|
Preface |
5 |
|
|
Table of Contents |
8 |
|
|
Figures |
19 |
|
|
Tables |
22 |
|
|
Abbreviations |
25 |
|
|
A Germany in facts and figures |
33 |
|
|
1 General information |
33 |
|
|
2 Population |
33 |
|
|
3 Language and education |
34 |
|
|
4 A very brief history |
35 |
|
|
5 Political system |
35 |
|
|
6 Some structural aspects of the legal system |
37 |
|
|
7 Business geography and infrastructure |
38 |
|
|
8 Economy |
40 |
|
|
9 Currency |
40 |
|
|
10 Influence of the EU |
41 |
|
|
11 Further information |
42 |
|
|
B The banking industry in Germany |
43 |
|
|
1 Specific characteristics of the German banking system |
43 |
|
|
1.1 Universal banking system |
43 |
|
|
1.2 Bank based financial system |
43 |
|
|
1.3 House bank principle |
43 |
|
|
1.4 Fragmentation |
44 |
|
|
1.5 Three pillars |
44 |
|
|
2 Structure of the German banking industry |
44 |
|
|
2.1 Commercial banks |
45 |
|
|
2.2 Savings banks (Sparkassen) and Landesbanken |
46 |
|
|
2.3 Cooperative banks (‘Volks- und Raiffeisenbanken’) |
46 |
|
|
2.4 Mortgage banks |
47 |
|
|
2.5 Development banks |
47 |
|
|
2.6 Building and loan associations |
48 |
|
|
2.7 Non-bank financial intermediaries |
48 |
|
|
3 Foreign banks in Germany |
48 |
|
|
3.1 Presence of foreign banks in Germany |
49 |
|
|
3.2 Business model |
49 |
|
|
3.3 Market shares |
50 |
|
|
4 Recent developments |
51 |
|
|
5 Further information |
51 |
|
|
C Supervisory authorities |
53 |
|
|
1 The new European supervisory environment |
53 |
|
|
2 The SSM banking supervision |
53 |
|
|
3 German banking supervision |
55 |
|
|
3.1 The Federal Financial Supervisory Authority |
56 |
|
|
3.2 The Bundesbank |
57 |
|
|
4 The Resolution Agencies |
58 |
|
|
D Deposit guarantee and investor compensation schemes |
59 |
|
|
1 Two schemes for foreign banks |
59 |
|
|
2 Access to the schemes |
59 |
|
|
3 Scope of protection |
60 |
|
|
3.1 Claims protected |
60 |
|
|
3.2 Creditors protected |
60 |
|
|
3.3 Amounts protected |
61 |
|
|
4 Contributions |
61 |
|
|
5 Additional obligations of banks |
62 |
|
|
6 Scheme for foreign investment firms |
62 |
|
|
E Market access to Germany – legal and regulatory implications |
63 |
|
|
1 Subsidiary – make or buy? |
64 |
|
|
1.1 Establishment of a subsidiary |
64 |
|
|
1.1.1 Legal forms |
64 |
|
|
1.1.2 ‘Banking’ licence |
64 |
|
|
1.1.2.1 Banking business |
65 |
|
|
1.1.2.2 Financial services |
66 |
|
|
1.1.2.3 Payment services |
67 |
|
|
1.1.2.4 E-money business |
68 |
|
|
1.1.2.5 General remarks |
68 |
|
|
1.1.2.6 Exceptions |
68 |
|
|
1.1.2.7 Competent authorities: Federal Financial Supervisory Authority, the Bundesbank and ECB |
69 |
|
|
1.1.2.8 Preconditions for granting the licence |
70 |
|
|
1.1.2.9 Application for the licence |
74 |
|
|
1.1.2.10 Refusing the licence by the Federal Financial Supervisory Authority |
75 |
|
|
1.1.2.11 Start of business |
76 |
|
|
1.2 Acquisition of an institution |
76 |
|
|
1.2.1 Notification procedure |
76 |
|
|
1.2.2 Possibilities available to the regulatory authorities |
78 |
|
|
1.2.3 Additional notification requirements for the holders of a major participating interest |
80 |
|
|
1.2.4 Breach of the notification requirements |
81 |
|
|
1.3 Pros and cons |
81 |
|
|
2 Branches |
82 |
