Article 3: Legal Aspects of Blockchain Technology — Licence Requirements for Leasing, Factoring, and Sales Financing

Authors: Markus Kaulartz, Jonas Gross, Constantin Lichti, Philipp Sandner, Daniel Holk

In this article, we analyze from a legal perspective under which circumstances companies providing specific financial services require regulatory approval. We differentiate in our legal assessment between (i) finance leasing, (ii) factoring services, and (iii) sales financing. Furthermore, we offer suggestions for the practical implementation. The article assumes the application of German laws.


This article is the third publication of the series “legal aspects of blockchain technology” by the Frankfurt School Blockchain Center (FSBC), Datarella, and CMS Hasche Sigle. This research is part of the KOSMoS project, a research project funded by the German Federal Ministry of Education and Research (BMBF) under the funding code 02P17D020. The Frankfurt School Blockchain Center gGmbH and Datarella GmbH are part of the “KOSMoS” consortium. Together with partners from the industry (Schwäbische Werkzeugmaschinen GmbH, Alfred H. Schütte GmbH & Co. KG, ASYS Automatisierungssysteme GmbH), academia (Universität Stuttgart, Hochschule Furtwangen), and software development (inovex GmbH, Ondics GmbH), they create a blockchain-based solution allowing manufacturing companies to establish a DLT-based framework for producing machines in order to (a) execute dynamic leasing contracts, (b) provide transparent maintenance documentation and © ensure high-quality documentation of manufactured products.


Blockchain technology enables various new and innovative business models, e.g., related to pay-per-use. As one example, dynamic leasing use cases can be implemented efficiently on a blockchain. The lessor provides a machine to the lessee. In case of dynamic leasing, the leasing fee is variable and depends on the use of the machine, the maintenance, material used etc. In contrast to current leasing arrangements, the leasing fee is dynamic. This can easily be implemented by using smart contracts.

As such pay-per-use business models get more and more attention in the German industry, in this article, we analyze related legal requirements. We focus on the aspect if the lessor has to get a licence in order to provide such leasing services. Furthermore, we discuss licence requirements for factoring services and sales financing.

Necessity of a permission for financial leasing

According to § 32 (1) of the German Banking Act (KWG), companies that intend to provide financial services in Germany on a commercial basis or to an extent that requires a “commercially-oriented business operation” require the written permission of the Federal Financial Supervisory Authority of Germany (BaFin). Financial leasing is one such financial service. As described in § 1 (1a) sentence 2 no. 10 KWG, companies offer financial leases if, among others, they conclude finance lease contracts as lessors. The requirement of a commercial operation is fulfilled if the business is intended to run for a certain duration and the operator intends to make profits. Whether the business in question can be seen as a “commercially-oriented business operation” depends exclusively on whether or not the setup of said operation is objectively necessary for the financial services business.

Let us consider the following example: We assume that there is a company B, which operates the blockchain, and a financial lease company A, which is in contact with customers and possesses a corresponding license from BaFin in the sense of the earlier discussed § 32 (1) KWG. Since in this given case company A conducts financial leasing, but company B does not, the latter does not require permission under § 32 (1) KWG. Company B only acts as a third party whose infrastructure is used by the contracting parties to execute the financial lease. The situation is comparable to a software company making a software product available to a customer who uses it to provide services. All regulations applicable to these services, including any licensing requirements, apply only to this customer as only this customer is responsible for the execution of the services. The software provider is only obliged to provide its software free of errors. Thus, as long as company B itself does not act as lessor in any way and only operates the blockchain infrastructure, B is not subject to the licensing requirement of § 32 (1) KWG. It is not even relevant whether A and B are affiliated companies. [1]

Practical note: A permit to conduct financial services is required by the party providing the service, not by whoever operates the technical infrastructure.

This is also in line with the ratio legis of the obligation to obtain a permit under § 1 (1a) sentence 2 no. 10 KWG in conjunction with § 32 (1) KWG. From a purely economic point of view, a financial lease is a loan from the lessor to the lessee. However, this loan does not fall in the scope of the banking supervisory laws for the lending business under § 1 (1) sentence 2 no. 2 KWG because the financing is legally no loan. The reason is that the lessor acquires the legal power of disposal over the leased object and arranges the financing in such a way that the lessor acquires the right of use against payment. Therefore, a leasing agreement is similar to a rental agreement that is extended by elements for an eventual purchase. Due to the central importance of financial leasing (and also factoring which will be discussed later in the article), the legislator sees risks that disruptions in such transactions could affect not only the lessee but also major parts of the economy. [2] This is the reason why providers of financial leasing are subject to the supervision of BaFin. Thus, the critical aspect for the licensing requirement under § 32 (1) KWG is solely the financing function within the contractual relationship of a leasing agreement. Consequently, only A as a financier and not company B as a pure auxiliary party to the contract is placed under supervision.

