Is mere cross-border activity permissible? If yes, what are the requirements?
Banking & Finance (2nd edition)
In analyzing the possibility of non-Israeli banks, which are not licensed as banks by the BoI ("Non-Israeli Banks"), to engage in cross border activity in Israel, it is worthwhile to consider each type of activity separately, since different activities are subject in Israel to separate regulations with separate regulators.
Banking Services - As for traditional banking services, such as bank accounts, deposits and credit/loans, Non-Israeli Banks, which are not licensed by the bank of Israel, cannot engage in these banking activities in Israel (namely, in simultaneous acceptance of deposits and extension of loans). When acting on cross border basis, Non-Israeli Banks can offer to provide such services from out of Israel either:
(1) through remote communications from abroad, or allow employees to travel into Israel and refer potential clients to the Non-Israeli Bank abroad; or
(2) by establishing a representative office in Israel (either as an office of the foreign entity or through incorporation of an Israeli subsidiary). Both types of activities do not require a license from the BoI if they are limited in Israel to provision of information about such services or performing certain activity related to accounts (such as transferring documents or assisting in KYC). Establishing a representative office in Israel generally does not require licensing from the BoI. However, under the Banking Ordinance, no person or entity other than a licensed bank shall use the word "bank" or any of its derivatives in the name under which it is carrying on business, without the consent of the Governor. Thus, the BoI uses this authority when considering whether to allowing Non- Israeli banks to open local representative office in Israel, and use the word "bank" while carrying on business in Israel. Generally, a representative office is permitted to solicit clients in Israel to open accounts outside of Israel, and to provide information about banking services. It is not allowed, among other things, to engage in activities allowed only to Banking Corporation in Israel. The BoI issued a general permit allowing the use the word "bank" in the name of a representative office in Israel of a Non-Israeli Bank incorporated and licensed in a country that is a member of the OECD organization. The general permit is subject to certain conditions.
Loans/Credit and Services in Financial Assets – such services are regulated by the CMISA, and are pursuant to the Financial Services Law. CMISA recently published regulations according to which the license requirement shall not apply, among other things, in case of a foreign entity incorporated in a foreign country which is an OECD member and holding a banking license obtained from a supervisory entity in an OECD country.
In addition, according to an opinion published by CMISA, cross border activity will not trigger the licensing requirement if all of the following conditions are met: (1) the credit and engagement documents between the lender and the borrower (excluding security interests) are drafted in a language other than Hebrew, signed outside of Israel, and subject to non-Israeli law; (2) the borrower’s accounts in which the credit is extended are maintained in financial institutions outside of Israel; (3) the lender does not contact new clients in Israel, including by way of marketing, advertising or onboarding by any means whatsoever; and (4) the lender does not meet its clients in Israel.
Advisory and Portfolio Management (discretionary) Services – Such services are regulated by the ISA and are pursuant to the Israeli Investment Advice Law. In general, provision of such services in Israel, requires a license unless any of the exemptions provided under the Investment Advice law apply (such as when engaging only certain eligible clients as defined under the law). In addition, this law prohibits the offering of such services in Israel if they are to be provided without a license from the ISA (when none of the available exemptions applies).
In light of the above, the ISA published its position stating that the Investment Advice law applies even when part of the service is provided in Israel. According to the position, if all of the following conditions are met, the Investment Advice Law will not apply to a foreign entity rendering such services to an Israeli person: (1) The business relationship was established outside of Israel or was initiated by the client residing in Israel, and the service provider did not solicit the client in Israel; (2) the account is managed outside of Israel; and (3) meetings are not held in Israel. In addition the ISA published several pre-rulings regarding specific circumstances.
Brokerage Services – as mentioned above, the ISA published the conditions for receiving a general permit for foreign securities exchanges and for other entities providing brokerage services through foreign securities exchanges. In general, the general permit may allow a Non-Israeli entity to provide such brokerage services only to certain qualified investors. Providing such brokerage services to any other investors, may be permitted to a Non-Israeli entity, if it is subject to supervision and regulation as a broker-dealer in the United States or as an investment firm or a credit institution under the EU MiFID Directive.
