Following on from our successful Brexit workshop last week, and our posts regarding France, Belgium and Lithuania, we now look at Germany as a potential destination for financial firms post-Brexit. Frankfurt is the home of the European Central Bank and has been synonymous with the world of Finance since the 15th century with the founding of the world’s first currency exchange in 1585. In the years that followed, Frankfurt developed as the capital of European finance and the rest of Germany flourished through the ability to trade in currencies, goods and services.
Now, four centuries on, Germany wants to reassert itself as the capital of Finance in Europe. Brexit presents an opportunity for many firms to relocate to Germany and in this piece, with thanks to contributions directly from the BaFin - ‘Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority) - we break down many of the considerations for you and your business, should you consider taking the ‘autobahn to authorisation’.
Payments market in Germany
Germany’s payment industry has differed from that of the rest of Europe with consumers often preferring cash and direct debits to purchase goods and services. This is changing with the innovation of online payment services. While still lagging behind the rest of Europe, contactless payments now constitute 19% of payments and that is expected to continue growing.
With Brexit fast-approaching, BaFin is now dealing with an increase in applications for authorisation, perhaps signalling another change in this growing market. This change is expected to see many firms targeting business across the EU, moving to Frankfurt, the de facto financial capital of Germany which is ironic when you consider that the division of the BaFin responsible for the licensing and supervision of payment institutions in Germany is actually based in Bonn.
Application process; is there any chance for UK-authorised firms to ‘fast-track’?
There is no special process for payment and e-money institutions authorised in other EU Member States that wish to relocate their activities to Germany and therefore intend to apply for an authorisation with BaFin. However, the application process could possibly be accomplished more quickly if an institution which is authorised in the United Kingdom has already obtained an authorisation according to PSD2. As such, these institutions should be familiar with the information to be provided for the authorisation of payment institutions and e-money institutions (EBA-Guidelines on the authorisation and registration under PSD2, EBA/GL/2017/09).
How long is the journey to authorisation?
The duration of the authorisation process is dependent on the quality of the submitted documents. The documents, moreover, should be up-to-date. To accelerate the process, it is advisable for institutions to contact Division GIT 2 at BaFin, which deals with applications according to PSD2, at an early stage, as this is the best way to ensure completeness of the documents.
Given that firms will have to set up a new legal entity, does BaFin have a ‘minimum requirement’ in terms of staffing levels in the new German office?
There are no fixed minimum requirements in terms of staffing levels, whereas the applying company should state the directors and persons responsible for the management of the institution who should be available for the relevant competent authority in the home Member State. Further, there might be other requirements for local staff according to AML/CFT rules and regulations. The respective minimum requirements for the organisation of the institution depend on the individual case and its organisational structure.
What are the expectations in relation to outsourcing?
Simply creating an “empty shell” in Germany for regulatory purposes is not allowed. However, the regulator will allow many business functions to be outsourced as per Article 19(6) PSD2.
Please be aware that according to recital 36 and Article 11(3) of PSD2, the payment institution should provide “at least part of its payment services business” in the Member State that has granted authorisation.
Safeguarding has been a particular problem for UK firms with many banks reluctant to open segregated accounts for this sector. Is there similar difficulty in Germany?
Safeguarding the funds for payment service users is one of the most important obligations of a payment institution. Consequently, compliance with the safeguarding requirements is the focus when assessing the application for authorisation. It may be the case that credit institutions are reluctant to open safeguarding accounts for payment institutions. However, Article 36 of PSD2 which requires that Member States shall ensure access to credit institution’s payment account services on an objective, non-discriminatory and proportionate basis, has been implemented in the German law (see section 56 of the German Payment Services Supervision Act). There is also the possibility to safeguard the funds with a guarantee or an insurance.
Is there an application fee?
The fee for granting an authorisation as a payment institution in Germany is 6,150 EUR, if one payment service is provided, or 8,515 EUR, if more than one or all payment services are provided. The fee for granting an authorisation as an e-money institution is 11,900 EUR. There is also a yearly fee, which is a contribution (Umlage) that is calculated based on the annual statement of accounts. You can find a detailed description on the website. (https://www.bafin.de/dok/7858544).
Do you require a pre-application meeting?
Yes, preliminary discussions are held. Most questions that arise are usually very individual, and therefore it is highly recommended that companies or institutions that have questions, do not hesitate to contact the GIT 2 Division at BaFin directly.
What is the process, as distinct from other regulators perhaps?
In principle, each application is handled individually i.e. on a case-by-case basis and with regard to proportionality. This is a key feature of the German regulator who will take a much more hands-on approach to getting your firm authorised and will work with firms in order to ensure that they operate in line with the domestic legislation.
So, alles klar? BaFin have provided a straightforward set of responses, which you would expect, but have also indicated a definite desire to engage with potential applicant firms at an early juncture. If you think Germany may be the destination for you, please do get in touch and see how we might be able to help.