Practical note: The company operating the blockchain or providing other technical services must ensure that in its advertising and product description, as well as in the contracts, the service is clearly limited to a technical service not regulated under the KWG.

An example of where the activity indicates that a permit is required: “We finance your car. Secure with the help of blockchain technology!” An example of where the activity does not indicate that a permit is required: “We offer the necessary IT infrastructure for your finance leasing business!”

Circumvention of the licensing requirement

No permission is in general required in the following cases:

Under § 2 (4) of the KWG, BaFin may exempt a company from the requirement for a license as long as the company does not require supervision based on the nature of the conducted business. An exemption will only be considered in exceptional cases.

§ 2 (6) of the German Banking Act (KWG) stipulates general exceptions for certain types of companies. A large majority of the companies that fall under the term financial services institution due to their business being financial leasing are thus exempted from the licensing requirement.[3] § 2 (6) sentence 1 no. 17 KWG contains an exception to the licensing requirement for leasing property companies (Leasingobjektgesellschaften) that only operate for a single leased object. A precondition, however, would be that the company is in turn managed by a leasing company which itself has a license from BaFin. [4]

Furthermore, there is no licensing requirement if no financial leasing within the meaning of § 1 (1a) sentence 2 no. 10 of the KWG is being offered at all. The decisive factor for the existence of such a lease is whether or not the lessee is contractually integrated in such a way that he or she ultimately finances and amortizes the asset while the lessor only pre-finances the asset. Consequently, the manufacturer of a leased asset, for example, who uses leasing as a distribution channel and/or sells his product directly through leasing, does not fall under § 1 (1a) sentence 2 no. 10 KWG. This is due to that fact that the focus here — similar to an installment plan — is not on financing in general but rather on selling the product. [5] Similarly, a rental agreement or hire-purchase agreement for real estate can be structured in such a way that no license is required. However, the title of a contract does not play a role. It rather depends on its concrete content. The tenant or hire-purchaser is not allowed to be contractually integrated in such a way that he or she ultimately finances and amortizes the asset as well as bears the investment risk, as this would require a license.

The use of a third party’s permission is not possible in the case of finance leasing. Therefore, the use of third party’s permission as in investment brokering in accordance with § 2 (10) KWG does not apply.

Permission for factoring

According to § 32 (1) half-sentence 1 in conjunction with § 1 (1a) sentence 2 no. 9 KWG, companies that wish to provide factoring services in Germany on a commercial basis or to an extent that requires a “commercially-oriented business operation” also require the written permission of BaFin. Factoring, i.e., the ongoing purchase of claims on the basis of framework agreements with or without recourse, thus constitutes a financial service in the sense of the KWG according to § 1 (1a) sentence 2 no. 9 KWG. Therefore, the aspects discussed in the previous paragraphs for finance leasing also apply to factoring.

Parties who merely provide the technical infrastructure but do not operate factoring themselves do not require permission from BaFin. The licensing requirement is exclusively linked to the fact that claims are continuously purchased based on framework agreements (§ 1 (1a) sentence 2 no. 9 KWG). Therefore, analogically, the licensing requirement is solely linked to the financing function. [6]

In the case of factoring, there is no sectoral exception as for single object leasing companies (§ 2 (6) sentence 1 no. 17 KWG), but individual exemptions under § 2 (4) KWG would be possible in certain cases (see legal exceptions for financial leasing).

Furthermore, it would also be possible to adjust the business model to avoid the licensing requirement for factoring. If the requirements of § 1 (1a) sentence 2 no. 9 KWG are no longer fulfilled (and if there is also no credit business as defined by § 1 (1) sentence 2 no. 2 KWG), the business in question is no longer subject to license requirement. There are essentially two possibilities for avoiding a license requirement:

  • If a purchase of claims does not take place “on an ongoing basis and on the basis of framework agreements”, the business process will not qualify as factoring within the meaning of § 1 (1a) sentence 2 no. 9 of the KWG. [7] One example would be that the company providing factoring services does not offer a financing service to the customer in general or wants to consider this on a case-by-case basis.
  • Moreover, in the case of the assignment of claims already due (so-called maturity factoring), § 1 (1a) Sentence 2 №9 KWG does not apply if the company providing factoring services assumes the risk of loss of claims. [8]

The use of permission from a third party is not possible for factoring. Therefore, it is similar to the case of finance leasing.

