For quite some time already traditional banks and financial service providers have noticed that digitalisation will not spare their industry. And as a matter of fact, financial services really are well suitable to be offered through digital, automated and internet-based business models. Today’s internet affine generation attaches great importance to a 24/7 availability of their bank and almost no bank customer likes to spare some of his rare time for visiting the local bank facility during his usual working hours for a consultation. Furthermore, an investment advice or contract offer from a computer-based algorithm should be more independent than the advice of a commission-fee-motivated banker. The term fintech describes companies starting at this point and offering classical financial services via the internet in a digitalized and automated form. The increasing demand for digitalized financial services concedes a point to the fintechs and many banks have already recognized the signs of the time and established internet-only direct banks without local banking facilities or invested in promising fintech startups. Several banks also established so called innovation labs, co-working spaces or fintech hubs where fintechs with good prospects are fostered in order to acquire them or their business models after the first scaling up phase.
But just as well as the fintechs do not spare the traditional business models of the banks, the complex regulations for banks and financial service providers do not ignore the fintech companies. The German regulator for banks and financial service providers BaFin insofar applies a technology-neutral regulatory approach. Hence, it does not make any difference for the regulatory qualification of a specific activity if it is conducted in local bank facilities, in a personal discussion with a financial advisor or via the internet in a computer-based manner. As long as the activity actually is a banking business, a financial service or a payment service the rules and regulations for banks, financial institutions and payment institutions will apply. Fintechs therefore require a permission for their business from BaFin as well as sufficient starting capital and equity-to-assets ratio, fit and proper directors, compliant internal controlling mechanisms and contracts for their business, to name a few requirements
For fintechs it is therefore of utmost importance to have a professional legal advisor specialising in banking and financial services regulation on their side. Already the modification of little details in the business model in individual cases may have the effect that a BaFin license is no longer required for the specific business model. If the business model however definitely requires a prior BaFin permission a cooperation with a licensed banking partner may enable the fintech company to conduct the business without an own license but on basis of a whitelabel solution. In addition to the question whether a BaFin permission is required for the business model the fintech must make sure that all internal processes and contract templates comply with the applicable regulations. FIN LAW is specialising in the legal advisory on innovative and digital fintech business models and offers solutions not only to BaFin licensing requirements and connected BaFin coordination but also to drafting of legally compliant documents for all internal and external financial processes of fintech companies and – wherever demanded – makes contacts to suitable cooperation partners from FIN LAW’s network.
Attorney Lutz Auffenberg, LL.M.
T. +49 (0) 69 50 50 64 490