Simplified Exemption Procedure for Swiss Banks under the German Banking Act

Any financial institution wishing to conduct one or more of the banking activities specified in section 1 of the German Banking Act (KWG) in Germany is required to obtain an authorisation from the German Federal Financial Supervisory Authority (BaFin) pursuant to section 32 KWG and subject to the European passporting rules. This licensing requirement also applies to undertakings having their registered office in another country, i.e. non-EEA Member States, and willing to conduct or offer such activities through a branch in Germany. This applies to Swiss banks operating in Germany.

However, an existing license granted by the home country, in this case Switzerland, can, subject to certain conditions, be recognised by BaFin and pursuant to section 2(5) KWG, BaFin may exempt individual companies not only from the authorisation requirement but also from the specific provisions of ongoing supervision under the KWG. Note that, the financial institution is eligible for this exemption only if, in the supervisor's opinion, it does not require supervision given the nature of its service offerings.

Currently, several Swiss financial institutions and credit institutions provide banking activities in Germany under the exemption option of section 2(5) KWG.
Since 2014, when Switzerland and Germany entered into a Memorandum of Understanding (MoU) covering procedural aspects for cross-border business in the financial industry, banks in Switzerland have been able to obtain this licensing exemption for their cross-border business into Germany also by way of the so-called Simplified Exemption Procedure (SEP), agreed upon in the MoU, which is available in addition to obtaining the exemption under the KWG described before. As a result, Swiss banks have been able to access the German market directly from Switzerland and to acquire new German clients, without needing to go through a German-licensed credit institution as intermediary.
In 2021, though, this access had been briefly interrupted due to certain open issues regarding the exemption procedure which the supervisory authorities in Germany and Switzerland were able to clarify in December 2021. BaFin thus now appears ready again to process applications for the exemption of banks in Switzerland in accordance with the procedure under section 2(5) KWG as well as the SEP.

As we have learned, reasons for the interruption were no issues related to Brexit but a controversy - now resolved – as to whether certain reporting requirements on which BaFin insists are provided for by section 271 of the Swiss Criminal Code (SCC). This problem meanwhile seems to be resolved as the competent Swiss authority (FINMA) has confirmed that the SCC reporting requirements have been accepted. It was also reported that the forthcoming amendments to CRD VI will currently not be taken into account in the current administrative procedure.

This paper (download on the right hand side) provides an overview of the SEP and also seeks to analyse the implications of the newly proposed CRD VI.