in Germany
Stock Corporation Act (”AktG“)
The German Stock Corporation Act regulates the establishment, constitution, accounting, general meetings and liquidation of joint stock companies as well as limited partnerships on shares.
Regulation Concerning Reports and the Submission of Documentation under the Banking Act (”AnzV“)
Regulation Concerning Reports and the Submission of Documentation under the Banking Act.
Banking supervisory requirements for IT (”BAIT“)
IT requirements for credit institutions and financial services institutions.
Stock Exchange Act (”BörsG“)
Act regulating the stock exchange business . The Act applies to both securities and commodity exchanges.
CRD IV Implementation Act
Act implementing Directive 2013/36/EU on access to the activity of credit institutions and the supervision of credit institutions and investment firms and adapting supervisory legislation to Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms.
Custody Act (”DepotG“)
The Custody Act regulates the safekeeping and purchase of securities.
Deposit Insurance Act (”EinSiG“)
The German Deposit Insurance Act regulates the minimum deposit insurance requirements for German banks.
Anti-Money Laundering Act (”GwG“)
The Anit-Money Laundering Act imposes special obligations on certain companies and individuals to prevent transactions with a criminal background and to help uncover them. It is effective not only to companies from the financial sector but also to companies outside the financial sector.
Electronic Securities Act (”eWpG“)
The Electronic Securities Act of June 3rd, 2021 is a German federal law that regulates securities trading in electronic securities law. The eWpG through the introduction of the regulation on crypto fund shares (KryptoFAV) was expanded with crypto fund shares.
Capital Investment Code (”KAGB“)
The German Capital Investment Code provides the legal framework for investment funds.
Capital management supervisory requirements for IT (”KAIT“)
IT requirements for capital management companies (similar to BAIT for credit institutions and financial services institutions).
Banking Act (”KWG“)
The KWG applies to credit institutions and financial services institutions. It prescribes requirements to ensure, in particular, the security and maintenance of the functioning of the banking industry and the protection of creditors of credit institutions.
Minimum risk management requirements (”MaRisk“)
BaFin's requirements in the form of a circular for designing risk management in German banks.
UCITS V Implementation Act
The UCITS V Implementation Act came into force on 18 March 2016. On the one hand, it implements the requirements of the European UCITS V Directive in Germany, the fifth directive on collective investment undertakings in securities (UCITS). On the other hand, the UCITS V Implementation Act entails changes which do not relate to the above-mentioned Directive. These include, for example, the rules for granting loans through alternative investment funds (AIFs).
Pfandbrief Act (”PfandBG“)
The Pfandbrief Act is a German law that regulates the legal basis for issuing Pfandbriefe.
Investment Act (”VermAnlG“)
The Investment Act applies to investments that are offered to the public in Germany. It creates an obligation to publish an issue prospectus for the majority of investments.
Securities Trading Act (”WpHG“)
The Securities Trading Act regulates securities trading in Germany. In particular, it is used to control service companies that trade securities, as well as financial futures, and also to protect customers.
Securities Institutions Act (”WpIG“)
The Securities Institutions Act serves as an act for the supervision of investment institutions.
Securities Prospectus Act (”WpPG“)
In accordance with European requirements, the Securities Prospectus Act standardizes the rules for prospectuses published for the public offering of securities and prospectuses in connection with admission to the regulated market.
Payment services supervisory requirements for the IT of payment and electronic money institutions (”ZAIT“)
IT requirements for payment and e-money institutions (similar to BAIT for credit institutions and financial services institutions).
Payment Services Supervision Act (”ZAG“)
The Payment Services Supervision Act regulates the supervision of payment service providers and electronic money institutions.
ZAG Institute Own Resources Ordinance (”ZIEV“)
Ordinance on the appropriate capital resources and the necessary insurance for the liability of institutions under the ZAG.
In addition to German laws and regulations, the following European regulations may also apply:
DLT Pilot Regime (”DLTR“)
European pilot regulation for the operation of market infrastructures based on distributed ledger technology.
