Update re intra-group exemption

The German regulator BaFin lately issued a very narrow interpretation of the BaFin intra-group exemption. However, if group companies are able to meet certain requirements they shall now be able to rely on the intra-group exemption and will not need a payment license.

In its circular regarding the German Payment Services Supervisory Act (ZAG), BaFin severely restricted the scope of the intra-group exemption (contained in Sec. 2 para 1 No 13 ZAG).The exemption was to apply only where payer and payee are part of the same company group but should not apply if one of them (e.g. a customer or supplier) is not part of the group.

Company groups that are often organized with shared services entities and a central cash management are faced with the choice of re-organizing themselves in a decentralized way, engaging and integrating an external payment service provider, or applying for a payment license themselves. Thus, it came as no surprise that the BaFin circular triggered quite an outcry among German corporates.

Under the co-ordination of the Association of German Treasurer (Verband Deutscher Treasurer e.V.) German business associations have contacted BaFin and laid out the implications of such interpretation in practice. It turned out that BaFin’s central concern was related to anti-money laundering.

Accordingly, also BaFin agrees that – unless other payment law aspects come into play – it should be possible to interpret the exemption in the light of the purpose to prevent anti-money laundering in a way that it is not required to obtain a license to carry out a central cash management if the following requirements are met at all times:

1. The company carrying out the services such as payment transactions that are intra-group and external and connected services, has concluded respective service contracts with the relevant group companies.
2. The company has to document all payment transactions to ensure traceability and transparency of all transactions at all times.
3. To ensure compliance with legal requirements of payment services (in particular as regards foreign trade laws), the company has to issue uniformly binding rules/requirements for all relevant group companies and has to implement the relevant processes and systems. This applies in particular, but is not limited to, measures designed to prevent anti-money laundering or terrorist financing.
4. Compliance with such rules/requirements shall be audited by the internal audit/compliance department internally on a regular basis by use of suitable system- and process audits of the company. Such audits shall be comprehensible for third parties. Any deviations or irregularities discovered during such audits shall be addressed by suitable measures and shall be rectified in a sustainable way.

This technological interpretation is also based on recital 17 PSD2 according to which the collection of payment orders on behalf of a group by one group company shall not be considered a payment service.

However, the letters exchanged between BaFin and the Association of German Treasurers, leave open the question whether the reasoning only applies to central cash management but not,  for instance, to a central procurement entity that centrally pays all suppliers of a group. The arguments used to exempt cash management apply in this case as well because the risk of anti-money laundering appears to be rather low when meeting the requirements set out above but there is no mentioning of other scenarios in the letters. To be on the very safe side, a central procurement entity should be set up as central regulator pursuant to Sec. 2 para. 1 No. 2 ZAG. This means in turn that the central procurement entity needs to be in a position that it is able to negotiate conditions with the suppliers for other group companies essentially on its own.

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