|
|
2.1 Concept of a branch |
82 |
|
|
2.1.1 Commercial law |
82 |
|
|
2.1.2 Banking Act |
82 |
|
|
2.2 Under the European Passport |
82 |
|
|
2.2.1 Requirements |
83 |
|
|
2.2.2 Obligations in Germany – Banking Act |
83 |
|
|
2.3 Branches of non-EEA Member States |
84 |
|
|
2.3.1 Licensing procedure |
84 |
|
|
2.3.2 Supervision |
85 |
|
|
2.3.3 Privileges for the USA, Japan and Australia |
85 |
|
|
2.4 Specifics of the Payment Services Supervision Act |
86 |
|
|
3 Cross-border activities |
86 |
|
|
3.1 Under the European Passport |
86 |
|
|
3.2 Third country |
87 |
|
|
4 Representative office |
87 |
|
|
5 Pros and cons |
88 |
|
|
6 Summary |
89 |
|
|
F Strategy and operations |
93 |
|
|
1 The retail banking market in Germany |
93 |
|
|
1.1 Framework conditions in Germany |
93 |
|
|
1.2 Characteristics and recent developments of the retail banking industry in Germany |
94 |
|
|
1.3 Product portfolio in retail banking |
100 |
|
|
2 Business model and strategy |
103 |
|
|
2.1 Bank formation and market entry approach |
93 |
|
|
2.2 Mergers and acquisitions |
106 |
|
|
2.3 Business model |
112 |
|
|
2.4 Outsourcing |
117 |
|
|
3 Organisation and process management |
120 |
|
|
3.1 Trends |
93 |
|
|
3.2 Business process management |
123 |
|
|
G Outsourcing |
125 |
|
|
1 Introduction |
125 |
|
|
2 Legal sources and definition of outsourcing |
126 |
|
|
3 Conditions and special requirements |
127 |
|
|
4 Notification and reports |
130 |
|
|
5 The German outsourcing market for financial institutes |
130 |
|
|
6 Right steps towards successful outsourcing |
135 |
|
|
6.1 Sourcing Requirement Assessment |
135 |
|
|
6.2 Request for Information and Proposal |
137 |
|
|
6.3 Setting up Service Level Agreements |
138 |
|
|
6.4 Preparation for the transition |
140 |
|
|
6.5 Successful management of providers |
140 |
|
|
H Prudential Supervision in Germany |
143 |
|
|
1 Introduction |
143 |
|
|
2 Scope of application of prudential requirements and definitions |
147 |
|
|
2.1 CRR Institutions |
148 |
|
|
2.2 Credit institutions and financial services institutions according to the Banking Act |
149 |
|
|
2.3 Financial holding companies and other relevant entities |
151 |
|
|
2.4 Trading book (business) |
153 |
|
|
3 The Capital Requirements Regulation (CRR) |
154 |
|
|
3.1 Own funds |
155 |
|
|
3.1.1 Own funds requirements for institutions and groups |
155 |
|
|
3.1.2 Capital elements |
161 |
|
|
3.2 Capital requirements |
166 |
|
|
3.2.1 Credit risk |
167 |
|
|
3.2.1.1 Standardised Approach |
167 |
|
|
3.2.1.2 Internal Ratings Based Approaches |
170 |
|
|
3.2.1.3 Securitisations and requirements for transferred credit risk |
173 |
|
|
3.2.2 Operational risk |
177 |
|
|
3.2.3 Market risk |
178 |
|
|
3.2.4 CVA risk and counterparty credit risk |
182 |
|
|
3.3 Large exposures |
184 |
|
|
3.3.1 Excursus: EBA Guidelines on limits on exposures to shadow banking entities |
186 |
|
|
3.4 Liquidity |
187 |
|
|
3.4.1 EU branches |
190 |
|
|
3.4.2 Non-EU branches |
190 |
|
|
3.5 Leverage |
190 |
|
|
3.6 Disclosure |
191 |
|
|
3.7 Reporting requirements |
193 |
|
|
4 The German Banking Act |
194 |
|
|
4.1 Capital buffers |
195 |
|
|
4.2 Loans exceeding €1 million and loans to related parties |
197 |
