European banking heaven – Lithuania boosts efforts to improve licensing regulations for international finance institutions

Lithuanian authorities making further steps to turn Lithuania into one of the most attractive jurisdictions for banks and finance institutions in the European Union and European Economic Area (EU/EE). The largest Lithuanian business daily “Verslo žinios” investigated recent efforts of Lithuanian authorities on July 27, 2017.

Lithuanian licensed Banks are allowed to offer all banking services in single EU/EEA financial market of 30 countries for 500 million wealthy consumers and 20 million businesses, including such big national markets as France and Germany.

Meanwhile, UK based financial institutions are suffering from Brexit and probably will lose their license passporting rights into continental Europe, Lithuania offers new pan-European banking license just within 6 months licensing period. Having minimum equity capital of EUR 1 Million and licensing time of 6 months Lithuanian “light” banking license of a Specialised Bank has no equivalents within the rest of European jurisdictions.

“Verslo žinios” reports in the article that there are already boost in this area – only in the first half of the year 2017, 13 operating licenses were granted mainly to foreign financial technology companies, i.e. more than over the last year in total.
Big number of new companies are already in the licensing process or waiting for a licence to be issued. In addition, laws are being passed one after the other, which facilitate the conditions for new banks and finance institutions to come to the country. The Ministry of Finance with the Bank of Lithuania (Regulator) have united their efforts in this area.

“Verslo žinios” reports in the article that there are already boost in this area – only in the first half of the year 2017, 13 operating licenses were granted mainly to foreign financial technology companies, i.e. more than over the last year in total.

First of all, according to “Verslo žinios”, since the beginning of this year there has been created an opportunity in Lithuania, to set up Specialised Bank – a unique credit institution with a merely EUR 1 Million equity capital. Secondly, since July 1, 2017 only about 0.1% of the total amount of deposits is enough to cover the banks’ deposit insurance, and up to now the 0.3% rate was valid. Finally, the Bank of Lithuania initiated the procedure to reduce the license fee for banks from EUR 50,000 to 5,000.

“The idea of a Specialised Bank was proposed by the Bank of Lithuania and the relevant laws were drafted, and its purpose was to increase competition in the area of minimum financial services. Recently, we have a strong interest from potential market participants from abroad. In particular, a Specialised Bank license is of interest to foreign investors from Israel, Germany, China, Singapore, the United States, the United Kingdom, Estonia, Latvia, Poland, Sweden and other countries”, – told M. Jurgilas, member of the Board of the Bank of Lithuania, to “Verslo žinios”.

Lithuanian licensed Specialised Bank provides significant competitive advantage and opens up European financial market at significantly lower incorporation and operational costs.

Specialised Bank allowed provide all traditional banking services in all (EU/EEA) member-states such as:

• Lending;
• Payment services;Receipt of deposits;
• Currency exchange;
• Issuing of e-money;
• Issuing guarantees;
• Fund administration;
• Financial leasing;
• Financial intermediation;
• Creditworthiness assessment services;
• Safe-deposit box rental.

The bank is restricted only in investment and pension fund management as well as other investment management or public issue of securities related services. This restriction easily dissolved by incorporating parallel Brokerage and Investment Management Company or getting full banking license with EUR 5 Million equity capital.

The Vice-Minister of Finance of Lithuania says for the daily “Verslo žinios” that a larger number of market participants with more diverse business models means better, more innovative and more convenient products that are offered to consumers and businesses now. Marius Jurgilas added that as newcomers offer more efficient and cheaper services, old marketers are forced to stumble too.

The Vice-Minister of Finance of Lithuania says for the daily “Verslo žinios” that a larger number of market participants with more diverse business models means better, more innovative and more convenient products that are offered to consumers and businesses now.

Lithuania and primarily its capital Vilnius already became a new hub for European banking service centers. Favorable regulatory and tax environment, excellent infrastructure, the fastest internet, cheap office space and quality pool of relatively cheap employees make Vilnius attractive for large international banking and finance institutions. UK giant Barclays Bank operates Barclays Technologies Centre Lithuania in Vilnius from 2009, offering services to Barclay’s businesses across the world. Scandinavian rivals SEB, Swedbank, Danske Bank as well as finance industry leader Western Union, world’s biggest stock exchange operator NASDAQ have service centers in Vilnius too. NASDAQ also operates Vilnius Stock Exchange and Securities Depository in Lithuania and other Baltic states.

“Verslo žinios” sees 3 most important factors recently attracting foreign finance institutions to set up in Lithuania:

• Since the beginning of this year an opportunity to set up Specialised Bank – a credit institution with a EUR 1 Million equity capital created.
• Since July 1, 2017 only 0.1% of the total amount of deposits is enough to cover the banks’ deposit insurance. Deposit insurance fee reduced from the previous 0.3% rate.
• The license fee for bank license will be reduced soon from EUR 50,000 to EUR 5,000.

Attorney at law at Vilnius based international law firm ECOVIS ProventusLaw specializing in finance institutions licensing Ms. Inga Karulaitytė-Kvainauskienė also pays attention to the following advantages:

• Fast licensing process. Issue of the license within period of 6 months.
• The documents can be submitted in English and amended “on the go” instead of formal writing forth and back.
• Direct access to all EU/EEA financial markets and Single Euro Payments Area (SEPA). Bank of Lithuania offers to join SEPA MMS Regulator managed system to all Lithuanian licensed payment service providers.
• Client banking deposits up to the amount of EUR 100 000 ensured according to EU regulations in the state deposit and investment insurance agency at the low 0,1% insurance rate.
• Remote client verification allowed. Innovative “know your customer” processes for remote client verification allows open the accounts without physical presence of the client.
• No sanctions for the first year. The Bank of Lithuania (Regulator) is committed to support newly licensed companies and not to punish them during the first year of operation for minor infringements.
• Startup visa. Special visas for the citizens of non-EU/EEA countries running innovative finance businesses in Lithuania.

A flexible regulator, the attractiveness of the Lithuanian legal and technological environment is favourable for the new financial market participants that are planning to provide their services in Europe. “Favourable attitude towards innovation, business minded and advanced regulator – that is what market participants and investors are looking for and already find here in Lithuania”, – says Inga Karulaitytė-Kvainauskienė, attorney at law of ECOVIS ProventusLaw.

• Original article published in Lithuanian at “Verslo žinios” at www.vz.lt
• More about finance institution licensing in Lithuania – http://ecovis.lt/fintech
• ECOVIS ProventusLaw proposal for Specialised bank license