The rules for banking activities on a cross-border basis are set down in Directive 2013/36/EU (“CRD IV”) and sec 9 to 19 BWG. Therefore, credit institutions being granted a license in an EEA Member State are authorized within the scope of the authorization / license of their home state to also provide banking operations in other Member States (single license principle) by way of a branch (”freedom of establishment”) or under the freedom to provide services.
Credit institutions incorporated (and licensed) within the EEA must notify the home NCA of their intention to conduct activities in Austria. This authority must in turn inform the FMA as host NCA of the institution’s intention.
Yes, cross border activity is permissible.
An ACI of another Member State, that is an ACI situated in a member state of the European Union or other state which is party to the Agreement for the European Economic Area, may carry out the activities permitted by the Banking License in the Republic of Cyprus either through the establishment of a branch or through the provision of services. In order for this cross-border activity to take place, the CBC must be notified by the competent authority of the other Member State. Then, the CBC will supervise the branch so as to indicate, if needed the conditions under which those activities shall be commenced in the Republic of Cyprus.
A branch of a third country institution is allowed to perform the activities permitted by the Banking License in the Republic of Cyprus, provided that it is entitled under the laws of that third country to carry on business of a credit institution. In order for this cross-border activity to take place, the third country institution must obtain the authorisation of the CBC.
Also, an ACI incorporated in the Republic of Cyprus may establish or maintain a branch or a representative office outside the Republic of Cyprus, provided it obtains the approval of the CBC. The CBC shall also be notified and provided with information specified in the Law, before the ACI establishes a branch within the territory of another member state.
A duly licensed and supervised credit institution established in another EEA country may, upon notifying its local supervisory authority by way of a passporting notification, provide cross-border banking services into Finland without establishing a branch. Services may also be provided through a tied agent upon notification to the FFSA of the use of an agent. Non-EEA credit institutions may only provide services in Finland upon the establishment of a local branch or on a strict reverse solicitation basis if approached by the client in question.
International headquartered banks can operate in France as subsidiaries which require their own govern-ance and risk management and are subject to capital and liquidity requirements. The establishment of a subsidiary requires an application for the requisite license issued by the ACPR.
- Institutions registered in another Member State of the EU or in a State party to the EEA Agreement can operate in France as they may be covered by a European passport un-der the following procedures:
o freedom of establishment:
by opening a branch;
by using a tied agent to provide investment services there, an agent to provide payment services there, or a electronic money distributor;
o freedom to provide services;
In all these cases, institutions must contact the competent authority of their Home State to complete the necessary formalities.
In return, the institutions established in France, including subsidiaries, can operate in the EU under the European passport. Before pursuing activities, the institutions must:
o Prepare a package for a notification under the freedom of establishment or a declaration under the freedom to provide services;
o Mail the completed package to the General Secretariat of the ACPR.
As per the Banking Law, Turkish banks are entitled to (i) open branches or representative offices, (ii) establish partnerships, or (iii) participate into the share capital of existing partnerships outside Turkey, including off-shore banking regions, subject to the approval of the BRSB and provided that corporate governance principles under the Permission Regulation and protective provisions set out under the Banking Law and any other principles to be determined by the BRSB are complied with. Additionally, Turkish banks can extend foreign currency or Turkish Lira loans to persons or entities located outside Turkey pursuant to the Decree No. 32 Regarding Protection of the Value of Turkish Currency issued by the Council of Ministers under the Law No. 1567 (“Decree No. 32”).
That being said, cross-border activities of foreign financial institutions conducted with Turkish residents, generally trigger licensing requirements under Turkish law other than cross-border lending activities. As such, foreign financial institutions (or other companies located abroad, if the laws of their jurisdiction of incorporation allow them to do so) may extend loans to Turkish residents subject to the requirements and restrictions of the Turkish foreign exchange legislation set forth case by case based on the specifics of each transaction.
Companies from EEA states may conduct business requiring a licence in Germany not only by establishing a branch in Germany, but also on a cross-border basis - without having a presence in Germany -, subject to the requirements of the so-called “EU Passport”.
Market participants from non-EEA states that wish to market their banking and financial services products in Germany have to establish a subsidiary or a branch in Germany in order to obtain the required licence. As a general rule, this also applies to entities from EEA states that are unable to make use of the EU Passport for banking and/or financial services they offer in Germany. The transactions conducted under the licence must be booked to the German entity; the banking and securities accounts opened in connection with the business relationship must be held by this entity.