|
|
4.3 Information required of debtors |
198 |
|
|
4.4 Notifications and reporting requirements |
199 |
|
|
4.5 Submission of annual accounts |
200 |
|
|
4.6 Organisational duties and corporate governance |
200 |
|
|
4.7 Remuneration policies |
204 |
|
|
5 Outlook: Further Reforms induced by the Basel Committee |
205 |
|
|
I Minimum Requirements for Risk Management (MaRisk) |
207 |
|
|
1 Overview of MaRisk |
207 |
|
|
2 Risk-bearing capacity |
208 |
|
|
3 Strategies |
209 |
|
|
4 Internal Control System |
209 |
|
|
5 Special functions |
210 |
|
|
6 Operational and organisational structure |
211 |
|
|
7 Latest revision of MaRisk under consultation |
212 |
|
|
J Prevention of money laundering, terrorist financing and other crimes |
215 |
|
|
1 Laws to be observed and materials to be used |
215 |
|
|
2 The role of the German supervisor |
216 |
|
|
3 Scope of application |
217 |
|
|
4 Internal security measures |
217 |
|
|
4.1 AML officer and Central Office |
217 |
|
|
4.1.1 Outsourcing |
218 |
|
|
4.1.2 Reliability verification |
218 |
|
|
4.1.3 Data protection laws and conflicts of interest |
218 |
|
|
4.2 Threat analysis |
219 |
|
|
5 Elements of money laundering |
220 |
|
|
6 Elements of terrorist financing |
220 |
|
|
7 Elements of other crimes |
221 |
|
|
8 Diligence requirements |
221 |
|
|
8.1 General diligence requirements |
221 |
|
|
8.1.1 Identifying customers |
222 |
|
|
8.1.2 Identifying the purpose of the business relationship |
222 |
|
|
8.1.3 Identifying beneficial owners |
222 |
|
|
8.1.4 Monitoring the business relationship |
223 |
|
|
8.2 Simplified diligence requirements |
224 |
|
|
8.3 Enhanced diligence requirements |
224 |
|
|
8.3.1 Politically exposed persons |
224 |
|
|
8.3.2 Physically non-present customers |
225 |
|
|
8.3.3 Other high risk scenarios |
226 |
|
|
9 Documentation and record keeping |
226 |
|
|
10 Suspicious activity reports |
226 |
|
|
K Securities Trading Act |
229 |
|
|
1 Scope of the Securities Trading Act (STA) |
229 |
|
|
2 Reporting requirements |
229 |
|
|
3 Rules of conduct |
230 |
|
|
3.1 Client classification |
230 |
|
|
3.2 Suitability and appropriateness tests |
231 |
|
|
3.3 Client information |
232 |
|
|
3.4 Inducements |
232 |
|
|
3.5 Best execution |
233 |
|
|
3.6 EEA branches and foreign service providers |
234 |
|
|
4 Organisational requirements |
234 |
|
|
4.1 General requirements |
235 |
|
|
4.2 Managing conflicts of interest and staff transactions |
235 |
|
|
4.3 EEA branches and foreign service providers |
235 |
|
|
5 Other provisions |
236 |
|
|
5.1 Insider Dealing and Market Abuse |
236 |
|
|
5.2 Notification of shareholders’ voting rights |
236 |
|
|
L Reporting requirements |
237 |
|
|
1 Banking statistical reporting |
237 |
|
|
1.1 Balance sheet statistics – BISTA |
238 |
|
|
1.2 External positions of banks |
239 |
|
|
1.3 MFI interest rate statistics |
239 |
|
|
1.4 Statistics concerning the issuance of bonds |
240 |
|
|
1.5 Borrowers’ statistics |
240 |
|
|
1.6 Securities holdings statistics |
241 |
|
|
1.7 OTC derivatives statistics |
241 |
|
|
1.8 Payment statistics |
242 |
|
|
1.9 Statistics on the money markets |
242 |
|
|
2 Prudential supervisory reporting |
243 |
|
|
2.1 Regular prudential supervisory reporting |
