Which type of activities trigger the requirement of a banking licence?
Banking & Finance
Under the Banking Law, the following activities may only be carried out by a banking corporation licensed under the Banking Law (a "Banking Corporation"), thus trigger the requirement of a banking license:
a. accepting deposits, subject to withdrawal by cheque upon demand, in current accounts;
b. both the acceptance of money deposits from thirty persons or more at one time and the grant of credit (subject to certain exceptions); and
c. both the issuance of securities requiring a prospectus under Israeli law, and the grant of credit (subject to certain exceptions).
Providing financial- and ancillary financial services requires the holding of a valid license issued by the HNB. The financial services (such as (i) taking deposits and receiving other repayable funds from the public; (ii) credit and loan operations; (iii) financial leasing; (iv) money transmission services; (v) issuance of electronic money; (vi) issuance of paper-based cash-substitute payment instruments (for example traveler’s checks and bills printed on paper) and the provision of the services related thereto, which are not recognized as money transmission services; (vii) providing surety facilities and guarantees, as well as other forms of banker’s obligations; (viii) commercial activities in foreign currency, foreign exchange - other than currency exchange services -, bills and checks on own account or as commission agents; (ix) financial intermediation services; (x) safe custody services, safety deposit box services; (xi) credit reference services and (xii) purchasing receivables) and the ancillary financial services (such as (i) currency exchange activities; (ii) operation of payment systems; (iii) money processing activities; (iv) financial brokering on the interbank market; (v) activities for the issue of negotiable credit tokens and (vi) credit consultancy services) that are subject to a banking license, are listed in Act CCXXXVII of 2013 - on Credit Institutions and Financial Enterprises (the “Hungarian Banking Act”).
In order to trigger the requirement of a banking licence, the activities of the relevant entity have to be covered by the scope of the definition of the bank, i.e., it is a capital company, which accepts deposits and other repayable funds from an unlimited circle of clients, issues credits in its own name and provides other financial services.
Banks (as well as credit unions) differ from other financial market participants in that, according to Regulation (EU) No. 575/2013, they are considered to be credit institutions. Only credit institutions have the exclusive right to accept deposits and other repayable funds from non-professional market participants, while unauthorised provision of financial services is prohibited.
According to the relevant law there are two types of activities which trigger a banking license:
- receipt of deposits and other repayable funds from non-professional participants of the market
- borrowing from from non-professional participants of the market in excess of the size of the equity capital
The following activities can only be performed by banks and, therefore, require a banking license:
- accepting deposits;
- maintaining bank accounts;
- granting credit facilities;
- issuing and confirming bank guarantees and letters of credit;
- issuing banking bonds/notes; and
- settling payments/wire transfers.
As a rule, crediting activities can be performed with professional title only by the entities authorised to this effect by the NBR. While certain crediting activities can be performed without a banking license (e.g. loans can also be granted by non-banking financial institutions which are authorised as such by the NBR), accepting deposits from the public on a professional basis can only be performed by credit institutions.
The Emergency Government Ordinance no 99/2006 on credit institutions and capital adequacy (the Romanian Banking Law), provides a list of activities that credit institutions may perform, in each case within the limits of the license (e.g. acceptance of deposits and other repayable funds; lending (including, inter alia, consumer credit, mortgage credit, factoring, financing of commercial transactions); financial leasing; payment services; issuance and administration of other means of payment, such as checks, bills of exchange and promissory notes, etc.).
Under the Indian banking regulatory framework, the provision of banking services such as lending, accepting deposits, opening accounts, providing credit facilities, treasury and wholesale banking and dealing in foreign exchange (typically referred to as universal banking services) are regulated activities that requires a banking license.
In addition, certain other services require additional licenses that are issued by the RBI separately and in some cases, in conjunction with SEBI and other financial regulators (see question 4). For example, in case a bank proposes to deal in foreign exchange, the bank will also be required to obtain registration as an authorized dealer bank (AD Bank).
Activities that trigger the requirement of a banking license are (i) deposit-taking and lending and (ii) fund transfers. Deposit-taking, by itself, is a quasi-banking business, which also requires a banking license.
Lending, by itself, does not require a banking license, but requires a money lending business registration pursuant to the Money Lending Business Act. However, since a banking license covers money lending, a licensed bank does not need a separate money lending business registration.
The Banking Act (Chapter 371 of the laws of Malta) provides that the business of banking in or from within Malta can only be undertaken by a company which is in possession of a banking licence granted by the MFSA. For this purpose, the business of banking is defined as the business of a person who accepts deposits of money from the public withdrawable or repayable on demand or after a fixed period or after notice or who borrows or raises money from the public (including the borrowing or raising of money by the issue of debentures or debenture stock or other instruments creating or acknowledging indebtedness), in either case for the purpose of employing such money in whole or in part by lending to others or otherwise investing for the account and at the risk of the person accepting such money.