Further, there is no restriction on the so-called freedom to provide requested services (passive Dienstleistungsfreiheit), ie the right of persons and entities domiciled in Germany to request the services of a non-German entity on their own initiative. Transactions requested on the client's own initiative (so called “reverse solicitation”) are therefore not subject to German licensing requirements.
It should be noted, however, that non-German entities have alternatives to structure their business activities in order to not trigger a licence requirement in Germany. For example, it is permissible to outsource distribution activities and the settlement of banking transactions and financial services. On the basis of an agency contract concluded with a German counterparty, banking products may be provided by a non-German company, which then conducts the business for the client on behalf and for the account of a German company.
For banks, mere cross-border activities from abroad into Switzerland are not subject to FINMA supervision and licensing as of yet. Specific rules may, however, apply to protect Swiss consumer clients independently of FINMA supervision or licensing requirements. For example, certain lending activities on a professional basis to Swiss consumers could trigger licensing requirements under the rules of the Consumer Credit Act. Also, in case of mortgage loans, restrictions on foreign ownership of Swiss real estate may apply. A new Financial Services Act, currently expected to come into effect on 1 January 2020, would introduce a register of advisers providing cross-border services.
Yes. Credit institution which obtained license in EEA member state are authorized to provided banking services either via i) setting up of a branch in line with the freedom of establishment or ii) if provision of the service is not permanent than on the basis of freedom to provide services. The process is rather standardized and involves communication between NBS and regulator which granted the license to for-eign bank. The notification shall be delivered prior to commencement of the activity in respective mem-ber state.
In relation to inbound banking services, the BA contains restrictions on the provision of banking services to persons in Singapore, by entities operating outside of Singapore. Please see the response to question 2 above.
In relation to outbound banking services, once a bank is licensed by MAS, MAS will generally not regulate the manner in which a bank carries on activities outside of Singapore (although it would expect the bank to comply with all relevant laws in the foreign country).
Local banks must obtain MAS’s approval before they set out new places of businesses outside of Singapore.
The Banking Act does not prohibit Japanese banks from engaging in cross-border activities in accordance with applicable foreign law. However, it prohibits foreign banks from engaging in banking business in Japan without establishing a branch and obtaining a license from the FSA. A foreign bank can engage in cross-border activities from outside Japan if it establishes a branch or subsidiary in Japan to perform agency activities for the foreign bank under an authorisation for those foreign bank agency activities from the FSA.
Please refer to comments under Question 2.
Additionally, the Banking Law states that only a local bank or the local branch of a foreign bank licensed by the CBO is allowed to market or promote itself as a banking business in Oman. That said, the Bank-ing Law permits a foreign bank to advertise itself in the local media (i.e. newspapers, television, radio) provided that such advertisements clearly establish that the foreign bank does not engage in banking business in Oman.
The extent to which a foreign bank may be permitted to conduct adverting of its banking business in Oman is unclear. The Banking Law is limited to advertising by a foreign bank of its banking business conducted from outside of Oman.
It is important to note that a foreign bank or financial institution must ensure that its advertising activities are not used for the purposes of promoting or marketing of securities within Oman. In particular, Circular 489 issued by the CBO requires banks and financial institutions to desist from advertising their services related to activities pertaining to investment or merchant banking unless prior CBO approval has been obtained. Similar prohibitions are also to be found in the CMAL with regards to the marketing, promo-tion, sale or distribution of foreign securities in Oman.
Pursuant to the Executive Regulations, a person marketing foreign securities in Oman must ensure that it does so in accordance with applicable Omani law. This can be done either through a local distributor or on a cross-border basis directly. A local distributor must have the appropriate licences and that local distributor must also comply with a number of other requirements relating to the products being market-ed in Oman. The marketing of securities by a non-Omani person may also be conducted on a cross-border or “reach-in” basis and certain tolerated practices govern how this may be effected. All guidance on cross-border marketing constitutes informal guidance from the regulatory authorities and may not necessarily be relied on as being tolerated in the future.