244 |
|
|
2.1.1 Financial information |
244 |
|
|
2.1.1.1 Financial information according to the CRR (FINREP) |
244 |
|
|
2.1.1.2 Financial information according to the Banking Act |
245 |
|
|
2.1.2 Reporting regarding the institution’s own funds |
246 |
|
|
2.1.3 Leverage ratio |
247 |
|
|
2.1.4 Reporting regarding the institution’s liquidity and stable funding |
247 |
|
|
2.1.5 Reporting concerning loans |
247 |
|
|
2.1.5.1 Reporting of large exposures |
247 |
|
|
2.1.5.2 Reporting of loans of €1 million or more |
248 |
|
|
2.1.6 Submission of annual accounts, management report and auditor’s reports |
248 |
|
|
2.1.7 Further regular reports |
249 |
|
|
2.1.8 Specifics with respect to EEA branches |
250 |
|
|
2.2 Ad hoc prudential supervisory reporting |
250 |
|
|
2.2.1 Notification of a qualified participating interest |
250 |
|
|
2.2.2 Further notification duties |
251 |
|
|
2.3 Exemptions |
253 |
|
|
2.4 Prudential supervisory reporting with respect to payment service institutions and e-money institutions |
253 |
|
|
3 External sector statistics reporting |
254 |
|
|
3.1 Monthly reporting of incoming and outgoing payments |
255 |
|
|
3.1.1 General reporting obligations |
255 |
|
|
3.1.2 Exemption from reporting obligations |
256 |
|
|
3.1.3 Reporting forms |
256 |
|
|
3.1.4 Special reporting obligations for institutions |
257 |
|
|
3.2 Reporting of positions of claims and liabilities |
258 |
|
|
3.2.1 Monthly reporting of positions of claims and liabilities |
258 |
|
|
3.2.2 Quarterly reporting of positions of claims and liabilities |
259 |
|
|
3.3 Annual reporting of direct investment stocks |
259 |
|
|
3.3.1 Residents’ assets in foreign economic territories |
259 |
|
|
3.3.2 Non-residents’ assets in the economic territory |
260 |
|
|
3.4 Submission of reports and reporting deadline |
260 |
|
|
4 Further reporting obligations |
261 |
|
|
5 Penalties |
262 |
|
|
M Accounting Requirements |
263 |
|
|
1 Overview of the legal framework |
263 |
|
|
2 Financial statements |
267 |
|
|
2.1 Components of financial statements |
267 |
|
|
2.2 Recognition regulations |
269 |
|
|
2.2.1 General remarks |
269 |
|
|
2.2.2 Special requirements for banks |
269 |
|
|
2.3 Valuation |
270 |
|
|
2.3.1 General remarks |
269 |
|
|
2.3.2 Special requirements for banks |
272 |
|
|
2.4 Notes |
274 |
|
|
2.5 Management report |
275 |
|
|
2.6 Disclosure requirements |
276 |
|
|
3 Consolidated financial statements |
278 |
|
|
3.1 Overview |
278 |
|
|
3.2 Exemption from the preparation of consolidated financial statements |
280 |
|
|
3.3 Reporting entity (Commercial Code i.e. non-listed bank) |
280 |
|
|
3.4 Components of the consolidated financial statements |
281 |
|
|
4 Interim financial reporting |
281 |
|
|
5 Disclosure requirements pursuant to the Commercial Code for foreign credit institutions |
282 |
|
|
5.1 Subsidiaries of foreign credit institutions |
282 |
|
|
5.2 Branches of foreign credit institutions |
282 |
|
|
5.2.1 Documents required |
283 |
|
|
5.2.2 Language requirements |
283 |
|
|
5.2.3 Deadline for disclosure |
284 |
|
|
5.2.4 Recipient of the data |
285 |
|
|
5.2.5 Responsibility for the disclosure |
285 |
|
|
5.2.6 Costs and Penalties |
285 |
|
|