No credit institution licensed or holding an equivalent authorisation outside Malta may open a branch, agency or representative office or set up any subsidiary in Malta, unless it is in possession of a licence granted by the MFSA. However, a credit institution licensed or holding an equivalent authorisation in an EU Member State or EEA State shall be entitled to exercise its rights under EU passporting laws.
Section 2 of the Banks and Other Financial Institutions Act, 2004 (BOFIA) provides that no person shall carryon any “banking business” in Nigeria except if it is a company duly incorporated in Nigeria and holds a valid banking licence issued by the CBN. Any person who transacts banking business without a valid licence under the BOFIA is guilty of an offence and liable on conviction to imprisonment for a term not exceeding ten years or to a fine or to both such imprisonment and fine. The BOFIA defines banking business as involving the business of receiving deposits on current account, savings account or other similar account; paying or collecting cheques, drawn by or paid in by customers; provision of finance or such other business as the CBN Governor may, by order published in the Federal Gazette, designate as banking business.
Taking deposits from the public requires license as a bank. Furthermore, each of the following activities, all typically carried out by banks, triggers licensing requirements in Norway, either as a bank or as other regulated financial entities, including credit institutions, payment institutions, e-money institutions and investment firms (all EEA equivalent entities), as well as certain locally regulated institutions:
- Taking repayable funds (other than deposits) from the public i.a. by the issue of bonds for purpose of conducting lending and financing activities
- Lending and other forms of financing by extension of credit (including financial leasing) and posting of guarantees. Providing intermediary services related to credit and guarantees, and any other form of assistance concerning financing of third-parties' operations
- Payment services
- Issuing of electronic money
- Spot foreign exchange trading
- Provision of investment services
Under Portuguese Law, a bank is a credit institution the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.
Some activities of credit institutions are subject to a principle of exclusiveness triggering a requirement of a banking authorisation granted by Banco de Portugal:
a) lending, including the granting of guarantees and other commitments, financial leasing and factoring;
b) payment services;
c) issuing and administering other means of payment not covered by the foregoing subparagraph, e.g. paper cheques, paper travellers’ cheques and bankers’;
d) trading for own account or for account of customers in money market and foreign exchange instruments, financial futures and options, exchange and interest rate instruments, goods and transferable securities;
e) participation in securities issues and placement and provision of related services;
f) money broking;g) portfolio management and advice, safekeeping and administration of securities;
h) portfolio management in relation to other assets;
i) issuance of e-money.
In general, the conduct of any and all financial services in Qatar requires that a license be obtained from the competent authority and provides sanctions for persons who conduct such activities without the required license.
All banking activities such as acceptance of deposits and other recoverable funds; granting of credit facilities; discounting, purchase and sale of securities; trade in monetary and property instruments, foreign exchange and precious metals; issuance of checks, credit cards and other payment instruments; issuance of guarantees and commitments; and any other activities determined by the Qatar Central Bank require a banking licence.
As a general rule, no one is allowed to accept deposits from the public on a professional basis, or recommend himself for doing so, without a prior banking license from FINMA. Unauthorised acceptance of deposits, advertising such services, other use of the terms bank, banker or savings by non-banks are subject to criminal punishment.
Pursuant to Article 4 of the Banking Law (Law No. 5411) (the “Banking Law”) a banking license is required in order to conduct, amongst others, the following activities in Turkey:
- Deposit and participation fund taking;
- Lending (including cash and non-cash loans, factoring, forfeiting and financial leasing services);
- Payment, collection and discounting services (including issuance of credit and deposit cards, cash or book-entry payments and fund transfer services, correspondent banking);
- Capital markets related services (including custody services; conducting FX and derivative transactions, transactions involving precious metals and stones and providing intermediation services relating to the same; intermediating in the issuance or public offering of capital markets instruments);
- Insurance agency and individual private pension funds services; and
- Any other activities deemed as a banking activity by the BRSB.
Activities that can be conducted based on a banking license vary, depending on the type of banks as explained under Question 3 below.
Furthermore, banks in Turkey may be subject to additional licensing requirements as per the capital markets legislation, depending on their activities relating to capital markets services and products.
