If companies wish to provide financial services such as investment advice or investment brokerage on a commercial scale, they require a BaFin license to do so. BaFin issues warnings via its website if companies offer financial services without a license. The basis for such warnings is Section 37 Subsection 4 of the German Banking Act (KWG). According to this provision, the authority may inform the public of this suspicion or finding, stating the name of the company, if and for as long as facts justify the assumption or it is established that a company is conducting unauthorized banking business or providing unauthorized financial services. The naming of the company’s real name in particular can result in considerable reputational damage for the company. This applies in particular to cases in which the press also reports on such an incident on the basis of public information, thereby increasing its reach. The following article is intended to show which principles BaFin must observe and how those affected can defend themselves if necessary.
Anyone Providing Financial Services Must Possess a BaFin License
The prerequisite for informing the public is that it is established or suspected that a company is providing unauthorized financial services, i.e. is operating on the market without the required authorization from BaFin. The provision of Section 37 Subsection 4 KWG serves the purpose of collective consumer protection and is intended to ensure that the public can be informed of potentially unauthorized activities at an early stage in order to minimize the damage to depositors and investors and to Germany as a financial marketplace. What is striking is that even the initial suspicion of BaFin is considered sufficient basis for publication. The authority may even make use of its right to issue a public warning if a company does not carry out the unauthorized activities, but merely gives the appearance of doing so publicly, for example through advertising measures. BaFin is therefore not obliged to formally intervene against the company first and only then publish the warning. It may publish its suspicions and warn the public at an early stage and prior to taking formal measures. However, the company concerned must always be heard by the authority before a decision on publication is made.
Affected Parties Can Take Action Against Publication
Due to the significant impact that a public warning by BaFin can have on the companies concerned, the authority must observe the principle of proportionality. If it turns out that the information published by BaFin is incorrect or that the underlying circumstances have been incorrectly reproduced, BaFin must inform the public of this in the same way as it previously published the information in question. As the publication on the website is an actual administrative action by BaFin, an action for a declaratory judgment aimed at establishing that the information provided to the public was unlawful or that the information was inadequately corrected or an action aimed at the publication of corrected information may be considered. By way of urgent legal protection, an application can be made for a temporary injunction, such as the deletion of certain information from the BaFin website until a decision is reached on the main issue.
Attorney Dr. Konrad Uhink
The lawyer responsible for analyzing the legality of BaFin warnings in our law firm is Attorney Dr. Konrad Uhink.
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