As Brexit uncertainty continues, Lithuania offers safe shelter for FinTechs

2019 04 09

The year 2017 was entered in the calendar of finance market as a year when FinTech era launched in Lithuania, a small Baltic country which was then barely visible to the European finance market players. Today Lithuania managed to become the most wanted hotspot for FinTech companies in Europe.

In the year 2018 and IQ of 2019, 23 electronic money institution licenses, 12 payment institution licenses and 3 specialized bank licenses were issued in Lithuania. In total the Bank of Lithuania has issued 51 payment institution (including 13 licenses for restricted activities) and 52 electronic money institution licenses (including 6 licenses for restricted activities). A number of other licensing applications are in the process of being assessed by the Bank of Lithuania.

Lithuania aims to continue attracting FinTech companies that seek to establish their FinTech hubs in Europe as well as for those that are scared of Brexit uncertainty and seek to ensure their access to the European market. If your company is one of them, please continue reading below and find out why Lithuania is the solution for you.

Friendly and supporting regulatory environment

During the past two years the Bank of Lithuania (supervisory authority of financial market participants) proved its strong commitment to contribute to the expansion of FinTech sector in Lithuania, creating a FinTech friendly and transparent regulatory environment that offers companies possibility to settle their financial business.

Efforts of the Bank of Lithuania turned into the following benefits:

  • Newcomer programme: prior to setting up a company or launching a financial product, investors can check whether their business plans are in line with the applicable regulatory requirements by applying to the Bank of Lithuania and consulting with it.
  • Fast licensing process: statutory term of 3 months is established for the assessment of license application and to issue electronic money or payment institution license (however, extensions are possible).
  • Direct access to SEPA: licensed entities are able to access SEPA directly via the infrastructure of the Bank of Lithuania.
  • IBAN issuance: subject to access to SEPA you will be able to issue IBANs to your clients.
  • Sandbox benefits: FinTech start-ups are able to test their business solutions in the real marketplace, with real customers, with oversight of the Bank of Lithuania and with no regulatory sanctions.

Licensing application

In order to obtain electronic money institution or payment institution license, a company needs to submit to the Bank of Lithuania an application for licensing appended with a package of documents, including:

  • Incorporation documents of the company subject to licensing. If the company is not incorporated at the moment of licensing, drafts of incorporation documents should be provided instead.
  • Information and documents of the company’s shareholders. Full disclosure up to natural persons directly or indirectly holding at least 10 per cent of shares, including information about companies controlled or managed by such persons.
  • Information and documents of the company’s managers. The following positions are considered as managing positions – CEO, Deputy CEO (if any), Board members, Supervisory Council members (if any). In addition, key function holders, such as compliance officer, money laundering reporting officer as well as information security officer, should be named in the application. At least some of the positions need to be filled by local experts.
  • Business plan covering description of competitive position of the company in the relevant market segment, description of marketing strategy, etc.
  • Financial forecasts for the first 3 years, including balance sheet, profit (loss) statement, budget estimations, capital sufficiency calculations.
  • Programme of operations covering detailed explanation and description about each electronic money related and payment service to be provided by the company.
  • Documents proving formation of the capital. Where the capital is already formed, documents demonstrating capital increases in the past would be required, with information proving source of funds used.
  • IT related risks assessments and risk management methodology. This requires involvement of IT team.
  • General Terms & Conditions adapted to the intended licensed activity of the company.
  • Agreements with partners participating in the provision of licensed activities.
  • Drafts of outsourcing agreements concluded by the company.
  • Outlines of structural organization, governance arrangements and internal control, measures taken to safeguard clients’ funds, IT systems and processes, accounting system, AML rules, etc.

The documents may be submitted to the Bank of Lithuania in Lithuanian or English languages. Official documents, such as identity documents or non-criminal records of managers and shareholders, must be fully certified by the notary public or other relevant authorities.

Capital

Electronic money institution must have share capital that cannot be less than EUR 350.000.

Payment institution’s share capital depends on the type of payment services to be provided and varies from EUR 20.000 up to EUR 125.000.

Depending on the scope of intended activities and expected spending during the first three years, the company seeking the license may be required by the regulator to place additional capital.

Services

Both electronic money institutions and payment institutions may offer the following PSD2 services, namely:

  • Services enabling cash to be placed on a payment account and all the operations required for operating a payment account;
  • Services enabling cash withdrawals from a payment account and all the operations required for operating a payment account;
  • Execution of payment transactions, including transfers of funds, execution of direct debits, execution of payment transaction trough a payment card, execution of credit transfer;
  • Execution of payment transfers where funds are covered by a credit line for a payment service user;
  • Issuing or payment instruments and/or acquiring of payment transactions.
  • Money remittance;
  • Payment initiation service;
  • Account information services;

In addition, electronic money institution may issue and redeem electronic money as well as open electronic money accounts (e-wallets).

Lithuanian foot print

No matter how cooperative and welcoming the Bank of Lithuania is for FinTech newcomers, the company applying for an electronic money institution or payment institution license is required to prove that its application has so called “local element” and demonstrate benefits to the Lithuanian market (be that innovative services, increased competition or local office and staff).

Timing

Preparation of electronic money institution and payment institution licensing application may take 1-3 months. The term may vary depending on the volume of licensing documentation, shareholders’ structure and scope of financial services to be provided.

Assessment of the application and issue of the license by the Bank of Lithuania will take another 3 months.  However, as the scrutiny level of the assessment of the license is high and depending on the scope of licensing documentation, extensions are possible.

One license for all EEA

Electronic money institution license or payment institution license is capable of being passported across the European Economic Area. This means that once the license is issued you will be able to apply to the Bank of Lithuania with a request to passport your license to other European Economic Area countries and after 3 months period you will be given a right to use your license throughout the European Economic Area.

Post-licensing obligations

As a licensed and regulated company, you will become subject to a number of regulatory and reporting requirements.

You will have to notify the Bank of Lithuania of any changes to licensing application, expected changes in the management and shareholders positions, changes of the business plan, if any, etc. In addition, you will be required to prepare and submit the Bank of Lithuania annual and quarterly financial statements and capital adequacy reports, report on clients’ funds protection, report on customer complaints, monitoring report and other regulatory reports required by the Bank of Lithuania.

As reports should be provided in Lithuanian, the local staff becomes essential in assisting you to comply with these post-licensing obligations.

WALLESS experience and engagement

During the last years WALLESS team assisted number of FinTech business to enter Lithuanian market and place their business here – to name just a few – WALLESS team has assisted Blender, Simplex, Revolut, Nayax, Transactive Systems and others.

WALLESS treats its clients’ matters as its own and is ready to support each client throughout the whole licensing process and the further lifecycle of the business after the license is issued.

For more information please contact:

Partner Joana Baublytė-Kulvietė

Mobile number:

+370 687 14642

Email:

joana.baublyte.kulviete@walless.com

Senior associate Simona Kišūnaitė

Mobile number:

+370 656 62027

Email:

 

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