Regarding the unauthorised taking of deposits from the public (illegal banking)
In this opinion, the Czech National Bank (hereinafter the “CNB”) summarises its approach to assessing the unauthorised taking of deposits pursuant to the Act on Banks, especially the definition of deposit and the characteristics of an illegal bank.
The taking of deposits, i.e. entrusted funds that constitute an obligation to the depositor to repayment thereof, from the public is reserved solely to entities that have a banking licence; the law stipulates other specific exemptions (for example for credit unions).
Pursuant to Article 2 of the Act on Banks activities consisting in taking deposits from the public are defined by the following characteristics:
- the taking of deposits, including the issue of bonds and other comparable securities is done in accordance with the Act on Banks and
- the funds are taken from the public.
As regards bonds and other comparable securities, the funds paid for them are deemed to be deposits requiring a banking licence only in the case of the continuing issue of securities offered to the public and only where the issuing thereof is the sole, or one of the main, activities of the issuer, or where the issuer’s line of business is another banking activity, i.e. basically the pursuit of business on the financial market. These characteristics and the conditions thereof are discussed in detail hereunder.
A. General information on the unauthorised taking of deposits under the Act on Banks
Article 2(1) of the Act on Banks specifies the scope of banking regulation on the general level. If an entity carries on business which cannot be classed under any of the activities listed in Article 2 of the Act on Banks, it does not need to comply with the conditions set out in the Act on Banks.[1] Article 2 of the Act on Banks is intended to ensure that an entity that does not hold a banking licence (and hence is not subject to banking regulation and CNB supervision and does not participate in the deposit guarantee scheme) may not take deposits from the public. Otherwise, this entity would expose persons from which it has taken deposits to a higher risk of loss.[2]
Exceptions to this rule are cases laid down by a special legislative act (for example credit unions within the meaning of the Act on Credit Unions) and cases where the law expressly stipulates that funds entrusted to a third party are not deemed to be a deposit under the Act on Banks (for example, pursuant to Article 21 of the Payment System Act, funds entrusted to a payment institution in order to make a payment transaction are not deemed to be a deposit).
B. Entrusted funds as a deposit
For the purposes of the Act on Banks, pursuant to Article 1(2)(a) thereof, “deposit” means “any funds entrusted to the bank that constitute an obligation of the bank to the depositor to repayment thereof”.
A deposit consists of entrusted “funds”. This term means cash in the form of banknotes and coins, circulating currency, money in the form of records on accounts and electronic money within the meaning of the Payment System Act irrespective of currency. A deposit may also be funds on payment accounts within the meaning of the Payment System Act if the recipient thereof is a bank or an entity other than a payment institution or if they were received by a payment institution for some other purpose than to make a payment transaction. By contrast, entrusted commodities (for example gold and other precious metals) and payment tokens (for example Bitcoin or Ethereum) are not deemed to be funds.[3]
The term “deposit” defined in the said provision has a broader meaning in terms of content than deposit within the meaning of Article 2680 of the Civil Code[4] and is also broader in meaning than the term “deposit” in CRD, the EU directive on which the Act on Banks is based. The term “deposit” in the Act on Banks corresponds to the broader phrase “deposits and other repayable funds”.[5] The term “deposit” within the meaning of the Act on Banks should therefore be interpreted broadly as any monetary obligation arising as a result of receiving funds.[6]
The term “deposit” within the meaning of Article 1(2)(a) of the Act on Banks is also not identical to the definition of “deposit” in Article 2(1)(3) of DGSD, which defines deposit for the purposes of deposit guarantee schemes and which is, by its very nature, narrower than the definition of deposit in Article 1 of the Act on Banks. The definition of deposit within the meaning of DGSD does not include bills of exchange, bonds and other securities.[7]
The key factor for assessing a deposit within the meaning of the Act on Banks is the actual content of the obligation based on which the funds were (temporarily) entrusted to a third party and not its designation or the choice of some other legal institute (for example a credit contract or a loan agreement).[8] Where funds received constitute an obligation for the person who was entrusted with the funds to repay them to the person who provided them (after an agreed period of time or on demand, with or without interest), they will always be a deposit within the meaning of Article 1(2)(a) of the Act on Banks.[9] Therefore, investment certificates for example cannot be considered deposits if their maturity (returnability) is conditional on returns on the underlying asset.[10]
Conversely, a structured deposit within the meaning of the Capital Market Undertakings Act[11] is also a deposit within the meaning of Article 1(2)(a) of the Act on Banks, as the investor (depositor) has the right to repayment of all the funds entrusted (the investor (depositor) always gets back at least 100% of their investment (i.e. the full amount of the funds entrusted) and also any yields, depending on the development of the underlying assets.[12]
The taking of deposits exclusively by banks within the meaning of the Act on Banks relates only to a line of business that is defined as being independent, continuing and having the intention of making a profit.[13] In this context, however, the intention of making a profit does not refer to a profit on the actual taking of deposits (many banks also take deposits without charging fees[14]). For entrusted funds to qualify as a deposit it is also irrelevant if and how the recipient then uses such entrusted funds.