EU prospectus regulation
Regulation, which regulates the requirements for securities prospectuses when securities are offered to the public or when they are admitted to trading on a regulated market.
Capital Requirements Regulation (”CRR“)
Regulation, which in particular sets out the quantitative requirements for banks, such as the rules on adequate capital base, large credit limits and liquidity base.
Market Infrastructure Regulation (”EMIR“)
Regulation regulating over-the-counter trading in derivatives.
Market Abuse Regulation (”MAR“)
Regulation, which in particular imposes requirements to combat insider trading and market abuse.
Directive 2014/65/EU on markets in financial instruments (”MIFID II“)
Directive on the harmonization of investments and investment services within the EU.
Regulation on European crowdfunding service providers (”ECSP“)
Regulation, which defines the requirements for crowdfunding companies.
Regulation on digital operational resilience in the financial sector (”DORA“)
European regulation, which sets IT and IT security requirements for financial market participants.
Regulation on markets in financial instruments (”MIFIR“)
Regulation which regulates trading systems in the financial market.
Regulation on markets for crypto assets (”MiCAR“)
European regulation which regulates the handling of crypto assets.
Central Securities Depositories Regulation (”CSDR“)
Regulation which regulates the requirements for central securities depositories.
What are the permitting requirements?
Acquisition brokerage
(Section 1 (1a) sentence 2 No. 2 KWG; Section 2 (2) sentence 1 No. 5 WpIG)
(Section 1 (1a) sentence 2 No. 2 KWG; Section 2 (2) sentence 1 No. 5 WpIG)
Acquisition and sale of financial instruments in another person's name for the account of others.
Investment advisory
(Section 1 (1a) sentence 2 No. 2 KWG; Section 2 (2) sentence 1 No. 5 WpIG)
(Section 1 (1a) sentence 2 No. 2 KWG; Section 2 (2) sentence 1 No. 5 WpIG)
Making personal recommendations to clients or their representatives relating to transactions involving specific financial instruments, provided that the recommendation is based on an examination of the investor's personal circumstances or presented as suitable for him and is not made public exclusively via information dissemination channels or to the public.
Investment brokerage
(Section 1 (1a) sentence 2 No. 1 KWG; Section 2 (2) sentence 1 No. 3 WpIG)
(Section 1 (1a) sentence 2 No. 1 KWG; Section 2 (2) sentence 1 No. 3 WpIG)
Brokerage of transactions involving the purchase and sale of financial instruments.
Investment management
(Section 1 para. 1a sentence 2 no. 1 KWG)
(Section 1 para. 1a sentence 2 no. 1 KWG)
Acquisition and sale of financial instruments outside the management of investment funds within the meaning of Section 1 paragraph 1 KWG for a community of investors who are natural persons, with discretion in the selection of financial instruments, provided that this is a focus of the product offered and for the purpose of these investors participating in the performance of the acquired financial instruments.
Operating a multilateral trading facility
(Section 1 (1a) sentence 2 No. 1b KWG; Section 2 (2) sentence 1 No. 6 WpIG)
(Section 1 (1a) sentence 2 No. 1b KWG; Section 2 (2) sentence 1 No. 6 WpIG)
Operation of a multilateral system that brings together the interests of a wide range of people in buying and selling financial instruments within the system and subsequent provisions in a way that results in a contract for the purchase of those financial instruments.
Operation of an organized trading system
(Section 1 para. 1a sentence 2 no. 1d KWG; § 2 para. 2 sentence 1 no. 7 WpIG)
(Section 1 para. 1a sentence 2 no. 1d KWG; § 2 para. 2 sentence 1 no. 7 WpIG)
Operation of a multilateral system that is not an organized market or a multilateral trading facility and which brings together the interests of a wide range of third parties in buying and selling bonds, structured financial products, emission allowances or derivatives within the system in a way that results in a contract for the purchase of those financial instruments.
Depositary business (Section 1 Paragraph 2 No. 5 KWG; Section 2 Paragraph 3 No. 1 WpIG)
Custody and administration of securities for others.
