
Private Banking and Wealth Management
Regulation
What are the main sources of law and regulation relevant for private banking?
The main sources of law and regulation relevant for private banking are the German Banking Act, the German Securities Trading Act and the German Civil Code.
The German Banking Act is particularly concerned with the licence requirements for private banking activities. The German Securities Trading Act is particularly relevant to private banking owing to its rules of good conduct towards clients. The German Civil Code is the basis for the contractual relationship between the banker and the client.
Those sources of law are supplemented by EU law, such as the EU Capital Requirements Rules and Directive 2014/65/ EU (MiFID II) Rules.
Regulatory bodies
What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?
The main government bodies relevant for private banking and wealth management are the German Financial Supervisory Authority (BaFin) and the German Federal Bank (Deutsche Bundesbank). BaFin is responsible for the day-to- day supervision of banks and wealth managers. The Deutsche Bundesbank is particularly concerned with reporting and data gathering from private banks and other financial institutions. The supervisory function is shared with regard to larger credit institutions with the European Central Bank.
Private wealth Services
How are private wealth services commonly provided in your jurisdiction?
Private wealth services are typically provided by private banks or by banks with a private client department. Single- or multi-family offices are also a significant player in the area of providing services to high-net-worth individuals.
Definition of private banking
What is the definition of private banking or similar business in your jurisdiction?
There is no specific definition of private banking. Rather, private banking is understood as banking or wealth management services tailored to the financial needs of wealthier individuals.
Licensing requirements
What are the main licensing requirements for a private bank?
The main licensing requirements for private banking services depend on the type of services. If the private bank also offers deposit-taking services, the main licence requirements are:
- initial capital of €5 million;
- at least two managing directors;
- sufficient good repute, sufficient knowledge, skills and experience as well as availability of the managing directors;
- sufficient suitability of shareholders holding 10 per cent or more in the institution;
- a head office in Germany; and
- a sufficient business plan providing information on the intended organisational structure, compliance measures and projected business development.
Licensing conditions
What are the main ongoing conditions of a licence for a private bank?
The requirements for granting the licence must be maintained on an ongoing basis. This applies in particular to the required capital and the sufficient compliance structures. As additional ongoing requirements, banks are subject to several regular and ad hoc reporting obligations to their supervisory authorities. Furthermore, banks are required to finance a deposit guarantee scheme and to prepare a recovery plan to secure financial stability and not to fall back on taxpayer’s money.
Organisational forms
What are the most common forms of organisation of a private bank?
The most common form of organisation of a private bank is an entity, often as a subsidiary of a German bank or of a foreign bank. The entity is typically a German limited liability company or a German stock corporation. There are also some branches of foreign Banks.
Obtaining a licence
How long does it take to obtain a licence for a private bank?
It should take at least six to eight months to obtain a licence for a private bank.
Licence withdrawal
What are the processes and conditions for closure or withdrawal of licences?
As a general rule, the German Financial Supervisory Authority (BaFin) may withdraw a licence if the institute no longer meets the licence requirements or if the institute violates the German Banking Act or related laws on a sustained basis. BaFin may also withdraw the licence if there is a risk that the institute will no longer be able to meet its obligations.
The withdrawal of a licence is a last resort. BaFin may instead request the resignation of the managing directors or it may order any organisational issues to be rectified. In addition, BaFin can take additional measures in special situations, such as closure of the institute if there is a risk that the institute can no longer meet its obligations.
In practice, issues between BaFin and institutes are typically solved on an informal basis between BaFin and the institute.
Wealth management licensing
What are the main licensing requirements for wealth Management?
Wealth management is subject to both licensing and ongoing supervision. This applies to both discretionary management and non-discretionary advice. Single-family offices, though, are typically exempt from a licence requirement and from ongoing supervision.
Requirements
What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?
The main licensing requirements for wealth management depend on the type of services offered. If wealth management is restricted to financial advisory and discretionary individual portfolio management services without holding clients’ monies or securities, the main licence requirements are:
- initial capital of €50,000;
- ongoing capital of at least one-quarter of projected overhead costs;
- sufficient good repute, sufficient knowledge, skills and experience as well as availability of the managing director or directors;
- sufficient suitability of shareholders holding 10 per cent or more in the institution; a head office in Germany; and
- a sufficient business plan providing information on the intended organisational structure, compliance measures and projected business development.
What are the main ongoing conditions of a wealth management licence?
The requirements for granting the licence must be maintained on an ongoing basis. This applies in particular to the required capital and sufficient compliance structures. As additional ongoing requirements, wealth managers are subject to several regular and ad hoc reporting obligations to BaFin or German Federal Bank, or both.
Furthermore, wealth managers are required to finance an investor protection scheme.
Read this article in full:
Lexology GTDT_Private Banking and Wealth Management 2021_Germany
This article was first published in: Law Business Research 2020, Lexology Getting The Deal Through, Private Banking & Wealth Management 2021, pp. 20ff, August 2020