When you say capital markets, most people think of the stock market, stocks, big money and maybe a little adrenaline. But few people know that doing business in this environment is not just about making good investments – it’s also about meeting a number of legal obligations. And this is where the Capital Market Enterprise Act comes in, which is the main legal guide for anyone who wants to be a professional in this field.
Simplifying, we can say that the capital market is where those who have money meet those who need money – typically companies or countries. A capital market is a kind of marketplace of finance where long-term financial instruments such as stocks, bonds or shares are traded. While the money market tends to focus on short-term loans and bills, the capital market goes further and higher – typically to investments with a longer horizon and a higher level of risk.
How it works in practice:
An example company wants to expand its production but does not have enough money of its own. So it decides to issue bonds, which investors buy – giving the company the capital it needs. In a few years, they will get their money back with interest. Win-win. That is, if everything goes according to plan.
But what if the company goes bankrupt, or the bonds don’t achieve the required return? This is also a risk that is present in the capital market. And that’s why the regulation provided by the Capital Market Enterprise Act is so important – it helps protect investors and ensures that everything is fair.
If you plan to start trading on the capital market, you probably can’t do without a lawyer. Our law firm can provide you with one. At the same time, we will be happy to assist you as a business lawyer, whether you need to prepare a memorandum of association or draw up an employment agreement.
Of course, it should be stressed that not everyone who has installed a stock trading app on their phone is automatically a capital market trader. If you want to provide investment services to other people or companies and therefore be something like a professional stock trader, then you are entering a regulated market where strict rules apply.
Thus, in addition to securities dealers, the entities that can do business on the capital market include investment companies and funds, collective investment managers and stock exchanges and central securities depositories.
Now for the main thing: All of the above-mentioned need a licence from the Czech National Bank to trade on the capital market, because without it their activities would be illegal. As a regulator, the Czech National Bank oversees the proper functioning of the capital market and ensures that there is no fraud or misuse of public information.
So if you decide to do business on the capital market, you will have to prepare yourself for the complicated process that leads to obtaining this authorisation. The Czech National Bank will not only check your financial stability, but also all your internal processes, qualifications and experience. And this can take months.
Act No. 256/2004, the Capital Market Business Act, is the main legal framework that regulates what can and cannot take place on the capital market and under what conditions. It is a very comprehensive document, but you can find a lot of practical information in it.
The law and capital market business cover several important areas that you should focus on if you are planning to start a capital market business. Among the most important are:
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Capital market business is not just about profit. It’s all about the responsibility you will shoulder. And the Capital Market Enterprise Act lays down a number of rules that every entrepreneur must follow in this area.
Here’s an overview of the main ones:
1. Obtaining permission from the Czech National Bank
You literally cannot lift a finger without a licence. An application for entry into the capital market must include a detailed description of activities, internal rules, staffing and other information. The Czech National Bank then thoroughly checks everything to ensure that the entrepreneur will not act unlawfully on the market. A company wishing to offer investment services must demonstrate not only its financial soundness but also that its staff is sufficiently qualified and experienced. And perhaps more importantly, it must have internal processes in place to ensure that its business activities do not lead to collusion.
2. Rules of professional care
You must act honestly, professionally and in the best interests of the client. In other words, you can’t get away with any “schmear”. No investment adviser may recommend a risky investment to a client unless it is in the client’s best interest or appropriate to the client’s financial capacity.
3. Duty to provide information
A client must always know what he or she is investing in, at what risk and for what fees. If you deceive him or withhold important information from him, the law won’t fight it. The more information you provide, the better your reputation will be.
4. Internal control system
Every entity must have processes in place to prevent conflicts of interest, misuse of information or management failures. Regular audits, control mechanisms, staff training – all part of everyday practice.
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If you fail to comply with any regulation that the Capital Market Business Act specifies, then prepare for trouble. The Czech National Bank has the power to fine you up to hundreds of millions of crowns, suspend your activities or revoke your licence outright. In addition, you could face criminal consequences if you commit fraud or other crimes. For example, a few years ago the Czech National Bank fined a securities trader CZK 5 million for failing to adequately highlight the risks associated with this type of investment. That already hurts.
It may sound complicated, but it really is. That’s why we recommend you get a lawyer who specialises in the capital market to help you with everything. Whether it’s navigating the law and regulations, preparing an application and license for the Czech National Bank, or setting up internal processes to comply with the law. If you are serious about your capital market activities, get advice from lawyers.
Doing business on the capital market brings not only opportunities but also high demands for compliance with the law. Anyone who wants to provide investment services professionally must obtain a licence from the Czech National Bank, prove their professional competence and financial stability, and set up internal processes to protect investors and prevent fraud. The Capital Market Business Act sets out clear rules for fair play – from information obligations to the duty of professional care to CNB supervision. And if you break them? You risk hefty fines, loss of licence and criminal liability. That’s why: before you take the plunge, you’d better consult the experts.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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