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Financial Companies Face Regulation Under German GwG
In an effort to strengthen financial stability and combat money laundering, the German government has clarified the definition of “financial companies” under the German Anti-Money Laundering Act (GwG). According to Section 2 (1) No. 6 of the GwG, these entities are subject to regulations and requirements aimed at preventing financial crimes.
Definition of Financial Companies
The joint interpretation and application guidance on the German GwG issued by the Federal States of Germany defines financial companies as entities whose primary activity consists of:
- Acquiring, holding, or disposing of equity investments
- Purchasing monetary receivables with a financing function
- Trading in financial instruments for its own account
- Acting as investment intermediaries or fee-based investment advisers
- Advising companies on their capital structure and industrial strategy
- Engaging in money-brokering business (arranging loans between credit institutions)
Exclusions
However, the guidance excludes holding companies that solely hold interests in firms outside the credit institution, financial institution, and insurance sectors, and do not engage in other commercial activities beyond managing investment holdings. Similarly, entities with a 5% stake or less in companies within these sectors are also exempt.
Compliance Requirements
Financial companies must comply with anti-money laundering regulations, including those related to:
- Customer due diligence
- Record-keeping
- Reporting suspicious transactions
The German Financial Supervisory Authority (BaFin) is responsible for supervising financial holding companies and mixed financial holding companies under the Banking Act (KWG).
Clarification on Investment Intermediaries and Fee-Based Investment Advisers
The guidance also clarifies the distinction between investment intermediaries and fee-based investment advisers, with the former requiring permission from the competent authority to operate. Fee-based investment advisers must also obtain permission, but are exempt from certain requirements if they already hold a permit as an investment intermediary.
Aim of the Regulation
The German government’s efforts aim to ensure that financial companies operating in Germany comply with anti-money laundering regulations and maintain the country’s reputation as a stable and secure financial hub.