Can a German Financial Investment Intermediary Simultaneously Act as a Tied Agent?
8th December 2022
Introduction
This blog explores the Germany-specific question of whether a German financial investment intermediary can simultaneously act as a tied agent and vice versa. In this case, a company carrying out a regulated activity would be able to act under two different authorisations in Germany at the same time. This is particularly relevant considering that financial investment intermediaries in Germany are not permitted to conduct pre-marketing activities as defined by Directive 2011/61/EU and could consider acting as a tied agent in order to carry out pre-marketing activities.
Background
The provision of financial services, which includes, inter alia, investment advice, is generally an activity subject to authorisation and requires a permission from a competent supervisory authority. Within the legal framework of the exemption under section 2 (8) No 6 of the German Banking Act (Kreditwesengesetz) in connection with section 34f (1) of the German Trade, Commerce, and Industry Regulation Act (Gewerbeordnung) (“34f permission”), legal or natural persons in Germany can obtain a permission limited to provide, inter alia, investment advice on open-ended and closed-ended domestic, EU and foreign investment funds. Supervisory authorities are primarily the regional industry and trade chambers (Industrie- und Handelskammer – “IHK”). These same regulated services can be provided without such an “own” licence, when acting as a tied agent under the liability of a company that holds the relevant licence under the German Banking Act and can act as principal (Haftungsdach). The supervisory authority granting this permission is the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”).
Assessment and Conclusion
In summary, market participants may not provide regulated financial services under both options at the same time. A market participant may hold, but not use, a 34f permission whilst acting as a tied agent. This is due to the fact that both processes are divided into two separate steps. Firstly, the granting of the permission and secondly, the entry into the relevant register – for a 34f permission the register for financial investment intermediaries (Vermittlerregister) managed by the regional supervisory authorities and for tied agents the tied agent register (Register der vertraglich gebundenen Vermittler) managed by BaFin. Holding a 34f permission while acting as a tied agent is a so-called drawer licence (Schubladenlizenz) and in practice, those tied agents could thus pause their 34f permission by deregistering from the register and may then carry out pre-marketing as tied agents. Subsequently, it would only be required to cease acting as tied agents and re-registering in the register for financial investment intermediaries in order to operate under the other permission again.
This is a reasonable and comprehensible result as the proper and uniform supervision of the activities of market participants calls for it, as well as consumer protection, considering that it must be evident for a client under which licence market participants are operating.
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