However, deposit needs to be distinguished from advance payment, i.e. the situation where the purpose of entrusting funds does not involve an obligation of the recipient to repay the full amount of the funds deposited (as is the case with a deposit), but an obligation to use these funds in a specified manner for the client’s account (for example an advance payment for the purchase of securities).[15] The key factor is whether or not the recipient may dispose of the entrusted funds in the same way as their own funds.[16]
In the case of an advance payment, the relationship between the client and the recipient of the funds is thus not characterised by the obligation to maintain an account for the client and from that account to repay the entrusted funds to the client or to transfer them to another person based on a contract with the client, but to use the funds (at the instruction of the client) for the purchase of goods and services for the client’s account.[17] Where the client’s funds are recorded (temporarily) in the form of advance payments on the account of the client (investor) before a decision is made about the specific use and the client may transfer them back to his bank account, this does not usually constitute the unauthorised taking of deposits, as the prevailing purpose for the client is the further use of these funds; the temporary recording thereof is only a necessary element of the recording of advance payments.[18] This applies similarly to funds representing income on an investment, overpayments and so on which are repaid (recorded) to the client’s account. This is likewise without prejudice to the possibility of returning an advance payment under the contractual terms if the client changes their mind about the purchase. However, such potential return must remain a secondary (marginal) element of the relationship between the client and the recipient of the funds.
C. Funds taken from the public
The Act on Banks does not prohibit all taking of deposits; it only prohibits the taking of deposits from the public. The term “the public” is discussed in detail in the CNB Opinion Pojem ,,veřejnost‘‘ v předpisech na finančním trhu (The term “the public” in financial market regulations, in Czech only) of 23 April 2018 (hereinafter the “Opinion”).
In accordance with this Opinion, the rules for taking deposits (see item 1(b) of the Opinion) apply to the assessment of “the public” within the meaning of Article 2 of the Act on Banks, while the continuing issue of bonds is assessed in accordance with the rules for investing (see item 1(a) of the Opinion). See section D.1 for more information on aspects limiting offers of bonds to the public.
D. The continuing issue of bonds and other comparable securities
Pursuant to Article 2(2) of the Act on Banks, the continuing issue of bonds and other comparable securities[19] (collectively “bonds”) is also deemed to be the taking of deposits if
- it constitutes the sole, or one of the main, activities of the issuer,
- the issuer’s line of business is providing loans, or
- the issuer’s line of business is one or more of the activities listed in Article 1(3) of the Act on Banks (“other activities of the bank”).[20]
The aim of this provision is to prevent behaviour which de facto involves the pursuit of banking business without compliance with the strict conditions laid down in the legal regulations for such activity.[21] Such action is prohibited if all three conditions are met cumulatively, namely (i) the bonds are offered on a continuing basis; (ii) the offer is of a public nature (as ensues from Article 2(1) of the Act on Banks);[22] and (iii) any of the conditions set out in Article 2(2)(a)–(c) of the Act on Banks is met (these conditions are alternative).