Discount transaction business (Section 1 (1) sentence 2 No. 3 KWG)
Purchase of bills of exchange and checks.
Third-country deposit brokerage
(Section 1 (1a) sentence 2 No. 5 KWG; Section 2 (4) WpIG)
(Section 1 (1a) sentence 2 No. 5 KWG; Section 2 (4) WpIG)
Brokerage of deposit transactions with companies based outside the European Economic Area.
Proprietary business
(Section 1 para. 1a sentence 3 KWG; Section 15 para. 3 or para. 4 WpIG)
(Section 1 para. 1a sentence 3 KWG; Section 15 para. 3 or para. 4 WpIG)
Acquisition and sale of financial instruments for the own account that is not proprietary trading within the meaning of Section 1 paragraph 1a sentence 2 number 4.
Proprietary trading
(Section 1 para. 1a sentence 2 no. 4 a to d KWG; § 2 para. 2 sentence 1 no. 10 WpIG)
(Section 1 para. 1a sentence 2 no. 4 a to d KWG; § 2 para. 2 sentence 1 no. 10 WpIG)
a) Continuously offering the purchase and sale of financial instruments at self-imposed prices for own account using own capital; or
b) Systematic internalization; or
c) Acquiring or selling financial instruments for own account as a service to others; or
d) High-frequency trading
b) Systematic internalization; or
c) Acquiring or selling financial instruments for own account as a service to others; or
d) High-frequency trading
Restricted custody
(Section 1 para. 1a sentence 2 No. 12 KWG; Section 2 para. 3 No. 4 WpIG)
(Section 1 para. 1a sentence 2 No. 12 KWG; Section 2 para. 3 No. 4 WpIG)
Custody and management of securities exclusively for alternative investment funds (AIFs) within the meaning of Section 1 paragraph 3 of the Capital Investment Code.
Deposit business
(Section 1 (1) sentence 2 No. 1 KWG)
(Section 1 (1) sentence 2 No. 1 KWG)
Acceptance of third-party funds as deposits or other absolutely repayable funds from the public, provided that the repayment claim is not securitized in bearer or order bonds, regardless of whether interest is remunerated.
Issuance business
(Section 1 Paragraph 2 No. 10 KWG; Section 2 Paragraph 1 No. 2 WpIG)
(Section 1 Paragraph 2 No. 10 KWG; Section 2 Paragraph 1 No. 2 WpIG)
Acquisition of financial instruments at your own risk to place or assume equivalent guarantees.
Factoring
(Section 1 para. 1a sentence 2 no. 9 KWG)
(Section 1 para. 1a sentence 2 no. 9 KWG)
Ongoing purchase of receivables on the basis of framework agreements with or without recourse.
Financial leasing
(Section 1 para. 1a sentence 2 no. 10 KWG)
(Section 1 para. 1a sentence 2 no. 10 KWG)
Conclusion of financial leasing agreements as a lessor and the administration of property companies within the meaning of Section 2 paragraph 6 sentence 1 number 17 outside the management of an investment fund within the meaning of Section 1 paragraph 1 of the Capital Investment Code.
Financial commission business
(Section 1 Paragraph 2 No. 1 KWG; Section 2 Paragraph 1 No. 1 WpIG)
(Section 1 Paragraph 2 No. 1 KWG; Section 2 Paragraph 1 No. 1 WpIG)
Acquisition and sale of financial instruments in one's own name for the account of others.
Financial portfolio management
(Section 1 (1a) sentence 2 No. 3 KWG; Section 2 (2) sentence 1 No. 9 WpIG)
(Section 1 (1a) sentence 2 No. 3 KWG; Section 2 (2) sentence 1 No. 9 WpIG)
Management of individual assets invested in financial instruments for others with room for decision-making.
Guarantee business
(Section 1 (1) sentence 2 No. 8 KWG)
(Section 1 (1) sentence 2 No. 8 KWG)
Assumption of guarantees, and other warranties for others.
