Published on March 27th, 2017

FinLeap’s Insights: How we cope with regulatory frameworks

Increasing investments and a vast amount of different market players indicate that the German FinTech industry is rapidly growing [1]. The large potential of the market is attracting more and more diverse companies. This is despite the German financial services market being one of the most heavily regulated in the world. To offer financial services in Germany, businesses need to get approved by the German Federal Financial Supervisory Authority (BaFin) according to the Banking Act (KGW, §§ 32,33). In order to receive approval for offering financial services, companies need to prove for instance that they can provide sufficient equity capital and a sustainable business plan. They furthermore have to present detailed information on their shareholders and executives.

The exact requirements that have to be met in order to receive a license for offering financial services differ depending on the intended business model. Thus, there are two different ways for FinTechs to get into business: either they partner up with a fully licensed traditional bank or they apply for their own.

About a year ago, our venture solarisBank, a banking platform empowering finance pioneers, received a full German banking licence and therefore extensive media coverage. This was also due to the fact that solarisBank managed to receive its license in only nine months. solarisBank did not team up with external consultants but managed to complete the process due to their strong and experienced team. Especially the fact, that the board members as well as regulatory experts of the solaris team had built other banks before was a big advantage for completing the process in such a short time. Furthermore, solarisBank intentionally decided to apply for a full German banking license because it is internationally regarded as a hallmark of excellence and therefore well-reputed. In this market, complying with regulatory frameworks is not a barrier but an advantage.

Another FinLeap venture that has applied for a BaFin license and currently is waiting for the application’s approval is Elinvar. The venture aims to provide a digital solution for asset management companies and private banks, enabling them to offer state-of-the-art wealth management. In addition, the recently founded venture Element, a digital insurance platform, also applied for a BaFin license in order to become a risk carrier offering private property and casualty insurance products for home, liability and accident lines that enable a large portfolio of retail protection products.

The regulatory frameworks that FinTechs have to comply with may sometimes be regarded as obstructive barriers. However, they are important for the credibility of the whole banking industry. They also represent an assurance of equal treatment: emerging businesses as well as traditional ones need to comply with the same rules and frameworks in order to enter the market. The fact that more Fintech companies are applying for licences or are already operating with one shows the evolution of the scene. From being regarded as a playground for app developers, FinTech is becoming more and more professional and complex.

[1] The FinTech Market in Germany