Liability umbrella for tied agents
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Alternative to your own BaFin license or pure fund brokerage
For many, a BaFin license to provide investment advice and brokerage is unattainable. The high organizational requirements, the necessary regulatory equity and the requirement for qualified business managers often represent insurmountable hurdles. In such cases, the option of entering into a liability umbrella and using the BaFin license of another bank or financial services institution can be an attractive alternative.
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3Legal services related to the liability umbrella
Our law firm offers comprehensive advice for tied agents, banks and financial service providers on all questions relating to the liability umbrella. We advise investment advisors on the legal requirements for providing financial services within the framework of a liability umbrella and explain possible alternatives. In addition, we support tied agents in complying with regulatory requirements, in particular in accordance with the German Banking Act (KWG), the German Securities Trading Act (WpHG) and MiFID II. We review and draft the contractual agreements between the liability umbrella and the tied agent and offer both out-of-court and court representation in legal disputes between the parties. We also help with applying for BaFin approval if a change from the liability umbrella occurs.
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How does the liability umbrella work?
The German Banking Act (KWG) requires a BaFin license for the provision of investment advice, investment brokerage and placement transactions. These requirements are often difficult to meet, especially for individuals and start-ups. However, under certain conditions, a financial advisor who wants to provide these services can bind himself to an institution that has a corresponding BaFin license, such as a CRR institute or a securities trading company within the meaning of Section 1 Paragraph 3d KWG. These institutions are referred to as a "liability umbrella" because they assume liability for the financial advisor's actions. However, the term "liability umbrella" is not defined by law.
In this case, a so-called tied agent, i.e. a contractually bound agent, does not require his own BaFin approval for his activity as an investment advisor, broker or financial investment broker in accordance with Section 34f of the German Trade Regulation Act. The tied agent acts in the name and on behalf of the liability umbrella, which is responsible for administrative and supervisory tasks. In addition, the liable company must check and confirm the professional suitability and reliability of the tied agent. BaFin maintains a public register that provides information about the contractually bound agents reported by the liability umbrella.
In the event of liability claims, customers can turn directly to the liability umbrella. However, this does not mean that the tied agent cannot be held liable by the liability umbrella. In the internal relationship between the tied agent and the liable company, the agent may be liable. Many legal questions in the area of consultant liability, liability umbrella and liability for financial loss have not yet been finally clarified by the highest courts, which means that there is uncertainty about the legal situation.
Alternatives to the liability umbrella
As an alternative to the liability umbrella, either a separate BaFin license in accordance with the German Banking Act (KWG) or a trade license as a financial investment broker in accordance with Section 34f of the Trade Regulation Act (GewO) can be considered.
BaFin license for investment advice and brokerage according to Section 32 KWG
In many cases, obtaining your own BaFin license under the German Banking Act (KWG) proves difficult. A minimum capital of EUR 50,000 is required when setting up the company, and sufficient equity must be demonstrated on an ongoing basis in accordance with the CRR Regulation. In addition, BaFin requires the appointment of at least two managing directors with appropriate experience, and places strict requirements on them. The administrative and organizational requirements are high and require a well-structured organization and detailed written documentation, which entails a corresponding amount of personnel expenditure.
License as a financial investment broker according to § 34f GewO
Another option is a permit according to Section 34f of the German Trade Regulation Act (GewO), which allows certain financial instruments to be brokered. This particularly applies to shares in investment funds according to the Capital Investment Code (KAGB) and investments according to the Investment Act. This activity is therefore limited to fund brokerage. To obtain this permit, proof of expertise from the Chamber of Commerce and Industry and professional liability insurance are required. In addition, an annual audit by an auditor, chartered accountant or tax advisor is required, which entails corresponding costs.
We help you
We support you in finding the right solution for your company. Whether you decide to obtain your own BaFin license or a permit to act as a financial investment broker, we will advise you comprehensively on the legal requirements and support you in the application process. Our team is at your side with expertise and experience to minimize bureaucratic effort and enable you to implement the process smoothly. Rely on our support to achieve your regulatory goals efficiently and successfully.
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We offer you professional and comprehensive initial advice in the area of banking and capital market law. Take advantage of your opportunity and avoid mistakes.
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