No. However, the Law of Georgia on the Activities of Commercial Banks provides simplified procedures for obtaining a banking license by the branch/subsidiary of a reputable foreign bank defined by Geor-gian law.
An activity in Liechtenstein on a cross border basis by an EEA bank/investment firm is possible and requires a notification with the home country authority (“passporting”). The Liechtenstein Banking Act, however, does not provide for cross-border licenses for third country (non-EEA) banks/investment firms and in lack of an MIFID II equivalency decision by the European Commission a general MIFID II third country passport for such entities is currently not available. Third country intermediaries must therefore establish a branch in Liechtenstein and obtain a respective license. Branches of a non-EEA bank operat-ing under a branch license within the EEA may not provide services on a cross border basis.
Article 30 of the Financial Sector Law allows credit institutions authorized in a Member State other than Luxembourg to exercise their activities in Luxembourg through the freedom to provide services pursuant to the Treaty on the functioning of the European Union, to the extent that the activities carried out in Luxembourg are covered by the bank's authorization in its home Member State and subject to the notification to the CSSF.
As far as third country credit institutions are concerned, they are in principle required to establish a branch in Luxembourg (Article 32 of the Financial Sector Law). Nonetheless, the mere existence of Luxembourg-based clients or, as the case may be, "occasional" marketing trips to Luxembourg do not, as such, suffice to trigger the requirement to obtain an authorization to provide financial services in Luxembourg.
Mere cross-border is allowed under the European principle of freedom to provide services, applicable to credit institutions authorised to pursue banking activities in the Union.
When Portugal is the home Member State: a credit institution with its head office in Portugal and which intends to provide banking services in another EU Member State shall previously notify Banco de Portugal, specifying the activities which it proposes to carry out in that Member State.
When Portugal is the host Member State: a credit institution authorised in their home Member State to provide banking services is allowed to provide such services within Portuguese territory, even if they are not established in Portugal. As a prerequisite for the commencement of the provision of services in Portugal, the credit institution shall notify the competent authority of the home Member State.
Banking services allowed under the European principle of freedom to provide services are those listed in Annex I to Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013.
Cross border activities are permissible as foreign banks will require to interact with the parent company, nonetheless cross border activities always raise the concern of potential money laundering, Qatar Central Bank raises the following guidlines by which money laundering can be manifested through cross border activities, these are:
- Customer introduced to the bank by an external financial institution located in a country known to be affected by criminal drugs production and trafficking.
- Customers paying/receiving regular large amounts in cash or by fax or telex transfer, without any indications to the legitimate sources of those funds, or customers connected to countries known to be affected by drugs production or trafficking or in relation to the prohibited terrorist organizations, or countries offering opportunities for tax evasion.
- Incoming or outgoing transfer operations executed by a customer without using any of his accounts at any bank.
- Constant and regular withdrawal/deposit of cheques issued in foreign currencies or travel cheques into the account of the customer.
EU and EEA member states
A credit institution authorized and supervised by an EU/EEA member state is entitled to carry out credit institution activities in Romania through the freedom to carry out services directly (passporting) or through the establishment of a branch. This is subject to the inclusion of the respective activities in the authorization granted by the competent authority from the member state of origin, and subject to compliance with Romanian legislation adopted in the scope of protecting the general public interest (art. 45, EGO 99/2006).
For direct provision of services, the competent authority of the member state of origin must notify the NBR of the activities that the credit institution intends to carry out in Romania (art. 49, EGO 99/2006).
For the establishment of a branch, the competent authority of the member state of origin must notify the NBR of, inter alia, the types of activities that are to be carried out by the branch, the branch’s leadership, and the credit institution’s level and structure of own funds. Prior to starting the crediting activities, and within two months of receiving the notification, the NBR must provide the respective credit institution with the list of normative acts that cover the protection of the general public interest, which regulate the specific conditions under which certain activities can be carried out. The branch may start its activities upon the communication by the NBR of the list of normative acts or, in the absence of such a communication, from the expiration of the above two-month term (art. 48, EGO 99/2006).
