The Hessian Administrative Court puts BaFin in its place.
Comment by attorney Johannes Fiala:
BaFin loses at the Hessian Administrative Court: No intervention against financial service providers based outside the EU?
The Limited:
As is well known, the limited liability of a GmbH is as full of holes as a Swiss cheese, so that connoisseurs also call it a “company with limited hope” for a long future. The company form of the Limited is often more suitable. In this case, it is much more difficult to seize the shareholder and his private assets than under German company law.
The Limited has yet another advantage: If it does not have a registered office, a branch or a representative office in the territory of the EU, it is in all likelihood not subject to supervision by BaFin, according to the Hessian Administrative Court. This was decided by the court on 21.02.2005 (file no. 6 TG 1568/04) in summary proceedings.
BaKred’s information sheet 1/99 on the necessary licence for financial service providers was already drafted according to the wording “for domestic companies in the financial services sector”.
Supervision:
Whoever operates financial services, the financial commission business and/or the issuing business requires, as a financial services institution or securities trading bank, the supervision of the BaFin, and requires a special trade licence according to § 32 KWG.
In the present case, the Limited issued profit participation certificates, which is considered a financial commission business and therefore also falls under the KWG. The lower court, the Frankfurt Administrative Court (Case No. 9 G 6496/03), still ruled in favour of the BAFin and supported the order for the immediate reversal of the transactions of the Limited.
No supervision of non-EU firms:
The Hessian Administrative Court overturned the first-instance decision because the financial services provider’s company is based in the British Virgin Islands, which do not belong to the EU. The decisive factor in this respect was the finding that this company also had neither a representative office nor a branch in the domestic market or the EU. This also means that there is no activity “in Germany” pursuant to Section 32 of the German Banking Act. The court also pointed out that BaFin’s actions were likely to violate the fundamental principles of the EU Constitution (e.g. Articles 56, 57 of the EC Treaty) because of a restriction on the movement of capital and payments.
The EU competition:
Financial service providers who do not wish to expose themselves to permanent supervision by BaFin also have a great deal of room for manoeuvre within the EU. In essence, it is sufficient for a financial services licence to be granted in an EU country and for the (actual) registered office of the company to be located there. Then, as a rule, permission no longer has to be obtained in Germany? a simple notification (notification of activity) is sufficient to legally maintain a representative office or branch in the country. Regardless of the next court decision in these proceedings, it may be worthwhile to take a look across the borders within the EU, because the costs of supervision are paid by the financial services provider. European freedoms allow him to choose between very different locations.