D.1. The “continuing” issue of bonds to the public
The Act on Banks does not define or describe in detail “continuing” in relation to the issue of bonds (see Article 2(2) of the Act on Banks).[23] In line with CNB practice the continuing issue of bonds means activity of the issuer consisting in the distribution of bonds which is not isolated, random, one-off or exceptional. In other cases, however, continuing issue is probably always present and it is very difficult to restrict it by measures such as setting a minimum interval between individual issues or limiting issue periods. After all, even a single bond issue offered to the public over the long term might constitute the continuing issue of bonds.[24] Issues of similar parameters made by the same issuer, albeit with short breaks and at specific intervals can also be considered the continuing issue of bonds.
In line with CNB practice, the issue of bonds is not usually “continuing” in cases where the issue period of the bond issue is limited to three months and the other circumstances of the case always assessed as a whole, do not suggest the continuing issue of bonds within the meaning of Article 2(2) of the Act on Banks.[25]
However, even the continuing issue of bonds is not in contravention of Article 2 of the Act on Banks where the bonds are not offered and issued to the public. The main aspects which may rule out the element of offering to the public are the following:
- the bonds can only be subscribed by qualified investors on the private placement principle;
- the issuer allows or authorises no other person to offer the bonds to the public;
- the arranger of the bond issue undertakes to not offer the bonds to the public in a contract of mandate concluded with the arranger;
- a subscription agreement is concluded with the subscribers in which the subscribers state that they are qualified investors and undertake to not offer the bonds on publicly;
- there is no advertising or public meetings to offer the bonds and no clients other than qualified investors are contacted; where the issuer draws up a bond prospectus for the purposes of admission to trading on a regulated market, the relevant aforementioned measures – where their nature so allows – are stated in the prospectus as information on the offer conditions; the prospectus may also provide information that the bonds will not be offered to the public and may not be offered publicly based on the prospectus; and
- where the bonds are offered on the secondary market, a high nominal value per bond is set or rules restricting transferability are established.
Irrespective of the above, however, the determining factor is always the factual situation, that is, whether or not the issue of the bond results in the collection of funds from the public. A secondary offer is relevant if it is aimed at circumventing the prohibition on public offering in the primary subscription.
D.2. Additional conditions for taking deposits amid the continuing issue of bonds
a) The issuer’s main activity (Article 2(2)(c) of the Act on Banks)
The first of the alternative conditions set out in Article 2(2) of the Act on Banks stipulates that “the continuing issue of bonds and other comparable securities shall also be deemed the taking of deposits where…it constitutes the sole, or one of the main, activities of the issuer”. To sum up, issuing bonds as a way of financing a company’s business activities will not usually constitute the main, or one of the main, activities of the issuer within the meaning of Article 2(2)(a) of the Act on Banks. Cases qualifying as conduct pursuant to the above provision will thus be rare. With the exception of Ponzi schemes and other fraudulent schemes, the issuer will usually be carrying on another line of business that will be of greater importance to the issuer and which the issuer will use to finance issues of bonds. Issuing bonds will be a way of raising funds but not usually “one of the main activities”.
Also, where a business has long been funded through the continuing issue of bonds to the public in order to carry on non-financial (for example production) business activity, the conditions for unauthorised taking of deposits from the public within the meaning of Article 2(2)(a) of the Act on Banks will not be met.
It should be added that it is not a contravention of Article 2 of the Act on Banks if a non-financial parent company sets up a special purpose vehicle (SPV) in order to issue bonds which will be distributed to the public and their yield will be provided in the form of a loan, provided that the loan is provided solely to the non-financial parent company or other companies in the group and the loan recipient’s business activity is not a banking activity within the meaning of Article 2(2)(b) or (c) of the Act on Banks. The main activity of the issuer of bonds (SPV) will be the provision of funding within the group rather than the issuing of bonds. In these cases, the SPV is used as a technical intermediary of payments. To some extent analogously one can also refer to the Capital Market Undertakings Act under which an investment firm licence is not required where investment services are provided solely to members of the same business group.
b) The provision of loans (Article 2(2)(b) of the Act on Banks)
The second condition of the legal fiction of taking of deposits amid the continuing issue of bonds relates to the situation where “the issuer’s line of business is the provision of loans”. It affects cases where the continuing issue of bonds constitutes a source of funds for an issuer who simultaneously provides loans.