A credit institution from a third country (non-EU/EEA member state) may carry out credit institution activities in Romania if (art. 67, EGO 99/2006):
1. The credit institution establishes a branch in Romania (procedure which is similar with that of establishing a bank);
2. The branch is authorized by the NBR;
3. The competent authority from the member state of origin does not oppose the establishment of the branch; and
4. There is compliance with the applicable provisions of Romanian and EU legislation.
The authorization and operational requirements for third-country branches are the same as those applicable to Romanian credit institutions (art. 69, EGO 99/2006). Under art. 77, EGO 99/2006, the NBR may exempt third country branches from certain prudential requirements if, as a result of the assessment made, it is determined that there is a prudential regulatory framework in the third country of origin equivalent to that established by EGO 99/2006.
Cross-border activities are allowed. For opening a foreign representative office, the bank submits a request to the National Bank of Serbia for approval. Furthermore, under conditions prescribed by law, foreign lending transactions are allowed, including loans approved by the bank or a foreign bank, as well as loans between residents and non-residents, on which the residents are to submit report to the National Bank of Serbia.
Cross-border activity by credit institutions is indeed permissible. A Maltese credit institution desirous of engaging in cross-border activities in another EU Member State or EEA State may do so after having notified the MFSA in accordance to the European Passport Rights for Credit Institutions Regulations (S.L. 371.11). In this case, the credit institution would be permitted to exercise its passporting rights in terms of the freedom of establishment and freedom of services regime (explained below), provided that the activities which it carries out in the host EU/EEA State, in exercise of a European Passport Right, shall be limited to those activities which it is authorised to undertake in Malta.
Freedom of Establishment
A Maltese credit institution wishing to exercise a European Passport Right to establish a branch in an-other EU/EEA State shall provide the MFSA with a branch passport notification to establish a branch in another Member State, which shall contain (a) the EU/EEA State within the territory of which the Maltese credit institution plans to establish a branch; (b) a programme of operations identifying, inter alia the activities which it seeks to carry out through the branch; (c) the address of the proposed branch from where documents may be obtained; and (d) the proposed organizational structure of the branch and the names of the proposed managers. Within three (3) months of receiving a Branch Passport Notification, the MFSA shall give a notice to the European regulatory authority of the host EU/EEA State, certifying that the Maltese credit institution is authorised to act as a credit institution in Malta, identifying the activi-ties it intends on carrying out, and including information relating to the amount and composition of own funds, and other details relating to any deposit guarantee scheme intended to protect the clients of the branch. Although, the MFSA retains discretion to refuse to give the European regulatory authority of the host Member State notice as aforesaid, although it must give reasons for its decision in writing.
Moreover, a branch of a Maltese credit institution shall not be established and commence its activities in the host EU/EEA State unless (a) the Maltese credit institution has received a communication from the European regulatory authority acknowledging its establishment in the host EU/EEA Member State and, if necessary, indicating any applicable conditions in the interests of the general good; or (b) two (2) months have elapsed from the date of receipt of the notice referred to earlier, and no communication has been received from the European regulatory authority.
Where a European credit institution wishes to establish a branch in Malta, the same notification process would apply. To this effect, the institution would need to notify the regulatory authority in its home Mem-ber State via a branch passport notification of its intention to establish a branch in Malta. The MFSA must then receive a notification from the respective home regulator: (i) certifying that the institution is authorised to act as a credit institution; (ii) identifying which activities it intends to carry out; (iii) indicating the amount and composition of own funds and the sum of the own funds requirements; and (iv) contain-ing details of any deposit guarantee scheme which is intended to protect the branch’s clients. The MFSA shall then, within two months of receiving the notice referred to above, prepare for the supervision of the institution and, if necessary, indicate the conditions under which, in the interests of the general good, those activities shall be carried out in Malta.
Freedom of services
A Maltese credit institution wishing to exercise a European passport right to provide services in another EU/EEA State shall provide the MFSA with a services passport notification, which shall (a) identify which services it intends to provide; and (b) indicate the EU/EEA State in which it intends to operate. Within one month of receiving a services passport notification, the MFSA give such notification to the European regulatory authority of the host EU/EEA State. A Mal-tese credit institution may exercise its European passport right provided (a) it has given the MFSA the requisite notification; and (b) the MFSA has notified the European regulatory authori-ty of the host EU/EEA State (the MFSA is required to give written notice to the Maltese credit institution that the notification has taken place).
