Topic Unauthorised business Enforcement relating to unauthorised business
Anyone wishing to conduct banking business, insurance business, investment business or e-money business or to provide financial services or payment services requires prior written authorisation from BaFin (preventive ban involving authorisation requirement).
Without the necessary authorisation, such business is prohibited and the conductor or provider is acting without authorisation. This applies irrespective of the conductor's legal form – corporation, natural person, commercial partnership or other body of persons. Depending on the type of business, the authorisation requirement is regulated by the German Banking Act (Kreditwesengesetz – KWG), the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG), the German Investment Code (Kapitalanlagegesetzbuch – KAGB) or the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG). Certain kinds of banking business, which are specified in section 3 of the KWG, such as the operation of a company savings bank (Werksparkasse) are not eligible for authorisation at all and are thereby prohibited. This ban is repressive in nature without reservation of exemption.
The authorisation requirement and ban also apply to persons and undertakings who/which do not maintain any branch or other physical presence in Germany and who/which wish to conduct their business solely within the scope of the cross-border provision of services. They therefore apply irrespective of whether the business in question is conducted solely in Germany for customers in Germany, is conducted from abroad for customers in Germany or is conducted from Germany for customers abroad.
As the competent supervisory authority, BaFin follows up indications for the conducting of unauthorised and prohibited business. It has far-reaching powers of investigation with which to effectively throw light on suspect business.
Publication of measures taken
BaFin publishes its formal prohibitive orders and liquidation orders on its website. Those interested can inform themselves online regarding which companies and persons BaFin has taken formal action against concerning unauthorised business.
Prohibition and liquidation
If, on the basis of its investigations, BaFin determines that an undertaking is actually conducting unauthorised business, as supervisory authority it has extensive powers to immediately put an end to such business. If the conductor does not voluntarily cease the unauthorised business on first demand, BaFin formally prohibits the continuation of the unauthorised business and orders the liquidation of the existing business. Depending on the individual case, it issues further instructions aimed at ensuring an orderly liquidation of the business. If BaFin cannot assume that the undertaking's own governing bodies will ensure an orderly liquidation of the business, it employs a suitable person who, as liquidator, takes on the corresponding powers of management and representation of the undertaking. For this function, BaFin avails itself of the services of suitable lawyers who have also proven themselves as insolvency administrators.
Enforcement of administrative decisions
If necessary, BaFin enforces its measures and orders by coercive means. It can have business premises sealed off or impose or threaten to impose coercive fines. If a coercive fine is not paid, BaFin may under certain conditions apply to the competent administrative court to order coercive detention instead.
Powers also exist vis-à-vis involved parties
If it is found that unauthorised or prohibited business operations are being conducted, the associated powers of investigation and intervention can be used not only against the conductor, the members of its governing bodies, its partners, employees and other staff. These powers can also be exercised vis-à-vis all persons who are involved, knowingly or unknowingly, in the initiation, conclusion or settlement of unauthorised or prohibited business. This may be the case, for example, when such persons manage accounts or operate websites.
Inspections conducted by BaFin
If there are concrete suspicions that unauthorised business is being conducted, BaFin officials also investigate on site. These inspections are usually not announced in advance. If necessary, the officials search premises and persons – in the event of imminent risk without a court order – and secure the evidence. Usually, however, a court search warrant will have been granted. On the basis of this, BaFin's investigators may also search people's homes.
Automated account information access procedure
BaFin avails itself of the automated account information access procedure for the purpose of effectively keeping track of flows of money in Germany in order to investigate unauthorised or prohibited business.
The special powers of investigation to take action against unauthorised or, pursuant to section 3 of the KWG, prohibited banking business or financial services are specified in section 44c of the KWG. There, it is also stipulated that these rules also apply to undertakings and persons involved in the respective business. Section 37 of the KWG specifies how BaFin intervenes against identified unauthorised or prohibited banking business or financial services. The measures include prohibition, settlement orders, special orders relating to the settlement of unauthorised business operations and the appointment of a liquidator, as well as possible auxiliary measures against involved undertakings and persons.
All powers to intervene are aimed at every person who is potentially a conductor of, or involved in, the business. In particular, they are not tied to any particular legal form of conductor or involved party.
How action is taken against unauthorised insurance business is regulated in sections 305, 306 and 308 of the VAG. Sections 15 and 16 of the KAGB regulate the powers of investigation and intervention for taking action against unauthorised investment business, while sections 4 and 5 of the ZAG regulate how action is taken against unauthorised payment services and e-money business.
Unauthorised business is a criminal offence
At the latest after BaFin has ordered formal measures, it also informs the relevant public prosecutor's office, which, as prosecuting authority, can take action in its own right against the respective conductor of the business and their assistants. Whether or not the public prosecutor's office works parallel to BaFin, however, does not affect BaFin's duties and powers as the authority with responsibility for hazard prevention. If the public prosecutor's office intervenes, BaFin coordinates the further steps to be taken with the prosecutor.
Ignorance does not grant immunity from action being taken
Anyone who is involved in the initiation, conclusion or settlement of unauthorised or prohibited business can expect measures to be taken by BaFin as well as, potentially, criminal prosecution. This applies not only to the conductor of the business but also to all those knowingly or unknowingly involved in the business – either as employees, as self-employed staff, as members of governing bodies or as service providers.
In the actions it takes against unauthorised business, BaFin works together with the supervisory and prosecuting authorities of other countries. At the request of foreign authorities, it also applies its powers of investigation for their investigations concerning unauthorised business in other countries.
For this purpose, it is sufficient if the facts justify the assumption that somebody who resides or maintains a presence here is involved in the initiation, conclusion or settlement of prohibited business. This may include banking business, financial services, investment business, payment services or e-money business conducted in the other country in contravention of an existing ban there.