Pursuant to Article 1(2)(b), for the purposes of the Act on Banks, a loan means funds temporarily provided in any form.
Whether the statutory condition in Article 2(2)(b) of the Act on Banks is met is therefore unaffected even when the funds are provided under a different type of contract than a credit contract (Article 2395 at seq. of the Civil Code), for example a loan agreement (Article 2390 et seq. of the Civil Code).[26] Otherwise, it would be possible to easily circumvent the prohibition on taking deposits from the public without a banking licence by designating the relevant contract or choosing another legal institute, based on which the funds will temporarily be provided to third parties.[27]
Given the broad formulation of Article 1(2)(b) of the Act on Banks and the fact that it involves the transposition of EU law,[28] activity consisting in the acquisition of credit claims from another person can also be considered the provision of loans, as an exposure from financial activity with credit risk arises (or is assigned from the previous creditor) for the acquirer of the credit claim (the acquirer thus enters a position where he temporarily provides funds, that is, provides a loan within the meaning of the Act on Banks). In this respect the definition of loan in Article 1(2)(b) of the Act on Banks does not define the set of relevant counterparties. In conjunction with the phrase “funds in any form (provided)”, this does not exclude the possibility of a “loan” in the form of the acquisition of a credit claim consisting in funds being provided to one person (the assignee of the claim paying for example a bank for it) but later being obtained back from another person (originally for example a bank debtor repaying the funds to the acquirer of the claim on his loan, possibly also through the original lender namely the bank). We leave aside the requirement for authorisation in the management of claims arising from consumer credit within the meaning of the Consumer Credit Act.[29]
The acquisition of credit claims in the form of silent assignment of a claim (or in a similar manner) or through funded participation will therefore also be deemed the provision of loans.[30] Similarly, factoring and forfeiting will also be deemed lending in conformity with EU legislation.
In order for an activity to be assessed as the unauthorised taking of deposits from the public pursuant to Article 2(2)(b) of the Act on Banks, it is sufficient for the provision of loans to be the issuer’s line of business. This condition is met through the entry of this activity in the relevant register (typically a commercial or trade register). It is also met where the issuer de facto carries on this activity without due authorisation (unauthorised business).[31] In certain cases, it may be of relevance whether this is the main, predominant or marginal line of business (activity) of the issuer or a company from the issuer’s group and whether the primary aim of the issue is to finance the provision of loans or another banking activity (for example where the company issues bonds solely to finance its business activity consisting in the construction of property, while another company carrying on regulated banking activity is a member of its group).
However, the Act on Banks does not limit the actual provision of loans to the public or other persons. The provision and intermediation of loans is a normal activity for which a banking licence is not necessary and a trade licence is sufficient. The exception is the provision and intermediation of consumer credit, for which authorisation under the Consumer Credit Act is required.
c) Other banking activities (Article 2(2)(c) of the Act on Banks)
The third condition affects situations where “the issuer’s line of business is one or more of the activities listed in Article 1(3)” of the Act on Banks i.e. other banking activities. The same conclusions as in the previous section b) apply to this condition.
Given the diverse nature of the activities listed in this provision, this is a relatively wide condition which may be met even by an issuer that carries on such banking activity only marginally (but still as a business). As in the cases referred to in section b) above, the person meeting the condition must be treated on an individual basis, primarily with regard to the nature and scope of the other banking activities carried on by this person.
D.3. Concurrent activities in the group
With regard to the conclusions set out in section D.2, it should be noted that illegal banking usually occurs where a person providing loans in a business manner (the condition set out in Article 2(2)(b) of the Act on Banks)[32] or engaged in any other banking activity (the condition set out in Article 2(2)(c) of the Act on Banks) is funded by the continuing issue of bonds to the public by another company which belongs to the same holding company and does not hold a banking licence or is not subject to an exemption from the requirement to hold a licence pursuant to special legal rules (for example credit unions), whether
- directly (i.e. by receiving funds raised in the issue, for example through an intra-group loan) or
- indirectly (i.e. through a multi-level structure for transferring the funds raised in the issue within the holding company).
