Is mere cross-border activity permissible? If yes, what are the requirements?
Banking & Finance
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 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 draft 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.
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. 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 apply).
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.
Yes, it is permissible. In case a credit institution licensed in Hungary intends to provide cross-border financial services or auxiliary financial services in another EEA country, the HNB shall be notified in English or Hungarian and in the language of such other EEA country on the intention to provide financial services on a cross-border basis. Notification shall be made in line with Commission Implementing Regulation (EU) No 926/2014 of 27 August 2014 by filling out the relevant form attached to the Implementing Regulation.
A bank registered in the EU Member State, the branches thereof or branches of a foreign credit institution have the right to engage in banking activities in the Republic of Latvia.
A foreign bank may open a branch in Latvia, if the minimum initial capital of such bank is not less than five million euros and consist of the items prescribed by the Credit Institutions Law. The period of operation of such bank shall not be less than three financial years, unless the bank has been registered in a foreign state, which is a member of the WTO.
In addition, the banks registered in the Republic of Latvia, may under certain conditions defined in the Credit Institutions Law, engage in cross-border activity by opening representative offices or branches in both the EU Member States and foreign states.
Cross-border activity permissible in Lithuania, both allowing (i) Lithuanian banks to operate in other countries and (ii) foreign banks to act in Lithuania.
The Lithuanian banking sector comprises six privately held domestically chartered banks and eight branches of EU banks, along with around 70 credit unions. Three of the subsidiaries of foreign-owned banks are owned by Nordic parent groups (SEB, Swedbank, Luminor) and AB “Citadele” bankas is also a foreign subsidiary fully-owned by the parent bank. Šiaulių bankas and Medicinos bankas are controlled by Lithuanian undertakings. All six Lithuanian banks are retail banks that do not engage in cross-border activities. A few branches of EU banks are registered in Lithuania and specialise in corporate loans, leasing, or have a retail business model.
There are several business models for Lithuanian banks that allow cross-border activity, subject to requirements set by the countries of operation that include the establishment/acquisition of the bank or branch. Further, the Lithuanian banks willing to provide services in EU may enjoy simplified regime without establishment under freedom of services (FOS) principle.
Likewise, foreign banks may operate in Lithuania by establishing branches or representative offices in Lithuania, as well as by establishing or acquiring the Lithuanian bank. The banks, established in EU, may also provide services under FOS principle after the completion of notification procedure. The Lithuanian laws do not establish significant deviations from the EU law set for provision of services under FOS principle.
Yes, cross-border activity is permissible in Poland if prior to the commencement thereof the Polish FSA is notified by the competent authority within the meaning of Art. 4.1 item 40 of the CRR.
A credit institution based in an EU Member State may carry out crediting activity on a professional basis in Romania, by providing services directly in Romania, by establishing a branch in Romania or based on the freedom to provide services; a credit institution based in a third country may carry out crediting activity on a professional basis in Romania in general by establishing a branch.
A) Passporting rules for banks based in EU Member States
The direct provision of services in Romania may be carried out based on the prior notification of the NBR by the competent authority of the home Member State of the concerned credit institution; such notification shall describe the activities that the credit institution intends to perform in Romania.
The activities intended to be carried out in Romania shall be covered by the authorisation granted by the competent authority of the home Member State and with the observance of the Romanian legislation issued in the interest of the general good.
In addition, the credit institutions based in EU Member States carrying out banking services in Romania, based on the freedom to provide services, must comply with the professional banking secret regulations.
B) Setting-up branches in Romania by banks from EU Member States
A credit institution authorised and supervised in another EU Member State may set up a branch in Romania based on a notification issued by the competent authority of the home Member State to the NBR, along with various documents/information.
The NBR shall communicate, within two months from such notification, to the relevant foreign bank, the list of the Romanian legislation issued in the interest of the general good.
The branch may start its activity upon the reception of the notification but not later than within two months from the notification.
The NBR shall supervise the activity of the branch according to the Romanian banking legislation.
C) Requirements for banks based in third countries
The credit institutions based in third countries may carry out crediting activities on a professional basis in Romania if the following conditions are met:
i) the credit institution establishes a branch in Romania;
ii) the branch is authorised by the NBR;
iii) the competent authority from the home state does not oppose to the establishment of a branch in Romania; and
iv) the relevant Romanian and European banking legislation are observed.
The NBR issues the authorisation for branches of foreign banks under the same conditions and based on the same procedure as for the authorisation of the Romanian banks.
As mentioned in our response in question 2, the provision of banking services in India is a regulated activity and cannot be undertaken without obtaining registration from the RBI. Once registered as a bank in India, cross border activities can be undertaken subject to compliance with the FEMA.
