A BaFin license is a certification from Germany’s regulator that certifies companies in the financial sector are operating legally. To obtain a BaFin license, businesses must meet the ‘fit and proper’ criteria which includes a physical presence in Germany, robust IT security, proving the managing directors are qualified, and minimum capital requirements. The procedure starts with pre-filing, followed by a formal application and a statutory review.
Companies with BaFin licenses must have strong controls and operational risk management processes. Trustpair supports BaFin-compliant businesses through several features; verifying supplier data and preventing unauthorized payments in regulated payment workflows.
BaFin Requirements Germany: Key Takeaways:
- A BaFin license acts as an authorization to perform regulated activities in the financial sector of Germany
- BaFin compliance is important for money laundering prevention and maintaining integrity and stability in the financial markets
- Companies can obtain a license through meeting with BaFin and the Deutsche Bank, completing the required application and then being approved on review
What is a BaFin license?
BaFin stands for ‘Bundesanstalt für Finanzdienstleistungsaufsicht’, which translates to the German Federal Financial Supervisory Authority. It provides authorisation, in the form of licenses, for regulated activities in the financial sector in order to ensure the market remains secure and transparent.
The main purpose of BaFin as a financial regulation is to prevent money laundering, so obtaining the license requires companies to meet minimum standards in money laundering prevention.
BaFin licenses can be awarded if companies want to perform a range of activities, including:
- Conducting banking transactions or providing financial services, such as lending or deposit taking, securities trading
- Providing investment services like brokerage, proprietary trading and the management of investment funds
- Credit institutions with services relating to non-performing loan agreements (such as collections agents in a lending business)
- Providing payment services, which does broaden the scope of BaFin from just financial-based businesses to the likes of some airlines, online marketplaces and delivery services
- Offering cryptocurrency-related services
- Insurance companies that perform underwriting based inside of Germany itself… and many more
In accordance with the law, a BaFin permit allows an entity to conduct banking business on behalf of German customers, and they indicate that the business model has met the required conditions to operate in Germany. BaFin as a regulatory body also oversees financial supervision.
Why is the BaFin permit important?
BaFin compliance is important because it is a legal requirement for operating in Germany. Attempting to conduct business in the financial sector without the required BaFin license brings risk of:
- Up to five years imprisonment
- Monetary fines
- Closure of business
- And reversal of business transactions, if they are considered unauthorised by the regulators
Beyond the obvious legal repercussions though, BaFin compliance maintains market stability, prevents money laundering and protects consumers. By preventing ill-gotten funds from entering the system, it ensures that legitimate assets aren’t tainted or frozen due to criminal investigations. It also ensures that German companies avoid being grey-listed, making international trade and transactions easy.
The European Union anti-money laundering guidelines include requirements like verifying Ultimate Beneficial Ownership and completing reports when the cash transaction thresholds have been met. But this member state doesn’t only wait for the reports to come in, the regulator conducts special audits annually, focusing on high-risk sectors like crypto-assets.
Ultimately, BaFin requirements emphasise strong internal controls and operational risk management. Fortunately, companies can take this governance approach across their entire technical ecosystem. For example, platforms like Trustpair support this structure by securing supplier bank data, preventing unauthorised payments within regulated payment workflows.
How do businesses obtain a BaFin license?
Financial service providers can obtain a BaFin license through a rigorous application process, which typically takes between 6 and 12 months – so it’s vital to ensure you have sufficient time. The general requirements are typically broken down into three key stages:
1. Pre-application
Any finance or banking business that wishes to obtain BaFin status typically sits down with BaFin and Deutsche Bank to present their business model. As a supervisory authority, it can guide you on how to identify potential hurdles and decide on the correct license type to apply for.
Eligibility for financial services requires:
| Eligibility feature | BaFin requirement |
| Minimum capital | From €50,000 to €5 million |
| Fit and proper management | At least two qualified managing directors to meet the four eyes principle, they must prove knowledge on their own account and experience with disclosures of a clean criminal record |
| Physical location | Headquarters must be in Germany, ‘letterbox’ companies won’t be eligible for the required permit, even with a ‘German branch’ |
| Security | You must demonstrate a robust, compliant IT infrastructure through sustained risk assessments |
2. Application
The written application must include:
- A 3-year business operations plan: including financial projections and a viability analysis
- A governance structure: indicating internal controls, workflows, risk management and compliance structures
- AML framework: detailing how the firm performs Know Your Customer, monitors transactions and reports suspicious activity
- Beneficial Owner verification: to ensure that structures are transparent and funding sources are legitimate
3. Review and decision
Once an application has been submitted, BaFin first checks that all of the required documents are present. The official review period, which takes 3-6 months on average, begins once the application is verified as ‘complete’.
Companies pay between €2,000 and €20,000 in fees to submit their applications. And if the requirements are met, BaFin decides that the application is granted. Please note that this does vary based on individual cases. Plus, if business operations don’t commence within one year, the license typically expires.
Reviewing BaFin requirements for the German market
BaFin serves as the primary enforcer of Germany’s anti-money laundering framework. To operate legally, businesses must pass a rigorous licensing process and maintain the standards for ongoing compliance. Under BaFin, governance should be aligned across the entire ecosystem, including structuring and securing bank account data through Trustpair.