Typically, the condition that the line of business of the recipient of the funds in the group is not the provision of loans within the meaning of Article 2(2)(b) of the or the pursuit of another banking activity within the meaning of Article 2(2)(c) of the Act on Banks is not met. The requirement to hold a banking licence may be applied, as the funds from the issue will de facto be used by the recipient of the intra-group loan to provide loans within the meaning of Article 2(2)(b) of the Act on Banks (or to finance the pursuit of another banking activity within the meaning of Article 2(2)(c) of the Act on Banks), hence the determining criteria of the taking of deposits are met.[33]
This material approach assessed on the basis of the individual circumstances of each case prevents any abuse or circumvention of the law.[34] Lastly, we also point out that in extreme cases the reasons for the given material assessment of an illegal bank must also be examined in a situation where the company (issuer) and the borrowing company do not make up a holding company but another type of business grouping.[35]
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[1] SMUTNÝ, Aleš, PIHERA, Vlastimil, CUNÍK, Tomáš. § 2 [Přijímání vkladů bez licence]. Zákon o bankách. (Article 2 [Taking deposits without a licence]. Act on Banks). 2nd edition. Prague: C. H. Beck, 2019, p. 103.
[2] See, for example, item 15 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/109621/CNB/110 of 17 October 2019, File Ref. Sp/2018/264/573 (available here – in Czech only).
[3] See, for example, CNB Position No. RS2018-13 Je k obchodování s tzv. převodními tokeny nebo k jejich směně vyžadováno oprávnění ČNB? (Is CNB authorisation required to trade in or exchange payment tokens?) of 19 November 2018 (in Czech only).
[4] For example, item 11 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/109621/CNB/110 of 17 October 2019, File Ref. Sp/2018/264/573 (available here – in Czech only). “The term ‘deposit’ defined in Article 1(2)(a) of the Act on Banks has a broader meaning in terms of content than a deposit within the meaning of Article 2680 of Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter the “Civil Code”), to which the party to the proceeding is referring. It covers not only deposits provided on the basis of a contract for a one-off deposit, but any ‘entrusted funds representing an obligation to the depositor to repayment thereof’, irrespective of the type of contractual arrangement which contains this obligation or from which this obligation arises (typically account contracts, for example).”
[5] However, CRD does not contain definitions of “deposit” and “other repayable funds”.
[6] cf. SMUTNÝ, Aleš, PIHERA, Vlastimil, CUNÍK, Tomáš. § 1 [Vymezení pojmů]. Zákon o bankách (Article 1 [Definition of terms]. Act on Banks). 2nd edition. Prague: C. H. Beck, 2019, p. 36.
[7] For the purposes of deposit guarantee schemes within the meaning of DGSD, a deposit means credit balances on accounts or deposit books or proven by a deposit certificate, deposit slip or other comparable document other than a security at the decision of the issuer. Only entirely repayable instruments, not structured products, certificates or bonds, can be deemed deposits under DGSD.
[8] See item 12 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/109621/CNB/110 of 17 October 2019, File Ref. Sp/2018/264/573 (available here – in Czech only).
[9] See item 12 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/109621/CNB/110 of 17 October 2019, File Ref. Sp/2018/264/573 (available here – in Czech only).
[10] See also EBA Opinion of 18 September No. EBA/OP/2020/15: “…‘deposit’ is a sum of money, received from third parties – either legal or natural persons – in the course of carrying out the activity by way of business, repayable on demand or at a contractually agreed point in time (but otherwise repayment of the principal is unconditional), with or without interest or a premium.”
[11] See Article 2(1)(r) of the Capital Market Undertakings Act.
[12] More generally, an investment where the investor (depositor) does not have the right to repayment of 100% of the funds entrusted may also be referred to as a “structured deposit”. In such case, it would not be a deposit within the meaning of the Act on Banks.