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.
Yes, cross-border activity is permissible. Where the local credit institution is desirous of engaging in cross-border activity in another EU Member State or EEA State, it shall notify the MFSA in accordance with the European Passport Rights for Credit Institutions Regulations (S.L. 371.11). The Maltese credit institution may exercise its passporting rights under the freedom of establishment and freedom of services regime, as explained below. In any event, the activities that may be carried out in the host EU/EEA State by a Maltese credit institution in exercise of a European passport right shall be limited to the activities 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 another 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 organisational structure of the branch and the names of the proposed managers. Within three months of receiving a branch passport notification, the MFSA shall give a notice to the European regulatory authority of the host EU/EEA State. 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 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.
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 Maltese 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 authority 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).
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.
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.
Cross border activities are permissible in Nigeria and on this note, the CBN developed a framework for cross border supervision in 2010 which requires as a precondition, the presence of Nigerian banks in other countries and the execution of a Memoranda of Understanding (MoU) with the host country. Working in union with the CBN, the FSRCC, coordinates the regulation of the financial system including cross border financial activities, as specified by Section 43(2) of the Central Bank of Nigeria CBN Act 2007.
Foreign bank may lend money across borders, but to carry out banking services in Nigeria, they are required to be duly incorporated as a local company and comply with the requirements for obtaining a valid banking license (see question 5). Prior to obtain the banking license from the CBN, a foreign bank may open a representative office in Nigeria, such representative office is not permitted to carry out any form of banking activities in Nigeria, rather, it may only act as liaison offices for the customers of the foreign bank and if need be, engage in research activities.
Yes, banks/credit institutions with headquarters in another EEA state can carry out cross-border activities under the CRD IV pass porting regime. Such foreign banks can provide all services comprised by the CRD IV, subject to the relevant service being comprised by its notification. EEA based entities operating in Norway on a cross-border basis are predominantly subject to home state supervision and home state rules; however, some Norwegian rules will apply.
Banks/credit institutions from outside the EEA must have a specific Norwegian license in order to provide banking services in Norway in a cross-border basis.
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.
Qatar does not have any laws which apply to the activities of foreign entities operating on a cross-border basis. It may be possible, therefore, for a foreign entity to carry out certain activities without obtaining the aforementioned registrations. The key question is whether the foreign entity is undertaking activities in Qatar in such a way that its activities would constitute "carrying on business" in Qatar. If it is, the entity undertaking the activities would need to obtain the appropriate registrations/ licenses.
In our experience, a foreign entity operating on a cross-border basis and restricting its activities in Qatar to "discreet matters" will be unlikely to be deemed to be carrying on business in Qatar. There is no specific guidance on what constitutes a "discreet matter" but it is likely to constitute a transaction which involves:
(a) no marketing to non-sophisticated persons;
(b) no general solicitation/public offering (by way of example, brochures promoting a financial product should not be made available in banks, and no marketing should be carried out which is not targeted to specific individuals/entities);
(c) no advertising (as opposed to marketing) of products in Qatar (to give an example, an advertisement which only promotes the existence of an entity is probably acceptable, however an advertisement relating to a specific product should not be made);
(d) no cold-calling or emailing on an untargeted/mass basis to residents of Qatar with whom the entity does not have a prior relationship;
(e) no regular visits to Qatar; and
(f) no road shows (for example, a conference room in a hotel should not be rented to promote a product).
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 in the course of 2019, would introduce a register of advisers providing cross-border services.
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.
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 may extend loans to Turkish residents subject to the requirements and restrictions of the Turkish foreign exchange legislation.
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, subject to the following specifics:
A. A bank licensed in an EU Member State is entitled to perform banking activity in Bulgaria either through a branch or directly. Such bank can perform any of the banking activities if they are included in its license and after BNB has been notified by the competent authority that originally issued the license.
Similarly, a bank licensed in Bulgaria may perform activities in another EU Member State through a branch if such activities are included in its banking license, following a notification to BNB. If BNB finds that the activity planned is compliant with the organizational structure and financial status of the bank, BNB notifies the competent authority within three months as of receipt of the notification from the bank.
B. A bank licensed in a Third Country is entitled to perform banking activity in Bulgaria through a branch, following the issuance of a license by BNB. The license may not entitle the branch to perform activities which the bank may not perform in the Third Country.
A bank licensed in the Republic of Bulgaria can perform banking activity in a Third Country, following a written permission by BNB.
Yes, cross-border activity is permissible in Ecuador, but with some limitations. Any type of publicity or marketing by which any financial service is promoted, by any method (i.e. email, meetings, events, etc.) must obtain the prior authorization of the Superintendence of Banks.
