On the matter of whether a registered branch of a foreign bank from the EU through which the latter does not carry on banking activities in the Czech Republic is considered to be a branch of a foreign bank under the Act on Banks

Pursuant to Articles 5a(1) and 5c(1) of Act No. 21/1992 Coll., on Banks, as amended (hereinafter the “Act on Banks”), foreign banks having their registered offices in EU Member States (hereinafter “foreign banks from the EU”) may, through their branches, carry on activities pursuant to Article 5d of the Act on Banks within the territory of the Czech Republic on the basis of the authorisation which was granted to them in the states in which they have their registered offices (“the single licence regime”). A branch is defined in Article 4(1)(17) of Regulation (EU) No. 575/2013 (hereinafter the “CRR”) as “a place of business which forms a legally dependent part of an institution and which carries out directly all or some of the transactions inherent in the business of institutions”. Pursuant to Article 4(1)(3) of the CRR, “institution” means, among other things, a credit institution, including a foreign bank from the EU.

In order for a foreign bank from the EU to carry on banking activities in the Czech Republic through a branch, the supervisory authority of the home state must be notified pursuant to Article 5f of the Act on Banks. This notification must include, inter alia, a programme of operations containing a list of expected banking activities which the branch may carry out pursuant to Article 5d of the Act on Banks.^[1]

In Article 503(2) of Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter the “Civil Code”), a registered branch is defined as a branch registered in the commercial register or another organisational component if a legal regulation provides that it is to be registered in the commercial register. Pursuant to Article 503(1) of the Civil Code, a branch is part of an enterprise which is economically and functionally independent and which has been decided to be a branch by the entrepreneur.

This implies that a registered branch of a foreign branch from the EU which does not carry on banking activities under the single licence regime in the Czech Republic cannot be regarded as a branch under the CRR, as the defining characteristic of carrying out directly all or some of the transactions inherent in the business of credit institutions is not met. The Act on Banks regime will not apply either, as, according to the transposition provisions of Articles 5a(1) and 5c(1) of the Act on Banks, authorisations and duties relating to the use of the single licence are applicable only in connection with the carrying on of the defined banking activities.^[2]

With regard to Article 5d of the Act on Banks, these banking activities do not include the activities of call centres, IT support or, for example, support activities relating to the activities of central counterparties.

As a registered branch of a foreign bank from the EU which does not carry on banking activities in the Czech Republic under the single licence regime cannot be regarded as a branch pursuant to Articles 5a(1) and 5c(1) of the Act on Banks, it is not subject to the duties relating to activities carried out through a branch, including the reporting duty pursuant to Article 41(1)(a) of Act No. 6/1993 Coll., on the Czech National Bank, as amended, in conjunction with Decree No. 346/2013 Coll., on reporting by banks and foreign bank branches to the Czech National Bank, as amended.

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[1] The notification requirement contained in Article 5f of the Act on Banks is consistent with Article 3 et seq. of Commission Delegated Regulation (EU) No. 1151/2014, under which the expected programme of operations shall comprise, among other things, “a list of the activities in Annex I to Directive 2013/36/EU that the credit institution intends to carry out in the host Member State”.

[2] The commenting literature concurs: “The single European passport regime applies only to the provision of ‘mutually recognised’ banking services through a branch or without establishing a branch. Therefore, if a bank establishes a branch in another Member State without using it to provide banking services in that Member State (for example, a branch intended to run the bank’s data centre), the establishment of this branch would not be subject to the single European passport regime.” SMUTNÝ, Aleš, PIHERA, Vlastimil, CUNÍK, Tomáš. Article 5a. Act on Banks. 2nd edition. Prague: C. H. Beck, 2019, p. 189.