[13] The taking of a single deposit therefore does not qualify as illegal banking within the meaning of Article 2(1) of the Act on Banks, i.e. the taking of deposits from the public, even though anyone who “takes a deposit” commits an administrative offence pursuant to Article 36c or 36a. This implies that the legislator deems each taking of a deposit in contravention of the law, i.e. the taking of deposits from the public, to be a partial attack of a continuing administrative offence (see e.g. item 89 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/070085/CNB/110 of 21 June 2019, File Ref. Sp/2017/436/573 (available here – in Czech only)).
[14] By deducting an amount from the deposit in the form of a fee (for example a withdrawal fee or an account maintenance fee), the rest of the entrusted funds do not lose the nature of a deposit (the fee is also taken as a deposit and only later used for the agreed purpose, namely, to cover the fee for banking services).
[15] In practice, however, these funds will also be taken by the bank as a deposit and subsequently used for the agreed purpose. See the definition of client assets in Article 2(1)(o) of the Capital Market Undertakings Act: “‘client assets’ [means] the funds and investment instruments belonging to a client, which an investment firm has under its control in order to provide investment services to the client; client assets do not include deposits pursuant to the statute regulating the activities of banks, which an investment firm that is a bank keeps accounting records of”. Cf. SMUTNÝ, Aleš, PIHERA, Vlastimil, CUNÍK, Tomáš. § 1 [Vymezení pojmů]. Zákon o bankách (Article 1 [Definition of terms]. Act on Banks). 2nd edition. Prague: C. H. Beck, 2019, p. 40.
[16] It is important to ensure (for example contractually) that investors’ funds in the form of “advance payments” are used solely for the actually declared purpose and not to finance the recipients’ own activities before a decision is made about the specific investment.
[17] Therefore, for example funds on various membership cards (such as gym membership cards) are not deposits.
[18] On the other hand, a product presentation emphasising that the entrusted funds need not be invested may be an indicator that an advance payment is not involved. Likewise, the fact that income on an “advance payment” is offered as a primary advantage, and the actual use of the advance payment for investment is entirely marginal, indicates that a deposit is involved.
[19] In accordance with the explanatory memorandum to Act No. 126/2002 Coll., “other securities” means securities which express a monetary debt of the issuer to their holders. They may include securities issued under foreign law.
[20] Article 2(2) of the Act on Banks was amended by Act No. 126/2002 Coll., which reflected the requirements of the then Article 3 in conjunction with recital 6 of Directive 2000/12/EC of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions, which included a requirement to prevent circumvention of the prohibition on the taking of deposits from the public through the issuing of bonds or other similar securities. In accordance with Directive 2000/12/EC, the continuing issue of bonds was defined as a form of taking deposits. Article 9(1) and recital 14 of the currently applicable CRD respects the wording of Article 3 of Directive 2000/12/EC relating to the taking of deposits from the public, which was transposed into Article 2(2) of the Act on Banks.
[21] However, entrusting funds within the meaning of Article 1(2)(a) of the Act on Banks should be distinguished from depositing securities into custody or as part of securities lending, as this would involve the provision of the investment service of holding securities in custody or the investment service of trading in investment instruments on own account within the meaning of the Capital Market Undertakings Act. See SMUTNÝ, Aleš, PIHERA, Vlastimil, CUNÍK, Tomáš. § 1 [Vymezení pojmů]. Zákon o bankách (Article 1 [Definition of terms]. Act on Banks). 2nd edition. Prague: C. H. Beck, 2019, p. 39.
[22] For the definition of the term “the public” see the CNB Opinion Pojem ,,veřejnost‘‘ v předpisech na finančním trhu (The term “the public” in financial market regulations, in Czech only).
[23] However, merely “offering” a bond without “issuing” (selling) it to a specific subscriber is not deemed activity within the meaning of Article 2(2) of the Act on Banks.
[24] See, for example, items 113 and 114 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/70085/CNB/110 of 21 June 2019, File Ref. Sp/2017/436/573 (available here – in Czech only). Moreover, the element of “continuing issue” will be clearer for a single, long-term issue than for a public offering of multiple issues. In this context, the concept of unifying elements of issues can be applied for a public offering of securities for the purposes of a prospectus. See, for example, item 47 et seq. of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2020/055953/CNB/110 of 30 April 2020, File Ref. Sp/2078/422/573 (available here – in Czech only), which was confirmed by the Municipal Court in Prague in Decision Ref. No. 14Af 25/2020 – 67 of 21 January 2021, in particular items 55 et seq. (available here – in Czech only).