It is allowed the incorporation of branches and offices of representation. However, it is established that the Head Quarters have joint liability with the Ecuadorian branch or representation office.
The main requirements are (Art. 181, COMF):
- Certificate of corporate and legal existence issued by the competent authority of the country of origin;
- Certificate issued by the Ecuadorian Consul of the country of origin, stating that according to the bylaws the company is allowed to incorporate branches or offices abroad;
- Demonstrate that the principal office of the company is not located in a tax haven jurisdiction;
- A legalized and certified copy of the decision of the highest body of the company, in which states the authorization to open the branch of office in Ecuador, the appointment of a legal representative and the assignation of capital;
- An affidavit of the legal representative that states:
- The respect to the internal legislation of Ecuador and its public officers
- The waiver of diplomatic reclamation;
In addition, the registration of foreign loans with the Central Bank of Ecuador is necessary in order for local borrowers to receive certain tax exemptions.
Article 39 of CRDIV provides that any bank authorised in any EEA member state may provide services on a cross-border basis within another EEA Member State provided that it shall notify the competent authorities of the home member state of their intention to do so.
The home state regulator retains responsibility for the prudential supervision of the relevant bank and will fix the capitalisation requirements for that bank's total business including its cross-border activities. In respect of cross-border services into Ireland, the CBI will supervise the bank’s conduct of business in Ireland.
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:
- 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;
- 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:
- Prepare a package for a notification under the freedom of establishment or a declaration under the freedom to provide services;
- Mail the completed package to the General Secretariat of the ACPR.
Credit institutions under Belgian law can exercise all or part of the activities detailed above (see question 4) for which they are authorised in Belgium, on the territory of another EU member state or third country, either under the free provision of banking services regime, or through a branch. The relevant supervisory authority (either the NBB or the ECB - see question 1) shall be informed hereof and be provided all necessary information, after which it has the ability to oppose the implementation of the project.
Conversely, EU institutions are allowed to exercise their banking activities in Belgium, albeit through the use of a branch or based on the freedom to provide services. The Belgian supervisory authority has to be notified of the institution’s intention to operate on the Belgian market by the institution’s home regulator, following which the institution is registered by the supervisory authority. Foreign institutions, however, cannot operate through free provision of services and need, at least, to establish a branch in Belgium.
A credit institution founded in Estonia and holding an activity licence issued by the FSA may provide financial services in a foreign state by establishing branches or providing cross-border services. According to the CIA, a credit institution wishing to provide cross-border services shall notify the FSA and submit the following information and documents:
- Name of the country where the cross-border service is to be provided;
- A description of the proposed cross-border services, which must include a list of the transactions and activities specified in the CIA, which are intended to be offered in a foreign country.
A person who pursuant to the legislation of the home state has the right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner may, on the basis of the activity licence issued in the home state, conclude the same transactions and perform the same acts in Estonia by establishing branches or providing cross-border services in Estonia. Upon providing financial services in Estonia, a person of a foreign state shall adhere to the requirements established for credit institutions by this Act and on the basis thereof as well as to other requirements arising from Estonian legislation established for operating in Estonia.
Yes. A credit institution of an EU member state may provide cross-border banking services in Greece provided that it has duly notified BoG in advance. Similar notification requirements apply for credit institutions having their registered seat in a third country.
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.
The FRB has primary federal authority over the international operations of US banks and operations in the US of foreign banks.
With the prior approval of the FRB, a national bank or state member bank may 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.
With the prior approval of the FRB and either an applicable state regulator or the OCC, a foreign bank may establish a branch, agency or commercial lending subsidiary in the US. A foreign bank that has a branch, agency or commercial lending subsidiary in the US is treated, for some purposes (including the acquisition of nonbanking activities in the US) as a bank holding company subject to the BHC Act.
Financial institutions can perform cross-border activities with prior authorization of the Superintendence of Finance. When applying for the authorization, banks and other financial institutions must fulfill the requirements established in the checklist code M-LC-AUT-048 of the Superintendence of Finance. These requirements are:
- A technical document explaining the reasons for the cross-border activity, information regarding the nature, origin of the resources and the way in which such resources will enter and leave the country, a feasibility study and business plan, a financial study, the corporate structure, risk management plan, description of the technological platform and other corporate documents.
- The type of license that the local bank applied for in the jurisdiction intended for the cross-border activity.
- A copy of the authorization granted by the foreign authority.
- A copy of the Board of Directors or Shareholders Assembly Minutes where the operation is authorized.
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.
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.