Permission for sales financing

The term ‘sales financing’ refers to the conclusion of a loan agreement where the loan is exclusively used to finance a specific contract for the acquisition of certain goods or services Sales financing is typically not subject to a permission or a license. If a seller credits his own sales by deferring the price (not: converting into a loan), it is not engaged in the lending business. This applies even in case the seller charges interest on the deferred amount. The reason for this is that, although the seller gives the buyer a credit, this credit is not based on a loan agreement, but solely on an “atypically structured” purchase agreement. [9] A differing legal understanding applies only to special constellations, for example, when an existing debt, e.g. from a purchase contract, is not only deferred but converted into a loan.

About KOSMoS

KOSMoS is a research project funded by the German Federal Ministry of Education and Research (BMBF) under the funding code 02P17D020. More information about the project can be found on the website.


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Dr. Markus Kaulartz used to be a software developer and is now a lawyer at CMS Hasche Sigle. He specializes in IT and data privacy laws and focuses on challenges arising from the increasing digitalization (FinTech, Blockchain, Smart Contracts, AI, SaaS, etc.). Since Markus’ clients are both innovative startups and tier one global players, he has gained much experience in advising on legal issues of future technologies and new business models, such as blockchain and artificial intelligence. Markus has particular tech expertise and insights that contribute to his legal advisory practice. He is co-editor of the legal handbook on smart contracts and the legal handbook on artificial intelligence and machine learning.

Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC) and also works for the KOSMoS research project. His fields of interests are primarily crypto currencies. Besides, in the context of his Ph.D., he has been analyzing the impact of blockchain technology on the monetary policy of worldwide central banks. He mainly studies innovations as central bank digital currencies (CBDC) and central bank crypto currencies (CBCC). You can contact him via email (, LinkedIn ( and via Twitter (@Jonas__Gross).

Constantin Lichti is a research assistant and project manager at the Frankfurt School Blockchain Center (FSBC), and also works for the KOSMoS research project. Furthermore, he is responsible for project proposals and grants as well as studies published at the FSBC. As a doctoral candidate his research interests cover blockchain themes in the light of digital transformation processes, especially the adoption of blockchain technology as well as the emergence of the global token market and digital business models based on blockchain technology. He graduated from the Technical University of Munich with a master’s degree in industrial engineering and management. You can contact him via email ( and LinkedIn.

Prof. Dr. Philipp Sandner is head of the Frankfurt School Blockchain Center (FSBC) at the Frankfurt School of Finance & Management. In 2018, he was ranked as one of the “Top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. Further, he belongs to the “Top 40 under 40” — a ranking by the German business magazine Capital. The expertise of Prof. Sandner, in particular, includes blockchain technology, crypto assets, distributed ledger technology (DLT), Euro-on-Ledger, initial coin offerings (ICOs), security tokens (STOs), digital transformation and entrepreneurship. You can contact him via mail ( via LinkedIn ( or follow him on Twitter (@philippsandner).

Daniel Holk is a research assistant at the Frankfurt School Blockchain Center (FSBC) at the Frankfurt School of Finance & Management. His fields of research include crypto currencies and the industrial application of digital money. He is part of the iBlockchain project which conducts research on industrial use-cases for digital money, as well as of the Digital Euro Association, a community aiming to accelerate the introduction of the digital Euro. He graduated from the University of Erfurt with a bachelor’s degree in International Relations and Economics. You can contact him via mail ( and LinkedIn.


[1] BaFin, information sheet on finance leasing, dated 19.01.2009.

[2] See BaFin, Merkblatt Finanzierungsleasing, dated 19.01.2009, citing BT-Drucks. 16/11108, of 27.11.2008, p. 66 f.

[3] BaFin, leaflet on finance leasing, drafted 19.01.2009.

[4] See BaFin, Merkblatt Finanzierungsleasing, dated 19.01.2009, citing BT-Drucks. 16/11108, of 27.11.2008, p. 66 f.

[5] Report of the Finance Committee, dated 26.11.2008 (BT-Drucks. 16/11108 of 27.11.2008), p. 67

[6] Detailed BaFin, Factoring Information Sheet, dated 05.01.2009.

[7] BaFin, Fact Sheet Factoring, dated 05.01.2009.

[8] Ibd.

[9] BaFin, Leaflet on Lending Business, dated 08.01.2009 (amended on 02.05.2016).

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