[25] “Continuing issue” may be suggested, for example, by the fact that multiple similar bond issues were issued by the issuer on the same day, or bonds of identical or similar parameters are issued close in time and repeatedly in individual issues and the issue conditions of the individual issues are similar and differ only in some parameters, or the issuer is the same and the end of one issue and the start of a new one are close in time, or the issue periods of the issues overlap.
[26] In a loan agreement, the lender leaves a fungible thing (such as money) to the borrower to use it in any manner and return a thing of the same kind after a certain period of time. If the specific loan agreement concluded between the borrower and the individual lenders (the public) expressly contains an obligation of the lender to entrust or leave, the funds and also an obligation of the borrower to repay or return them, it involves a deposit pursuant to the Act on Banks.
[27] See, for example, item 146 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/70085/CNB/110 of 21 June 2019, File Ref. Sp/2017/436/573 (available here – in Czech only).
[28] Annex I(2) of CRD deems the following, among other things, to be the provision of loans: “lending including, inter alia: consumer credit, credit agreements relating to immovable property, factoring, with or without recourse, financing of commercial transactions (including forfeiting)”.
[29] See the CNB Opinion K postoupení pohledávky, postoupení smlouvy a uzavírání tzv. splátkových dohod podle zákona č. 257/2016 Sb., o spotřebitelském úvěru (Regarding the assignment of claims, the assignment of contracts and the conclusion of instalment agreements under Act No. 257/2016 Coll., on Consumer Credit) of 8 November 2016 (in Czech only).
[30] Funded participation is a form of financing through a contract which consists in the provision of funds equivalent to the nominal value of a loan or part thereof as of a specified date, where the bank undertakes to pay the paid principal and interest and, as the case may be, fees from the specified date in a ratio which corresponds to the ratio of the size of the funded participation to the total loan amount within a specified deadline after the bank receives this consideration to repay the loan.
[31] See item 105 of Appeal Decision of the Bank Board of the Czech National Bank Ref. No. 2019/070085/CNB/110 of 21 June 2019, File Ref. Sp/2017/436/573 (available here – in Czech only).
[32] It should be added in this context that the activity of a special purpose vehicle (SPV) issuing bonds on a continuing basis, consisting in the provision of funds from these issues by means of intra-group loans, or in a similar manner, to other companies in the holding company does not constitute activity qualifying as business lending within the meaning of Article 2(2)(b) of the Act on Banks. In this case, the funding of a business plan is provided through a common procedure within the group. The bond issuer (SPV) is a mere technical intermediary of payments in such cases, too.
[33] For the avoidance of doubt, however, we note that cases where profit made in subsidies of the group which do not carry on activities pursuant to Article2(2) of the Act on Banks and which were provided directly or indirectly with funds raised from the continuing issue of bonds to the public, is transferred in the form of a dividend of the parent company, which then uses such funds to increase the capital (or to make a contribution to other capital funds) of the subsidiary carrying on one of the activities referred to in Article 2(2) and (3) of the Act on Banks, do not constitute a contravention of the prohibition referred to in Article 2 of the Act on Banks.
[34] The validity of the principle of prohibiting the abuse or circumvention of the law has been repeatedly confirmed both by the Czech courts (see in particular ruling III. ÚS 374/06 of 31 October 2007– in Czech only) and the European Court of Justice (see, for instance, items 27 et seq. of the judgment of the European Court of Justice in case C-251/16 and paragraphs 38–48 of the judgment in case C-321/05) for various areas of law (including public law). It is based on the principle that a statute, which is general by nature, cannot include and foresee all conceivable eventualities, situations or circumstances which may arise in practice.
[35] See Article 71 et seq. of Act No. 90/2012 Coll., on Commercial Companies and Cooperatives, as amended.