The ECB licenses CRR-credit institutions in SSM-Member States. The scope of the license granted by the ECB also covers banking transactions under national law. Pursuant to the Austrian Banking Act (“BWG”) an entity requires a license, which is issued by the competent supervisory authority, for activities listed in sec 1 para 1 BWG, in particular when carrying out one or more of the following activities for a commercial purpose: i) deposit business, ii) current account business, iii) lending business, iv) discounting business, v) custody business, vi) issuing and administration of payment instruments, vii) trading for one’s own account or on behalf of others on specific markets or with certain instruments set out in sec 1 para 1 no 7 lit a) – f) BWG or financial instruments pursuant to Securities Supervision Act 2018 (“WAG 2018”), viii) guarantee business, ix) securities underwriting business, x) building savings and loan business, xi) investment fund business, xii) real estate investment fund business, xiii) capital financing business, xiv) factoring business, xv) money brokerage transactions in the interbank market or brokerage of transactions in connection with specific banking transactions, xvii) severance and retirement fund business, and xviii) exchange bureau business.
Publicly attracting deposits, accepting deposits of valuables, and acting as depository or custodian institution, each trigger the requirement of a banking license. These are activities that could be performed only by a bank – either licensed by BNB, or by the competent authorities of a Member State, or a bank having a seat in a non-Member State (a Third Country) that is licensed by BNB to operate on the Bulgarian market through a branch.
COMF states that any entity engaged in “financial activities” will require a banking license/authorization, defining financial activities as the operations and services facilitating the circulation of money and performing financial intermediation; those activities shall have among their purposes the safeguarding of deposits and meeting the financing requirements for the country's development objectives.
Pursuant to Section 7(1) of the Central Bank Act 1971 of Ireland (as amended) (CBA 1971), a banking licence is required if a person is doing any of the following, unless that person is a holder of an appro-priate licence inside or outside Ireland:
(a) carrying on banking business (any business that consists of or includes: receiving money on the person's own account from members of the public, either on deposit or as repayable funds; or the granting of credit on own account);
(b) holding themselves out or representing themselves as a banker or as carrying on banking business; or
(c) accepting deposits or other repayable funds from the public on behalf of any other person.
A banking licence is required as soon as one of the banking services defined by law will be proposed. Banking services under French law are defined by the article L.311-1 of the Monetary and Financial code as follows:
- receiving funds from the public;
- granting loans;
providing banking payment services.
Whether a bank should decide to offer investment services, it should also have a licence.
In accordance with Article 7 of the Belgian act of 25 April 2014 on the legal status and the supervision of credit institutions (the Banking Act) and Article 68bis of the Belgian Prospectus Act, a banking license is required when an undertaking (Belgian of foreign) intends to take deposits or other repayable funds from the public with a view of granting credit for its own account, on the Belgian territory.
A credit institution is a company the principal and permanent economic activity of which is to receive cash deposits and other repayable funds from the public and to grant loans for its own account and in its own name and provide other financing. Receipt of deposits from public grant the right to companies to use the name of 'a bank'. Of the companies established in Estonia, only the companies that have received an activity license of a credit institution from the FSA may raise deposits from public. For establishment of credit institutions, an application for activity licence should be submitted to the FSA.
The requirement to hold a banking license is triggered when an institution undertakes the activity of taking deposits and other repayable funds, thus qualifying as a credit institution in accordance with the provisions of Law 4261/2014 and Directive 2013/36/EU.
Nevertheless, the following activities that are often also undertaken by credit institutions may also trigger a licensing requirement in Greece, subject to the recognition principle:
- Lending (including consumer credit, credit agreements relating to immovable property, factoring, financing of commercial transactions and forfeiting);
- Financial leasing;
- Payment services;
- Issuing and administering other means of payment (eg travellers' cheques and bankers' drafts);
- Guarantees and commitments.
- Trading for own account or for account of customers (eg in money market instruments, foreign exchange, financial futures and options, exchange and interest-rate instruments, transferable securities);
- Participation in securities issues and the provision of services relating to such issues;
- Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings;
- Money broking;
- Portfolio management and advice;
- Safekeeping and administration of securities;
- Credit reference services;
- Safe custody services; and
- Issuing electronic money.