N Audit |
287 |
|
|
1 Overview |
287 |
|
|
1.1 Annual audit requirements |
287 |
|
|
1.2 Branches of banks domiciled outside the European Economic Area |
287 |
|
|
1.3 Branches of banks domiciled in another State of the European Economic Area |
288 |
|
|
1.4 Timeframe |
288 |
|
|
1.5 Legal framework |
289 |
|
|
1.6 Audit subject |
289 |
|
|
1.6.1 Economic condition |
290 |
|
|
1.6.2 Audit of the reporting system |
290 |
|
|
1.6.3 Audit of the equity situation and regulatory capital |
291 |
|
|
1.6.4 Disclosure of financial situation of debtors |
291 |
|
|
1.6.5 Implementation of a risk management system |
291 |
|
|
1.6.6 Auditor specific reporting requirements |
292 |
|
|
1.6.7 Regulatory reporting requirements |
292 |
|
|
1.6.8 Special audit focus as defined by the Federal Financial Supervisory Authority |
293 |
|
|
1.7 Reporting and communication |
294 |
|
|
1.7.1 Auditor’s long form report |
294 |
|
|
1.7.2 Specific reporting obligations for auditors |
297 |
|
|
2 Custodian business and investment services audit |
297 |
|
|
2.1 Custodian business audit |
297 |
|
|
2.2 Investment services audit |
298 |
|
|
2.3 Branches of banks domiciled in another State of the European Economic Area |
300 |
|
|
3 Special audits |
300 |
|
|
3.1 Special audits for regulatory purposes |
300 |
|
|
3.2 Special audits initiated by the deposit guarantee scheme |
301 |
|
|
3.3 Special audits of commercial transactions or corporate actions |
302 |
|
|
4 Auditors |
302 |
|
|
O Taxation on corporations |
305 |
|
|
1 Sources of tax law |
305 |
|
|
2 Principal taxes |
307 |
|
|
2.1 Corporation Tax Act |
307 |
|
|
2.1.1 General income determination |
307 |
|
|
2.1.2 Thin capitalisation rules (interest deduction ceiling/interest barrier) |
309 |
|
|
2.1.3 Income from dividends and capital gains |
310 |
|
|
2.1.4 Loss deduction |
311 |
|
|
2.2 Trade Tax Act |
312 |
|
|
2.2.1 Tax liability and assessment procedure |
307 |
|
|
2.2.2 Trade tax income |
313 |
|
|
2.3 Tax group |
316 |
|
|
2.4 Overall tax burden on income |
318 |
|
|
3 Value Added Tax Act |
318 |
|
|
3.1 Tax liability |
307 |
|
|
3.2 Value Added Tax group |
320 |
|
|
3.3 Place of supply of services |
321 |
|
|
3.4 Invoice requirements |
322 |
|
|
3.5 Obligation to file VAT returns |
322 |
|
|
3.6 Electronic input VAT refund procedure (EU) |
324 |
|
|
4 Withholding taxes |
324 |
|
|
4.1 Withholding tax for capital investments |
307 |
|
|
4.2 Other withholding taxes |
326 |
|
|
5 Transfer pricing |
326 |
|
|
6 Specials features of permanent establishments |
328 |
|
|
6.1 Obligation to keep records |
329 |
|
|
6.2 Income determination |
329 |
|
|
6.3 Endowment capital |
331 |
|
|
6.4 VAT |
333 |
|
|
7 Tax procedure |
334 |
|
|
7.1 Disclosure requirements |
329 |
|
|
7.2 Competence |
334 |
|
|
7.3 Additional charges |
336 |
|
|
7.4 Appeals |
336 |
|
|
7.5 Tax audit |
336 |
|
|
8 Taxation of partnerships |
337 |
|
|
9 Bank levy (Bankenabgabe) |
337 |
|
|
10 Tax compliance |
340 |
|
|
P Taxation on individuals and the social security system |
341 |
|
|
1 Income tax |
341 |
|
|
1.1 Basis of taxation |
342 |
|
|
1.1.1 Sum of net income |
342 |
|
|
1.1.2 Dependent personal services (Employment) |
343 |
|
|
1.1.3 Investment of capital |
344 |
|
|