Lending business
(Section 1 (1) sentence 2 No. 2 KWG)
(Section 1 (1) sentence 2 No. 2 KWG)
Granting cash loans and acceptance loans.
Crypto custody business
(Section 1 para. 1a sentence 2 no. 6 KWG)
(Section 1 para. 1a sentence 2 no. 6 KWG)
Custody, management and protection of crypto assets or private cryptographic keys used to hold, store or dispose of crypto assets for others, and the protection of private cryptographic keys used to hold, store or dispose of crypto securities for others in accordance with Section 4 paragraph 3 of the Electronic Securities Act.
Crypto securities registry
(Section 1 para. 1a sentence 2 no. 8 KWG)
(Section 1 para. 1a sentence 2 no. 8 KWG)
Management of a crypto securities register in accordance with Section 16 of the Electronic Securities Act.
Pfandbrief business
(Section 1 (1) sentence 2 No. 1a KWG)
(Section 1 (1) sentence 2 No. 1a KWG)
Operation of the transactions referred to in Section 1 (1) sentence 2 of the Pfandbrief Act.
Placement business
(Section 1 (1a) sentence 2 No. 1c KWG; Section 2 (2) sentence 1 No. 8 WpIG)
(Section 1 (1a) sentence 2 No. 1c KWG; Section 2 (2) sentence 1 No. 8 WpIG)
Placing financial instruments without a fixed takeover obligation.
Check collection business/ Exchange collection business/ Traveler's check shop
(Section 1 (1) sentence 2 No. 9 KWG)
(Section 1 (1) sentence 2 No. 9 KWG)
Carrying out cashless check collection (Check collection business), the collection of exchanges (Exchange collection business) and the issuance of traveller's checks (Traveler check shop).
Currency exchange transaction business
(Section 1 para. 1a sentence 2 no. 7 KWG)
(Section 1 para. 1a sentence 2 no. 7 KWG)
Trade in foreign currenies (foreign money in the form of banknotes and coins).
What general requirements must be met?
Depending on the license, companies must meet various requirements. These include in particular:
1. Authorization by the supervisory authority after approval of an official license application;
2. Requirements regarding the legal form or registered office;
3. Requirements regarding company owners;
4. Management requirements;
5. Capital requirements;
6. Requirements regarding the structural and process organization, in particular
a) Organizational structure and resources;
b) Processual requirements;
c) Risk management and internal control systems;
d) IT;
e) Outsourcing management;
f) Anti-Money laundering;
g) Compliance;
h) Emergency / business continuity management;
i) Reporting;
j) Audit.
What are the specific IT requirements?
Depending on the license, companies must also meet specified requirements for dealing with IT in particular. These include in particular:
1. Requirements for an IT strategy;
2. IT-governance requirements;
3. Information risk management requirements;
4. Information security management requirements;
5. Operational information security requirements;
6. Identity and rights management requirements;
7. Requirements for implementing IT projects;
8. Requirements for dealing with in-house developments;
9. Requirements for IT operations;
10. Requirements for dealing with IT outsourcing and purchasing IT services;
11. Emergency / business continuity requirements.
How do we support you?
FinPlanet is your one-stop shop for regulatory issues and when entering into new business models!
We provide you with full consulting support, from an initial assessment to potential license applications and integration into the organizational and operational structure. In particular, our support includes the following services:
- Workshops;
- Support with license applications;
- Gap analyses with regard to regulatory compliance;
- Assistance in establishing regulatory compliance with German MaRisk, BAIT, ZAIT and other regulatory requirements;
- Support in integrating the business model into your organizational and operational structure;
- Review and optimization of your internal processes with regard to requirements;
- Support for new product processes in accordance with the German MaRisk AT 8.1 (”NPP“);
- Adjustments of your written guidelines;
- Assistance in the selection of service providers;
- Project management;
- And many more...
*The information was prepared by FinPlanet based on public information. FinPlanet does not guarantee the completeness or accuracy of the information. In particular, no legal advice is provided.