Which type of activities trigger the requirement of a banking license?
Banking & Finance (2nd edition)
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).
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.
According to the Business of Credit Institutions Laws of 1997 to 2018 (“Law”), a bank is prohibited from carrying out any activities other than those permitted under the banking license granted by CBC (“Banking License”). The permitted activities are as follows: accepting deposits and other repayable funds, lending, financial leasing, factoring, money transmission services, issuing and administering other means of payment including travellers’ cheques and bankers’ drafts, issuing electronic money, guarantees and commitments, money broking, safe custody services, portfolio management and advice, trading for own account or on account of customers, advice to undertakings, participation and provision of services relating to securities (“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.
Investment banks that provide investment services in accordance with the Finnish Investment Services Act (747/2012, as amended) must be licensed as investment firms.
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.
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:
(i) Deposit and participation fund taking;
(ii) Lending (including cash and non-cash loans, factoring, forfeiting and financial leasing services);
(iii) Payment, collection and discounting services (including issuance of credit and deposit cards, cash or book-entry payments and fund transfer services, correspondent banking);
(iv) 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);
(v) Insurance agency and individual private pension funds services; and
(vi) 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.
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.
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 commercial 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 2014/65/EU 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”).
As a general rule, no one is allowed to accept deposits from the public on a professional basis, or rec-ommend 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.
Following activities may be performed by the bank and require a banking license:
a) accepting deposits and provision of loans;
b) provision of payment services and settlement;
c) provision of investment services, investment activities and ancillary services, and investments in securities for own account;
d) trading for the bank's own account;
e) management of receivables for the client's account, including advisory services,
f) financial leasing,
g) provision of guarantees, and opening and endorsing of letters of credit;
h) business advisory services;
i) issuing of securities, participation in securities issues, and provision of related services;
j) financial intermediation;
k) safe custody of assets;
l) renting of safe deposit boxes;
m) provisions of banking information;
n) performing the function of a depository pursuant to separate regulations;
o) processing of banknotes a coins;
p) issuance and administration of electronic money.
Under the Banking Act (Cap.19) (“BA”), no person or company may transact banking business in Singapore unless they are in possession of a bank licence issued by MAS.
The term “banking business” is defined as the business of receiving money on current or deposit account, paying and collecting cheques, and the making or advances to customers.
In relation to deposit-taking, the BA also bars a person from accepting deposits in Singapore from any person in Singapore, in the course of carrying on (whether in Singapore or elsewhere) a deposit-taking business, unless the former person is a bank or falls within certain specified categories. This rule is intended to reserve the activity of taking deposits from the public to licensed banks and certain permitted financial institutions.
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.
In general, the conduct of any banking business in Oman requires that a licence be obtained from the CBO and provides sanctions (including fines and imprisonment) for persons who conduct such activities without the required licence. The term “banking business” is defined by the Banking Law and covers such activities as receiving deposits, opening accounts, the extension of credit, whether on a secured or unsecured basis, issuing guarantees, the sale and placement of bonds and similar instruments, the sale or exchange of currencies, investment management, factoring, trading in precious metals and such other activities as may be determined by the CBO as requiring a banking licence.
An exception to this would be in the case of foreign banks with no licensed presence in Oman providing offshore banking services to customers in Oman, whether in the form of the advance of credit facilities to Omani borrowers or other banking services to Omani nationals outside of Oman, and these will not be seen to trigger the need for a banking licence in Oman.
The marketing of foreign securities and foreign investment products in Oman is regulated by the CMA under the CMAL and the Executive Regulations. The term “securities” as defined in the CMAL includes “Shares and bonds issued by joint stock companies and the bonds issued by the Government and its Public Authorities, treasury bonds and bills and other securities negotiable in the Market”. Despite the apparent restricted scope of this definition, the CMA in practice regulates any kind of investment prod-ucts that are offered, marketed or sold in Oman (i.e. registered and unregistered funds).
According to Article 2.2 of Law of Georgia on the Activities of Commercial Banks, taking deposits and using them for granting credits trigger the requirement for the banking license.
