The authorisation process pursuant to section 32 KWG under the SSM
Considering Brexit and fintech start-ups, this article seeks to place authorisation processes under the Single Supervisory Mechanism (SSM) within the "new" legal context and to set out and evaluate practical difficulties and offer appropriate solutions throughout the process.
The wave of institute foundations resulting from Brexit and the rise of FinTech start-ups illustrates the practical relevance of the licensing procedure according to § 32 KWG under the SSM. In addition to the placing in the "new" legal context, the article deals with practical difficulties in the procedure and regulatory and accounting challenges as well as project risks and shows possible solutions.
The complete German language version of the article can be found under the download link, an English language Working Paper (which is regularly updated) can be found in the download section to the right, below in summary form some core statements:
An objection with regard to the relevance of the article may perhaps be heard: Germany is "overbanked", so that an article on the liquidation or winding-up of institutions or their consolidation is more in tune with the times and the formation of new banks in Germany is therefore rare.
Procedural and substantive Europeanisation of the licensing procedure
Such an assessment would, however, be simply wrong. Indeed, it is evident from the field that factors such as Brexit and the arrival of fintech providers have in fact unleashed a wave of new institutions, and will continue to do so. The German unicorn N26 which has recently started operations may be a proof for this trend. The German Federal Financial Supervisory Authority (BaFin) and the European Central Bank (ECB) would confirm this.
Recommendations for action for the period before the start of the licensing procedure
The last few years have seen the authorisation process heavily Europeanised. In the last five years, the relevant German provision, section 32 KWG has been amended four times as a result of laws transposing European directives. From the point of view of most observers, the relevant Europeanisation has not gone far enough; others, though, believe it has gone too far, because it is a long way from what is required by subsidiarity, a cornerstone of European jurisprudence.
The potential founders should obtain clarity concerning the access modes well before the start of the authorisation procedure. These modes form the basis of market access. This requires in no way a head office in Germany. Other locations in the EEA can also be considered. It is advisable, however, to choose a location for the Institution's headquarters depending on the main focus of the service provision. Clarity must also be obtained with respect to the banking business and financial services for which authorisation needs to be sought.
Recommendations for action for time planning, separation into phases
For the timetable, three essential phases must be outlined. In the first phase, the business model must be developed and reviewed. The second phase is the one in which the application for authorisation is formulated and documented. In the third phase, the developments of the business plan are implemented.
Communication and correct cost estimation
To meet timetable requirements, plans and preparations must also be made for efficient communication with the authorities. A complete overview of the documentation can be found in the BaFin checklist and the ECB Guide to assessments of licence applications. The time and expense of the – three-part – authorisation documentation should not be underestimated. Overall, good preparation when founding an institution is valuable for both the applicant and the authorities.
Requirements for the (selection of) advisors
Since the majority of initiators have no experience in the establishment of banks in Germany, the use of advisors is almost indispensable. A concentrated selection of advisors should therefore be carried out in advance.
A responsible time planning and a diligent selection of the team of advisors increase the probability of a trouble-free execution of the licensing process.
Crypto-asset business in Germany will have to fulfil licence requirements in the future.