A European credit institution wishing to exercise a European passport right to provide services in Malta shall provide its home State regulator with a services passport notification to provide services in Malta, and the MFSA must have received a notification to this effect from the home State regulator. The MFSA is then obliged to notify the European credit institution of any appli-cable conditions where appropriate after having received the services passport notification referred to above.
Cross-border activities in a third country
Where, however, the credit institution is intending to offer services in a third country jurisdiction, it must not only inform the MFSA but must also have due regard to the applicable regulatory framework of that third country. The same would indeed apply where a third country credit insti-tution intends on offering services in Malta.
Operating a representative office
In the event that the credit institution intends to open a representative office overseas, prior written approval from the MFSA is required. Note that in terms of the Representative Offices (Requirements and Activities) Regulations (S.L. 371.04), the business of a representative of office must be confined solely to the conduct of purely liaison activities and must not include the engagement in financial transactions or the execution of any documents relative thereto, except where necessary for and incidental to the maintenance of the office in Malta.
Yes. If an entity is already authorised as a bank elsewhere in the European Economic Area (EEA) then it can ‘passport’ into the UK directly, without applying to the UK regulators.
This is different from the position for international banks headquartered outside the EEA which may operate in the UK through a branch, a subsidiary or both but they need to go through the new bank authorisation process for either approach.
The US permits foreign banks to establish branches or agencies or to acquire businesses in the US—although the establishment of a branch, agency or commercial lending subsidiary in the US requires the prior approval of the FRB. The FRB also has oversight of the resulting US operations of a foreign bank. A foreign bank that has a branch, agency or commercial lending subsidiary in the US is treated for some purposes (including the establishment of nonbanking activities in the US) as a bank holding company subject to the BHC Act.
The FRB has primary federal authority over the international operations of US banks and, with the prior approval of the FRB, a national bank or state member bank may establish a foreign branch or invest in foreign banks or other entities through which the bank may engage in activities that constitute the customary conduct of a banking business abroad. The FDIC must approve such activities for state nonmember banks.
Foreign banks can offer banking services in Italy through a branch or without a permanent establishment on a cross-border basis, in accordance with procedures that differ for EU and non-EU banks.
With reference to EU banks, pursuant to articles 15 and 16 of the Italian Banking Act:
(i) they can establish a branch in Italy in accordance with the procedures established by the provisions of the SSM; the first establishment of a branch of EU banks whose home Member State does not participate to the SSM shall be preceeded by a communication from the competent authority of that Member State to the Bank of Italy; or
(ii) they can provide banking services without a permanent establishment in Italy. In this case an authorisation by the Bank of Italy is not required, but it is required only a notification from the home competent authority on the basis of the home country control principle.
With reference to non-EU banks, pursuant to article 13, paragraph 4, of the Italian Banking Act, the establishment in Italy of the first branch of a non-EU bank is authorized by the Bank of Italy, after consulting the Ministry of Foreign Affairs and International Cooperation and taking into account, inter alia, the conditions of reciprocity between the home and host countries.
The provision of banking services without a permanent establishment in Italy by non-EU banks requires the authorisation of the Bank of Italy.
There is no restriction on foreign financial institutions lending to Thai borrowers cross border. However a foreign financial institution cannot solicit for deposits in Thailand, as this would amount to carrying on a commercial banking business or finance business without a license.
The Slovenian Banking Act does not prohibit Slovene banks from engaging in cross-border activities in accordance with applicable law. A bank that intends to establish a branch in another Member State for the purpose of providing mutually recognised financial services has to inform Bank of Slovenia or the European Central Bank. A bank that intends to establish a branch in a third country has to obtain an authorisation to establish a branch in a third country. A request must be submitted to the Bank of Slovenia.
The Slovenian Banking Act prohibits banks from third countries from engaging in banking business in Slovenia without establishing a branch. Banks from third countries have to obtain a license from Bank of Slovenia. A Member State bank may provide the mutually recognised financial services that it provides in its home Member State in accordance with the competent authority’s authorisation in the territory of the Republic of Slovenia via a branch or directly, provided that the Bank of Slovenia receives prior notification from the competent authority of the home Member State regarding the provision of services by the bank in the territory of the Republic of Slovenia via a branch or directly.