As the Principality of Liechtenstein is an active member of the European Economic Area (EEA), European law heavily influences financial regulation in Liechtenstein. Liechtenstein Banks are primarily regulated under the Liechtenstein Banking Act (BA) and Banking Ordinance (BO). The BA and BO transpose and complement the partly directly applicable European regulatory framework covering banks and investment firms (in particular the CRD/CRR framework as well as the European MIFID II/MIFIR framework). Although the CRD framework is pending to be transposed into the EEA agreement, Liechtenstein has implemented and fully complies with the CRD framework. The CRR Regulation (EU) No 575/2013 is applied according-ly.
The BA stipulates licensing requirements for banks and investment firms and thus does not only cover banking activities, but also the provision of investment services and ancillary services under MIFID II. Licensing requirements under the BA are triggered, if the following activities are conducted on a com-mercial basis:
(i) acceptance of deposits and other repayable funds;
(ii) lending of third-party funds to an indeterminate group of borrowers;
(iii) custody business;
(iv) provision of investment services and ancillary services as well as the execution of other off-balance-sheet banking transactions;
(v) the issuance of electronic money;
(vi) the assumption of guarantees, warranties and other liabilities for others, insofar as the assumed obligation is to make cash payments;
(vii) trading in foreign currencies for own account or for the account of third parties.
The activity of receiving deposits (and other reimbursable funds) from the public and of granting loans on one's own account triggers the requirement to obtain a banking license in Luxembourg (Article 2 of the Financial Sector Law). In certain circumstances, lending might not require a specific license.
Specific rules apply to banks issuing covered bonds.
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 European Banking Authority/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 instru-ments, financial futures and options, exchange and interest rate instruments, goods and transfera-ble 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.
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 (i) the acceptance of deposits of money from the public withdrawable or repayable on demand or after a fixed period or after notice, or (ii) the borrowing or raising of money from the public, 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. Additionally, a bank may also be authorised to carry out additional services such as inter alia (i) payment services (under the Directive (EU) 2015/2366 on payment services in the internal market, the “PSD II”); (ii) issuing and administering other means of payment; (iii) trading for account of customers or own account in various products including transferable securities; (iv) portfolio management; and (v) safe custody.
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.
Article 1 of the QCB Law defines a bank as any juristic person licensed in accordance with the provisions of the QCB Law to conduct all or some of the activities of banking, investment and de-velopment in the State of Qatar.
In this respect, banking activities is defined under Article 1 of the QCB Law as acceptance of deposits and other recoverable funds, granting of credit facilities; deducting, purchasing, and selling securities; trading in monetary and property instruments, foreign exchange and precious metals; issuance of cheques, credit cards and other payment instruments; issuance of guarantees and obligations; and any other activities determined by the Central Bank.
Whereas investment activities is defined under the same article as investing for third parties, practicing brokerage and financial agency, arranging Initial Public Offerings, providing custody and security services, participating in the issuance of shares and other securities, managing portfolios and investment funds, trading in monetary instruments and cash money, foreign exchange and precious metals, advising on capital markets, services related to purchase, merger and acquisition of companies, and any other activities determined by the Central Bank.
In light of the above, Article 77 of the QCB Law prohibits the exercise of any of the financial services or activities, as provided in this Law and its implementing resolutions, without obtaining a license from the Central Bank.
The main activities requiring a banking license are taking deposits or other repayable funds from the public and granting credits.
However, EGO 99/2006, which transposes the authorization obligations contained in EU Directive 2013/36/EU (CRD IV), prescribes a list of activities that may be performed by credit institutions, subject to the limits prescribed by the respective authorization (licence). The activities covered by EGO 99/2006 (art. 18) include those that are specified in Annex I of CRD IV (list of activities that are subject to mutual recognition by EU/EEA states), plus the following activities which are additionally prescribed by EGO 99/2006:
- Operations with metal and precious stones and objects made from these;
- Acquiring holdings in the capital of other entities;
- Any other activities or services, to the extent in which these involve the financial sector, subject to the specialised laws that regulate the respective activities, where applicable.
