Country _ Name
SectionTitle
Financial advisory and broking services including robo advisory and auto-trading
Body
FinTechs belonging to this category offer advisory and broking services for investments usually via an Internet platform. Robo advisory services usually offer an investment proposition following a series of questions concerning the personal financial background and the risk-bearing capacity of the user. Sometimes the respective platform also enables the user to directly execute the proposed investment. Auto-trading concerns all services which automatically trade on behalf of the customer according to his/her specifications. Apart from that, some FinTechs collect and offer merely, or as an ancillary service, market information or operate comparison portals to increase the transparency of the capital markets and to help the investor with his decision-making. There are also FinTech-advertising-services which market various financial services or products.

Introduction

Attitude of the country towards modern financial advisory and broking services

The acceptance of automated consulting and broking services as well as of robo advisory and auto-trading services is growing, although a high percentage of the people either still don’t know these services or don’t use them.

In 2020, the biggest robo advisor in Germany, Scalable Capital, with a market share of 37.3% in 2019, had the worst performance during the 2020 stock market crash. This showed the risks of fully automated portfolio management systems.

Legal affairs

Obligations and requirements to provide financial advisory and broking services, or ancillary services described above

Consulting, broking, robo advisory and auto-trading services are financial services activities in the form of investment advice, investment or contract broking or portfolio management governed by the German Securities Institutions Act (WertpapierinstitutsgesetzWpIG) and, as the case may be, the German Banking Act (Kreditwesengesetz – KWG). In addition to WpIG and KWG, the EU-wide Regulation (EU) 2019/2033 on the prudential requirements of investment firms from 27 November 2019 (Investment Firms Regulation – IFR) as well as anti-money laundering and data protection regulations are to be complied with. The WpIG derives from the Directive (EU) 2019/2034 on the prudential supervision of investment firms from 27 November 2019 (Investment Firms Directive – IFD).

According to WpIG and KWG, offering investment advice or investment or contract broking requires a license in cases where the investment firm is granted a broad discretionary power to make decisions on behalf of the client. Whether WpIG or KWG provisions apply depends on the scope of business. KWG applies in cases of more than EUR 30bn on their balance sheets on monthly average in the last 12 months and the conduction of issuing business, proprietary trading, or proprietary business. In all other cases, WpIG applies.

License costs depend on the specific business model and result from fixed and time spent costs. Fixed costs are typically in the range between EUR 3,262.00 and EUR 10,114.00 and additional time spent costs depend on the complexity of respective business model.

Among other things, particularly sufficient initial capital consisting of Common Equity Tier 1 capital (CET1) available in Germany is required to obtain a license. In case of investment advice, investment or contract broking or portfolio management, where the service providers, in providing financial services, are not authorised to obtain ownership or possession of funds or securities of customers and who do not trade in financial instruments for their own account, an amount equivalent to at least EUR 50,000.00 in CET1 is required.

When offering financial advisory and broking services, the service providers are to comply with requ

Authors

Close

Choose country