1.1.4 Other earnings |
345 |
|
|
1.1.5 Loss offsetting |
346 |
|
|
1.2 Special deductions |
346 |
|
|
1.2.1 Overview |
346 |
|
|
1.2.2 Children |
347 |
|
|
1.2.3 Personal allowances for extraordinary financial burdens |
348 |
|
|
1.2.4 Tax reduction for household related employment as well as tradesman’s and other services |
349 |
|
|
1.3 Income tax calculation |
349 |
|
|
2 Ancillary taxes on income |
350 |
|
|
3 Tax procedures |
351 |
|
|
3.1 Income tax returns |
352 |
|
|
3.2 Payment of income tax |
352 |
|
|
3.2.1 Wage tax |
352 |
|
|
3.2.2 Quarterly prepayments |
355 |
|
|
3.2.3 Definitive withholding tax (Abgeltungsteuer) |
355 |
|
|
3.3 Interest on tax payments |
357 |
|
|
4 Gift and inheritance tax |
357 |
|
|
5 Other taxes |
358 |
|
|
6 Expatriates |
359 |
|
|
7 Social security system |
360 |
|
|
7.1 Overview |
360 |
|
|
7.2 Pensions |
361 |
|
|
7.3 Health insurance |
362 |
|
|
7.4 Statutory nursing care insurance |
364 |
|
|
7.5 Unemployment insurance |
364 |
|
|
7.6 Occupational accident insurance |
365 |
|
|
7.7 Foreign employees |
365 |
|
|
7.8 Employer’s obligations and costs |
367 |
|
|
Q Employment relations |
369 |
|
|
1 Principles of employment law |
369 |
|
|
1.1 Players |
369 |
|
|
1.1.1 Employees and employers |
369 |
|
|
1.1.1.1 Full time and part time employees |
369 |
|
|
1.1.1.2 Freelancers |
370 |
|
|
1.1.1.3 Temporary employees |
370 |
|
|
1.1.2 Works council |
371 |
|
|
1.1.3 Trade unions |
372 |
|
|
1.1.4 Employers’ association |
372 |
|
|
1.1.5 Supervisory board |
372 |
|
|
1.2 Legal sources |
373 |
|
|
1.3 Impact of the number of employees |
376 |
|
|
1.4 Hiring employees |
378 |
|
|
1.4.1 Application and selection |
378 |
|
|
1.4.2 Prohibition of discrimination |
379 |
|
|
1.4.3 CV and references |
379 |
|
|
1.4.4 Form and content of employment agreements |
380 |
|
|
1.5 Dismissals |
381 |
|
|
1.6 Minimum working conditions |
385 |
|
|
1.6.1 Minimum salaries, fixed salaries |
385 |
|
|
1.6.2 Additional benefits |
387 |
|
|
1.6.3 Sick pay |
387 |
|
|
1.6.4 Working hours |
387 |
|
|
1.6.5 Vacation entitlement |
388 |
|
|
1.7 Specific provisions for managing directors |
389 |
|
|
1.7.1 Statutory personnel requirements concerning the position |
385 |
|
|
1.7.2 Legal limitations for bonuses and disclosure obligations |
390 |
|
|
2 Work and residence permits for foreigners |
392 |
|
|
2.1 Citizens from EU Member States |
392 |
|
|
2.2 Third country nationals |
393 |
|
|
2.3 Blue Card EU |
394 |
|
|
3 Mergers and acquisitions of a bank or a business unit – employment law aspects |
395 |
|
|
3.1 Share deal/asset deal |
393 |
|
|
3.2 Transfer of business undertakings |
395 |
|
|
3.2.1 Precondition |
396 |
|
|
3.2.2 Passing of the employment relationships as a legal consequence |
397 |
|
|
3.2.3 Information requirements and right of the employee to object |
397 |
|
|
3.2.4 Liability of the seller and the acquirer |
398 |
|
|
3.2.5 Impact on the works council and works council agreements |
398 |
|
|
3.2.6 Impact on collective bargaining agreements |
399 |
|
|
3.3 Transformations |
399 |
|
|
References |
401 |
|
|
Index |
407 |
|
|
Glossary |
417 |
|
|
Authors and contacts |
427 |
|
|
1 PwC |
427 |
|
|
2 Association of Foreign Banks in Germany |
429 |
|