We note that certain activities may be performed by entities that are not banks, such as non-banking financial institutions (NBFIs) which are monitored/supervised by the NBR in accordance with Law 93/2009 and NBR Reg. 20/2009. NBFIs may carry out, inter alia, the following crediting activities on a professional basis (art. 14, Law 93/2009):
Granting of loans, including consumer credit, mortgages and factoring;
- Financial leasing;
- Issuance of guarantees and undertakings.
The following non-bank entities authorized by the NBR may carry out certain activities:
- Payment institutions, which carry out payment services and
- Electronic money institutions, which issue electronic money and may perform payment services.
Activities of deposit and lending services, as well as custody bank activities trigger the requirement of applying for a banking license.
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.
Banking consists, most importantly, of the power to accept deposits subject to payment by check or order. Commercial banking in the US generally consists of accepting deposits and making commercial loans, although not all deposit-taking banks (depository institutions) make commercial loans. Another activity central to banking activities is the power to exercise fiduciary powers, such as acting as trustee. While the term ‘bank’ technically covers both kinds of organizations, organizations 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, there is no general regulation of lending, and many states regulate commercial lending as a standalone business only very lightly, if at all. Each state has independent power to define ‘banking activities’ for the purposes of state chartered banks.
In Italy, banking activity, save for some exceptions, is reserved to banks and in order to perform it an au-thorisation from the Bank of Italy is required.
What constitutes banking activity is set forth in article 10 of the Italian Banking Act and comprises:
(i) the collection of funds from the public (i.e. the collection of funds with repayment obligation, ei-ther in the form of a deposit or in another form), and
(ii) the granting of financing, in whatever form, on a professional basis. It is worth nothing that the granting of financing is also allowed to financial companies enrolled in specific registers held by the Bank of Italy.
In addition, the provision of payment services and other investment services requires a license too.
The regulated financial institutions businesses requiring a license in Thailand comprise (i) commercial banking business, (ii) finance business and (iii) credit foncier business.
Commercial banking business is defined as the undertaking of business of accepting deposits of money or accepting money from the public subject to withdrawal on demand or at the end of a specified period and of employing such money in one or several ways such as granting of credits, buying or selling of bills of exchange or any other negotiable instruments, buying and selling of foreign exchange.
Finance business is the undertaking of business of accepting deposits of money or accepting money from the public subject to withdrawal on demand or at the end of a specified period, which is not accept-ing deposits of money or accepting money in the accounts to be withdrawn by cheques, and of employ-ing such money in one or several ways such as granting of credits, buying or selling of bills of ex-change or any other negotiable instruments.
Credit foncier business means the undertaking of business of accepting deposits of money or accepting money from the public subject to withdrawal at the end of a specified period and of employing such money in one or several ways listed below:
(1) lending money by way of taking mortgage of immovable property;
(2) buying immovable property by way of sale with right of redemption.
Under the FIB Act (Section 9), commercial banking business, finance business and credit foncier busi-ness may be undertaken only by a juristic person (legal entity) which is a public limited company after obtaining a license from the Minister with the advice of the BoT. In granting such license, the Minister may prescribe such rules as are deemed appropriate.
Banking license is obligatory for providing banking services, financial services and ancillary financial services.
Banking services are services of accepting deposits and other repayable funds from the public and granting loans on their own account.
Financial services include the following services:
- accepting deposits and other returnable assets,
- granting of loans (including consumer loans, mortgage loans, purchase of receivables with or without recourse, financing of commercial transactions),
- financial leasing (lease or rent) of assets,
- payment services and electronic money issuing services,
- issuing and managing other payment instruments (e.g. travellers’ cheques and bankers’ drafts),
- issuing of guarantees and other sureties,
- trading for own account or for the account of clients,
- participation in securities issues and the provision of associated services,
- cooperating in issuance of securities and connected activities,
- monetary intermediation on interbank markets,
- investment management and related advisory services,
- safekeeping of securities and other related services,
- credit rating services,
- leading of safe deposit boxes; and
- investment services and transactions.