Light and shadow: The revised version of the BaFin guidance note on guarantee business

BaFin Merkblatt zum Garantiegeschäft | guidance note on guarantee business | PayTechLaw

On 3 April 2020, BaFin published its new guidance note on guarantee business (“New Guidance Note“). In practice, the New Guidance Note casts light on matters but also some shadow. On the one hand, it specifies statements contained in the previous guidance note of 8 January 2009 (“Old Guidance Note“). On the other hand, it does not address current questions that have arisen in practice and instead raises new issues. We have provided an overview of the new provisions contained in the New Guidance Note below.

BaFin guidance note on guarantee business: What it means in practice

The commercial operation of guarantee business or the operation of guarantee business on a scale requiring commercially organised business operations constitutes banking business and as such, requires a licence from BaFin. Guarantee business is defined in Section 1 para. 1 sentence 2 no. 8 of the German Banking Act (KreditwesengesetzKWG”) as

the assumption of sureties, guarantees and other warranties on behalf of others.

BaFin has always applied a very broad definition of what constitutes guarantee business. When designing their contractual safeguarding mechanisms, businesses therefore need to take care not to enter into the realm of guarantee business which requires a licence. The New Guidance Note describes BaFin’s administrative practice on guarantee business and is therefore of key relevance to market participants.

Sureties, guarantee agreements and other warranties

In its New Guidance Note, BaFin specifies under what circumstances it considers sureties, guarantee agreements and other warranties to constitute guarantee business requiring a licence. The Old Guidance Note only referred to the link to civil law provisions, particularly with respect to sureties; it contained no other limitations.


The BaFin clarifies that sureties only constitute guarantee business if the person standing surety for the loan provides the declaration of surety to the creditor of the principal debt or if the creditor of the principal debt obtains an independent right to claim against the person standing surety for the loan. Supporting assurances made by the person standing surety for the loan to the debtor of the principal debt do not constitute guarantee business if they do not result in an independent right to claim for the creditor of the principal debt.


BaFin continues to exclude product guarantees (i.e. liability for the quality of one’s own product) from the definition of guarantee business. The New Guidance Note now contains clarification that product guarantees do not merely include liability for the quality of one‘s own products but also liability for a minimum financial success of one‘s own services. The decisive factor for the existence of a product guarantee (not subject to a licence) is that the guarantee relates to one’s own product, service or promise. A guarantee for third-party products, services or promises on the other hand, do constitute a guarantee within the meaning of guarantee business.

Other warranties

With respect to other warranties, the New Guidance Note provides further examples and exceptions that had already previously been recognised in legal literature.

Other warranties within the meaning of guarantee business e.g. include letters of credit as well as contractually agreed put options of the lender. Letters of credit are contractual obligations requiring a credit institution to pay a particular payee in accordance with instructions of a principal and on the basis of certain documents having been produced within a specified period of time. Contractually agreed put options entitle lenders to demand the purchase of the collateral used to secure the loan for a specified purchase price if the borrower has not fulfilled its principal or interest repayment obligations.

The New Guidance Note now also clarifies that debt assumptions (unlike joint liabilities) do not constitute other warranties. Debt assumptions differ from joint liabilities insofar as a third-party debt is taken over 100 % and the previous debtor is released from any liability. In the case of a joint liability, the original debtor remains liable and the person joining the debt assumes a portion of the liability.

Unfortunately, BaFin has failed to specify general criteria in the New Guidance Note, according to which it assumes that there is “another warranty“. We are therefore still left in the dark as to what exactly constitutes “another warranty“.

Assumption for others

Sureties, guarantees and other warranties have to be assumed “for others“ (i.e. for someone else‘s debt) in order to qualify as guarantee business. BaFin had already recognised in its Old Guidance Note that not every third party is “another“ for this purpose. This is generally the case if the business for which the person in question stands surety is in that person’s own interest. BaFin assumes such an interest, which in turn excludes the licence requirement which would apply if there was guarantee business, in the following three cases:

Corporate groups

As was already the case in the Old Guidance Note, BaFin is still of the opinion that a surety, guarantee or other warranty which one company provides for a company belonging to the same corporate group does not constitute guarantee business. However, this only applies to subordinated corporate groups, not to a group consisting of equal entities (Gleichordnungskonzern).

BaFin extends this exemption to the extent that in certain cases even a surety provided by a majority shareholder for company debts does not constitute guarantee business requiring a licence, even if there is no corporate group.

There is also no guarantee business if there is a close economic link between the underlying transaction and the guarantee transaction. In its New Guidance note, BaFin lists numerous examples for when a close economic link can be assumed. However, unfortunately the New Guidance Note does not contain abstract criteria when a sufficient close economic link can be assumed in BaFin‘s view.

BaFin lists guarantees provided by companies as part of a sale of a portfolio of receivables, e.g. for asset-backed securities transactions, as the most important case in economic practice. A further example that was already contained in the Old Guidance Note is a sales financing transaction, where the merchant stands surety to a credit institution for a loan provided to the merchant’s customer so that the merchant does not have to agree a partial financing with its customer. Another example is the assumption of sureties by one party for another party as part of a joint venture.

In contrast to the above, BaFin states that a more remote, particularly a merely indirect interest in the underlying transaction of the person providing the guarantee is not sufficient to exclude guarantee business requiring a licence. As was the case in the Old Guidance Note, BaFin also refers in the New Guidance Note to the assumption of the default risk by a credit intermediary for the transactions it brokers, which constitute guarantee business. As a further example of a more remote interest that does not exclude guarantee business requiring a licence, BaFin states a supplier of construction materials who joins liabilities the developer has towards the construction workers in order to secure the progress of the construction and thereby the value of its own claims against the developer.

Unremunerated sureties and other warranties for the avoidance of supply shortages in vertical value chains

As a new group of cases that does not constitute guarantee business requiring a licence, BaFin includes non-remunerated sureties and other warranties provided for the avoidance of supply shortages in vertical value chains for the benefit of a supplier. One’s own economic interest is based on the fact that the surety is entered into without payment.

Commercial nature

Only guarantee business that is provided commercially or to a commercial extent is subject to a licence. BaFin generally assumes a commercial nature if the business is intended to be operated for a certain period of time and the operator pursues it with the intention of making a profit. What is new is that in BaFin’s opinion, an “indirect“ intention to make a profit is sufficient. Furthermore, BaFin states that the avoidance of losses is equivalent to the intention of making profit and that the profit can also be realised in another business segment and in another company. This wording leads to an extension of the criterion of the commercial nature and raises new questions in practice due to their lack of clarity.


We appreciate the fact that the New Guidance Note further specifies what constitutes guarantee business, particularly by listing more examples than previously. However, BaFin fails to include clear criteria to determine “other warranty” and “assumption for others“. This means that there is some uncertainty which remains in practice. New issues are additionally caused by the broad interpretation of what constitutes a commercial nature. As the existence of a commercial nature is in general important with regard to the licence requirement of banking business and financial services, any uncertainty connected therewith is not merely limited to guarantee business.



Cover picture: Copyright © Adobe Stock /apfelweile

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