Authored by Thomas Scharrenberg
Unlike many other European countries the German finance leasing market has previously not been regulated and it was quite easy to start and run a leasing business until 2008. But things have changed and it was the industry itself which unintentionally caused this change.
The German leasing industry had complained about a competitive disadvantage compared to banks regarding trade tax treatment. In 2008 its lobbying finally succeeded and the leasing business obtained the same favourable trade tax treatment as bank loans. But the new legislation had a political price, as of 2009 the industry was taken under the regulation of the Federal Financial Supervisory Authority (“BaFin”) and any organisation wishing to provide financial services now needed written authorisation. As a consequence finance leasing companies now have to comply with the German Banking Act (“Kreditwesengesetz”).
Although the level of regulation is much lower than applied to fully authorised banks it is a challenge for the leasing industry to cope with the new requirements such as ensuring appropriate risk management and control systems, adequate business contingency plan and well documented processes. In addition leasing companies have to fulfil specific reporting requirements such as submission of annual reports and accounts to BaFin as well as regular filings for large exposures or any changes to shareholders, directors, auditors or other relevant matters.
It is obvious that leasing companies which are bank subsidiaries should have only minor issues in coping with the new requirements as they already had most of the necessary structures and processes in place. But independent and especially smaller leasing companies are struggling to comply with the new standards, even though each existing company was only required to notify BaFin.
New
market entrants however have to get a BaFin authorisation prior to
starting their business. Applications must demonstrate a capable
management and the new organisation’s ability to meet the
standards. Although BaFin is the authority that grants the licence,
the involvement of Deutsche Bundesbank is mandatory as BaFin requests
this authority’s opinion prior to making a decision. As a
consequence the application process requires a highly professional
approach and a well defined project plan.
Invigors is currently providing clients with the advice and practical support to enable them to meet the BaFin regulatory requirements. For further information on the German market contact Ludwig Fischer on +49 7073 913 265; e-mail ludwig.fischer@invigors.com, or Thomas Scharrenberg on +49 212 64285520; e-mail thomas.scharrenberg@invigors.com.
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