The field of financial intermediation is regulated by numerous legal provisions of varying legal force. The primary legal provision is Act No. 186/2009 Coll. on Financial Intermediation and Financial Advisory Services and on Amendments to Certain Acts. This Act is well known to financial agents and financial advisors in practice, so we will not discuss it in detail in this article. In this article, we will examine the obligations of financial agents that may be less well known in practice and do not arise from the legal regulations governing the financial market.
Financial intermediation refers to the part of the financial market focused on the distribution of financial products and services. In practice, however, financial intermediation is often mistakenly referred to as financial advisory services. In reality, however, these are two distinct activities that differ both in terms of the entity with which the individual has a contract and the person obligated to pay the corresponding fee for their services. While a financial intermediary (legal term: financial agent) has a contract with a financial institution under which they strive to facilitate, to the greatest extent possible, the financial services that the institution provides directly to clients, a financial advisor enters into a contractual relationship with a client who requests their fee-based services for the purpose of providing valuable advice on selecting a financial product. In financial advisory services, the client pays the financial advisor’s fee directly, whereas, on the other hand, a financial agent is compensated by the financial institution.
The field of financial intermediation is regulated by numerous legal provisions of varying legal force—whether they stem from European law, particularly with regard to so-called secondary European Union law, under which several directives are in force that have shaped the current form of financial intermediation, or laws and subordinate legislation at the national level. The basic legal regulation is Act No. 186/2009 Coll. on Financial Intermediation and Financial Advisory Services and on Amendments to Certain Acts (hereinafter referred to as “ZoFS”). However, financial intermediation activities are also influenced, either directly or indirectly, by many other legal regulations; for example, Act No. 747/2004 Coll. on Financial Market Supervision, which establishes the manner and rules for the exercise of supervision, and Act No. 566/1992 Coll. on the National Bank of Slovakia, which defines the position of the NBS within the system of financial market regulation and supervision
Section 18 of the Financial Intermediation Act (ZoFS) sets forth the conditions for conducting financial intermediation activities. The fundamental condition for conducting activities in the field of financial intermediation is the issuance of a license to conduct such activities by the NBS. The conditions that a person must meet for the issuance of a license vary depending on whether the applicant is a legal entity or a natural person. However, it is generally true that in both cases, it is essential to demonstrate credibility and professional competence. Other conditions include, for example, demonstrating a group with close ties and, last but not least, technical and organizational readiness.
The above-mentioned obligations are well-known to financial agents and financial advisors in practice, so we will not address them in detail in this article. In this article, we will examine the obligations of financial agents that are perhaps less well-known in practice and do not stem from financial market regulations.
Perhaps the best-known regulations outside of financial market legislation that impose obligations on financial agents are Regulation (EU) 2016/679 of the European Parliament and of the Council (hereinafter referred to as the “GDPR”) and Act No. 18/2018 Coll. on the Protection of Personal Data and on Amendments to Certain Acts (hereinafter referred to as the “GDPR Act”). The GDPR applies unconditionally to anyone who comes into contact with personal data and who processes personal data, regardless of the scope of the personal data processed or the “size” of the controller. The GDPR therefore applies to every controller that processes the personal data of employees, customers, business partners, and even newsletter subscribers, and thus undoubtedly also to financial agents. A controller is therefore a state administration body, a local government body, another public authority, or any other legal or natural person who, alone or jointly with others, determines the purposes and conditions of the processing of personal data and processes the personal data of natural persons on its own behalf.
On the other hand, a data subject is any natural person to whom personal data relate. A data subject can only be a natural person—an individual, not a legal entity. It follows from this relationship that the consumer—the natural person whose personal data is being processed—acts as the data subject in this legal relationship, and the financial agent processing the personal data acts as the controller. As a controller, the financial agent is thus subject to several legal obligations, primarily compliance with the fundamental principles of personal data processing, which include, for example:
- the principle of lawfulness,
- the principle of purpose limitation,
- the principle of data minimization,
- the principle of accuracy,
- the principle of storage limitation,
- the principles of integrity and confidentiality,
- and the principle of accountability.
The field of personal data protection can be quite chaotic for financial agents, and we therefore recommend seeking assistance from experts in this area, who will prepare, among other things, basic GDPR documents such as personal data protection policies or data subject consent forms.
In conclusion, we note that failure to comply with GDPR obligations may have adverse consequences, as violations of GDPR obligations are subject to heavy penalties. The fine in such cases can reach up to 20 million euros or 4% of the business’s annual turnover, whichever is higher.
Further, no less significant obligations arise for financial agents as well as financial advisors under Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Financing of Terrorism and on Amendments to Certain Acts (hereinafter the “AML Act”), as a financial agent and a financial advisor are also obligated entities under this Act, except when performing activities related to non-life insurance. Obligated entities are subject to several fundamental obligations, e.g., the obligation to verify client identification prior to concluding a transaction, the obligation to report unusual transactions to the financial intelligence unit, the obligation to develop internal guidelines, the so-called internal compliance program, which takes risk factors into account and determines the scope of due diligence performed by the obligated entity.
The internal program primarily includes the identification of forms of suspicious transactions, employee training, methods for assessing and managing AML risks, procedures for detecting suspicious transactions, reporting of suspicious transactions, a template for the client declaration under the AML Act, and others.
The thorough and precise development of an internal compliance program is a fundamental and essential step if the entity is a so-called obligated entity under the AML Act. Violations of obligations under the AML Act are also subject to significant penalties, which, depending on the type of obligation violated, can amount to hundreds of thousands of euros. We therefore recommend entrusting the preparation of your internal compliance program to experts, thereby preventing potential complications in the future.
The law firm Hronček & Partners, s. r. o. provides comprehensive legal advice on obtaining licenses to conduct various activities, as part of which we also handle the preparation of the aforementioned documents, as well as other documents such as general terms and conditions and contractual documentation.
