18.07.2018

German Federal Court of Justice (BGH) confirms (substantial) fine for unauthorised banking operations

The Regional Court of Cologne (Landgericht Köln) sentenced an entrepreneur who had granted a total of 24 loans of varying, in some cases considerable amounts, to a fine of 90 daily rates of € 5,500 each, i.e. a total fine of € 495,000. The Regional Court of First Instance assumed that the entrepreneur was mistaken in believing that "only" 24 loans would not require a banking licence. With its judgment of 18 July 2018, the Federal Court of Justice (Bundesgerichtshof) now changed the conviction to a sentencing of the entrepreneur for intentional conduct of unauthorised banking transactions. The Court of Appeal assumed that it was necessary to know that the granting of 24 loans was a banking transaction and therefore required permission. The amount of the punishment did not change due to the conversion from negligent to intentional perpetration of the offence. The judgment is final.

We have the impression that granting loans in the commercial sector without the necessary permission from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; BaFin) is not as rare as today's judgment of the Second Criminal Senate of the Federal Court of Justice suggests. On the contrary: those affected are all too often mistakenly of the opinion that the commercial granting of loans - and thus the need for permission as a CRR credit institution - only existed from an unmanageably large number of loans, at least not already with 24 loans. The Federal Court of Justice has now clarified (unequivocally) that this is not the case.

In this context, it should be noted that the flip side, i.e. the commercial acceptance of loans, also requires permission - this is the operation of the (also subject to permission) deposit business.

We advise our clients in particular on fronting- and banking-as-a-service solutions that enable them to avoid breaches of banking regulatory requirements in a targeted manner. Please feel free to contact us at any time.