Pursuant to section 32 (1) sentence 1 of the German Banking Act (Kreditwesengesetz – “KWG”), anyone wishing to conduct banking business or to provide financial services in Germany in a commerciale manner or on a scale that requires a commercially organised business undertaking requires a written licence. What constitutes banking business or financial services is set forth in section 1 paras 1 and 1a KWG and comprises, inter alia, (i) the provision of money loans (lending business), (ii) the acceptance of monies from the public (deposit business), (iii) the purchase and sale of financial instruments in the credit institution’s own name for the account of others (principal broking services), (iv) the safe custody and administration of securities for the account of others (safe custody business), (v) the purchase of financial instruments at the credit institution's own risk for placing in the market or the assumption of equivalent guarantees (underwriting business), (vi) the brokering of business involving the purchase and sale of financial instruments (investment broking), (vii) providing customers or their representatives with personal recommendations in respect of transactions relating to certain financial instruments where the recommendation is based on an evaluation of the investor’s personal circumstances or is presented as being suitable for the investor and is not provided exclusively via information distribution channels or for the general public (investment advice), (viii) the purchase and sale of financial instruments on behalf of and for the account of others (contract broking), (ix) the management of individual portfolios of financial instruments for others on a discretionary basis (portfolio management), (x) dealing in foreign notes and coins (foreign currency dealing), (xi) the ongoing purchase of receivables on the basis of standard agreements, with or without recourse (factoring), (xii) the conclusion of financial lease agreements as lessor and the management of asset-leasing vehicles (financial leasing) and (xiii) the purchase and sale of financial instruments separately from the management of a collective investment scheme for a community of investors, who are natural persons, on a discretionary basis with regard to the choice of financial instruments (asset management).
In general, it can be said that the financial services and activities listed in Section A of Annex I to the Markets in Financial Instruments Directive 2004/39/EC and Annex I of Directive on Access to the Activity of Credit Institutions and Investment Firms 2013/36/EU are licensable in Germany.
Further, the provision of payment services is licensable based on the provisions of the German Act on the Supervision of Payment Services (Zahlungsdiensteaufsichtsgesetz, ZAG).
While each state has the power to determine what ‘banking activities’ may only be conducted by a bank, at heart two activities are central to what constitutes banking activities. The first, and perhaps the most important, is the power to accept deposits subject to payment by check or order. At heart, commercial banking in the US consists of accepting deposits and making commercial loans, although not all deposit-taking banks (depository institutions) make commercial loans. The second is the power to exercise fiduciary powers, such as acting as trustee. While the term ‘bank’ technically covers both kinds of organizations, organisations that engage in only fiduciary activities and do not accept deposits are commonly referred to as nondepository trust companies. While most banks make ‘commercial’ and ‘consumer’ loans, lending is not a necessary marker of what it means to be a bank and many states regulate commercial lending as a standalone business only very lightly and it is generally not separately regulated at the federal level.
Under Colombian law, any financial, insurance and securities exchange activities trigger the requirement for authorization from the Superintendence of Finance. Specifically, any person, national or foreign, that collects resources from the public is engaging in an activity that is of public interest and therefore, is regulated by the Colombian government.
Under Colombian law, financial institutions are classified into credit institutions, financial services entities, capitalization corporations, insurance companies and insurance intermediaries. Specifically, credit institutions are further categorized into (i) banks, (ii) finance corporations, (iii) financing companies and (iv) finance cooperatives. Moreover, banks are cataloged in commercial banks and mortgage banks. As stated in the Organic Statute of the Financial System, banks are authorized, in general terms, to receive on-demand and savings deposits, negotiate bills of exchange, promissory notes and other securities, and perform other customary banking services.
An entity that receives repayable funds from the public and grants credit or other finance on its own account must obtain a licence to pursue the business of a credit institution. Exemptions from the licensing obligation apply with respect to :
- the Bank of Finland;
- the raising of funds for the purpose of the regulated activities of mutual funds and alterative investment funds, insurance companies and payment institutions;
- any entities raising funds by means of issuance of debt securities; and
- limited companies, partnerships, cooperations and certain other entities which publish annual and interim reports in accordance with the provisions of the Finnish Securities Markets Act (746/2012, as amended) and which are allowed to raise repayable funds from the public by means issuing securities or such other debt instruments which have a fixed term in excess of 30 days and are not redeemable by the issuer or which are repayable upon notice and have a notice period in excess of 30 days.
In addition, investment banks that provide investment services in accordance with the Finnish Investment Services Act (747/2012, as amended) must be licensed as an investment firm.
Deposit taking by way of business is the regulated activity that requires an institution to be a regulated credit institution.
Lending is only a regulated activity in relation to mortgages and consumer lending. In these circumstances, and assuming none of the available exemptions apply, a lender will need to be authorized by the UK Financial Conduct Authority to conduct such business.
Mortgage and consumer loans are subject to a range of regulatory requirements that do not apply to unregulated loans. For example, for regulated mortgage contracts, there are particular restrictions around how:
- the loans are marketed, originated and sold;
- lenders administer the loans on an ongoing basis; and
- borrowers who fall behind with their payments are dealt with.
Regulated credit agreements on the other hand have specific requirements around how the agreement is drafted and formatted and what information must be included.
There are no additional restrictions that apply to foreign lenders making loans to UK borrowers.