The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) has recently published an online FinTech Innovation Hub on its website to provide Fintech companies active on the German market, or intending to be active, with some guidance regarding the regulatory situation in Germany. BaFin has briefly summarized the current situation with the following statement: “Fintech is thus a very broad term that encompasses a wide range of technologies”.
In the German regulatory context, it will be a crucial point for providers of Fintech innovations to determine whether, and to what extent, their activities will be considered regulated activities in Germany. Fintech innovations give rise to new business models, including, for example, new applications, processes or products. Such new business models will in certain cases be regulated under German financial legislation, e.g. under the German Banking Act (KWG), the German Securities Institutions Act (WpIG) or the German Payment Services Act (ZAG). In this context, the general principle is that anyone who intends to offer certain banking, financial or payment services in Germany requires a license from BaFin.
Due to time and costs, start-up companies also try to use alternatives to obtain their own license in order to operate faster and more cost-effectively in the market. In this connection, arrangements such as affiliated agent or integration of a so-called fronting bank in the business model of the start-up can be envisaged, i.e. use of the license of a licensed institution by the start-up. The advantage of these arrangements lies in the relatively quick implementation of the concept without the lengthy establishment of the company’s infrastructure capable of obtaining a license. The disadvantage, however, is that additional fees must be paid to the respective institution for ongoing operations.
Thus, it may also make sense for a business to apply for its own license in order to better participate in the value chain of the services offered. Ultimately, this option will primarily be suitable for companies that have already established their business model in order to be able to bear the start-up costs necessary for the licensing process and its requirements. From an investor’s point of view, it can be very interesting – also from a compliance point of view – to invest in a regulated company, as such companies are subject to public supervision and thus also benefit from increased investment security.
BaFin closely monitors the digital transformation in the financial industry and aims to provide legal certainty for companies that work with new technologies. Since time to market is a decisive factor for every fintech company and every new business, BaFin aims to communicate with these companies as early, as efficiently and as transparently as possible.
www.bafin.de/…
