WALLESS team assists 4 out of 5 applicants for bank licenses assessed by the Bank of Lithuania and the European Central Bank

After our clients Mano Bankas and Revolut obtained the first specialized bank licenses at the end of 2018, the opportunity of a banking license in Lithuania continues to attract increased attention of new market entrants, including credit unions, consumer credit and payment services providers as well as other fintech players. 

WALLESS team assists 4 out of 5 applicants for bank licenses that are currently being assessed by the Bank of Lithuania and the European Central Bank (including one application for a full service bank license).

About a specialized bank

As of 1 January 2017, a concept of a specialized bank has been introduced into the Lithuanian legal framework. Specialized banks are subject to the same legal requirements and have the same license passporting possibilities as other commercial banks, except that:

1. initial capital of the specialized bank must comprise one or more of the items referred to in Article 26(1)(a) to (e) of Regulation (EU) No 575/2013, and be at least EUR 1 million (while the general requirement is for the initial capital to be not less than EUR 5 million);
2. in contrast to the full service banks, the specialized banks cannot provide investment services or manage investment funds, closed-end investment companies, pension funds or engage in the activities of a similar nature.

Specialized banks operate as licensed and supervised credit institutions and are entitled to offer such financial services as, including, but not limited to, (i) taking deposits and other repayable funds; (ii) lending (including credit agreements relating to immovable property); (iii) financial leasing; (iv) payment services; (v) creditworthiness assessment services; (vi) currency exchange (in cash); (vii) issuing of e-money.

Specialised bank license is capable of being passported across the European Economic Area.

In order to avail of the benefits of having a banking license, the specialized bank has to comply with all regulatory requirements applicable to banks in Lithuania. This means that a specialized bank will have to, amongst others, undergo licensing procedures (including assessment of the bank’s shareholders and management), have appropriate internal organization, processes, risk management and internal control procedures to ensure bank’s sound and prudent activities, comply with regulatory reporting and capital adequacy requirements, procure internal and external audit.

Licensing process

In order to obtain a specialized bank license, a company would need to submit to the Bank of Lithuania an application for licensing appended with a package of documents to be assessed by the Bank of Lithuania and the European Central Bank (ECB), including the following:

1. amended Articles of Association of the bank;
2. information and documents of the bank’s shareholders (full disclosure up to natural persons directly or indirectly holding at least 10 per cent of the bank’s shares, including information about companies controlled or managed by such persons);
3. information and documents of the bank’s managers;
4. bank’s business plan for the following three years, including financial forecasts and budget estimations as well as ICAAP and ILAAP documents;
5. documents proving formation of capital (where the capital is already formed, documents demonstrating capital increases in the past would be required, with information proving legitimacy of funds used);
6. description of the bank’s organisational structure, premises, IT systems and processes, accounting system and accounting policy;
7. a number of internal rules and procedures regulating bank’s internal processes (risk management, internal control, internal audit, AML prevention, compliance, hiring, outsourcing, managing conflicts of interests etc.) and provision of services (rules for accepting deposits, crediting policy and procedures and creditworthiness assessment rules, rules for providing payment services and issuing of e-money, complaint handling etc.).

The documents may be submitted to the Bank of Lithuania in Lithuanian or English languages. Where the documents are prepared in Lithuanian, there is no requirement for the applicant to translate them into English, however, doing this would significantly save time as, having received the documents in Lithuanian, the Bank of Lithuania would need to itself procure the translations of the documents submitted, as they need to be presented to the ECB (in English).

Timing

The licensing application is to be submitted to the Bank of Lithuania, however, the decision to issue a license is granted by the ECB. Under the law, the license is to be granted within 6 months after submission of all required documents, however, extensions are possible. In any case the maximum term during which the regulator shall adopt its final decision is limited to 12 months.

Costs

Issuing of a license is subject to payment of a licensing fee of EUR 4,157. 

Other costs involved in the licensing process would be fees of the legal advisors and other consultants assisting with preparation of the licensing documents, also notarisation and translation fees.

Once the bank starts its operation, the bank shall be subject to the following regulatory fees: 

1. supervision fee. The size of this fee is approved by the Bank of Lithuania each year for the subsequent year and the maximum fee for the credit institutions is set at 0.017 per cent from the average annual assets. For 2019 the fee is set at 0.0153 per cent;
2. deposit insurance contribution. The bank will be obliged to pay to the deposit insurance fund periodic (ex ante) and special (ex post) deposit insurance contributions, which are calculated on the basis of the amount of insured deposits held by the depositors with the bank. Particular amount of the contribution is calculated by the deposit insurance fund manager based on several factors, including risk level of the relevant bank. The maximum annual amount of contributions paid by the deposit insurance scheme participants is currently set at 0.5 per cent from the total amount of insured deposits held with the deposit insurance scheme participants. Once the bank starts operation, an advance payment of 2 000 EUR will have to be paid, which shall later be off-set with the periodic contributions. The latter are payable once per month;
3. contributions to the Resolution Fund, which shall be calculated and paid in accordance with the Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014. Maximum contributions of the banks for administration of this fund, to be paid to the Bank of Lithuania as local resolution authority, are set at 0.0043 per cent from the average annual assets of the bank.

Payment services

In order for the bank to offer payment services, including issuing and acceptance of payment cards, the bank needs to access the relevant payment systems (such as TARGET-2 and SEPA), enter into agreements with payment cards organisations (VISA, MasterCard or other), which is a separate line of work and can be performed in parallel with the licensing process.

To learn more please contact our partner Joana Baublytė-Kulvietė 

Mobile number:

+370 687 14642 

Email:

joana.baublyte.kulviete@walless.com