The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin") confirmed the applicability of the exemption of section 2 para. 6 (1) n°8 German Banking Act (Kreditwesengesetz, "KWG") to investment intermediaries within the meaning of section 34f German Commercial and Industrial Regulation Code (Gewerbeordnung, "GewO") transmitting customer orders via a chain of investment intermediaries. The "small" license within the meaning of section 34f GewO suffices.


Investment brokerage (Anlagevermittlung) is a financial service requiring a license under KWG. With respect to the marketing and distribution of fund units and fund shares the "small" license under section 34f GewO suffices in terms of the exemption of section 2 para. 6 (1) n°8 KWG, provided that

  1. the entity provides exclusively investment advice and investment brokerage between customers (i.e. investors) and specific – exhaustively listed – undertakings (e.g. investment companies, banks, etc.),
  2. such financial services relate to specific – exhaustively listed – financial instruments (e.g. fund units or fund shares), and
  3. the entity does neither obtain ownership nor possession of funds or shares of the customers.

Investment brokerage is defined as brokering of business involving the purchase and sale of financial instruments (cf. section 1 para. 1a (1) n°1 KWG). Providing brokering means, inter alia, the transmission of the customer’s order as a messenger to whom the investor actually wants to make a deal with. By transmitting the customer’s order within a chain of investment intermediaries each link in the chain falls within the scope of investment brokerage.

So far, the published BaFin guidance comprises the typical three-person relationship

Pursuant to the written BaFin guidance published in its notice regarding the exemption of investment intermediaries dated November 2017, the activity of investment brokerage "is rendered by transmitting the customer’s order related to the purchase or sale of financial instruments as a messenger. The exemption applies where such messenger activity is carried out between the customer (investor) and an undertaking within section 2 para. 6 (1) n°8 (i) KWG" (cf. point 1).

In this guidance BaFin describes the basic idea: The transmission takes directly place between the investor and the investment company. This is the typical three-person relationship comprising the investor, the intermediary and the investment company. The guidance is silent on whether multi-person distribution structures (i.e. chains of investment intermediaries) fall within the scope of the exemption.

Therefore, it is disputed amongst scholars whether the exemption covers situations where the intermediary is not directly placed between investor and investment company but transfers the customer’s order via another intermediary to the investment company. In practice, such chains of investment intermediaries are very common.

New statement of BaFin: The exemption also covers the multi-person relationship

In its statement dated February 16, 2018 (reference: GZ: EVG 1-QF 21000-2017/0188) BaFin confirmed the applicability of the exemption to multi-person relationships. In these cases the transmission between the investor and the investment company is made via a second, third (and so on) intermediary:

"Section2 para. 6 (1) n°8 KWG does not only covers the direct receipt and transmission of customer’s orders relating to the purchase or sales of finance instruments within the meaning of section 2 para. 6 (1) n 8 KWG, but also all service providers transmitting such customer’s order via a chain of intermediaries to an undertaking – listed in section 2 para. 6 (1) n 8 lit. a)-e) KWG – the investor wants to make the deal with. As the activity of each intermediary within such chain qualifies as investment brokerage within the meaning of section2 para. 6 (1) n°8 KWG, each intermediary requires a license for its activity pursuant to section 34f GewO."

BaFin’s approach is consistent with the purpose of the law. Ratio legis of the exemption is not focus on how many distribution points are involved between investor and investment company. Pursuant to the legislator’s intention fund units and fund shares are extensively standardized and, in any case, regulated products. The mere transmission of purchase order or sales order does not involve particular risks. Therefore, the transmitting entity does not carry out a regulated activity within the scope of the KWG (cf. Bundestag-Drucksachen 13/7142, p. 71; 16/4028, p. 91).


The BaFin statement is a supplement to the guidance notice regarding the exemption of investment intermediaries dated November 2017. We welcome the clarification made with regard to chains of investment intermediaries. The statement provides legal certainty for common market distribution structures.