The Supervision Service of the Bank of Lithuania
A new unit of the Bank of Lithuania, the Supervision Service, which started its operation in the beginning of 2012, supervises commercial banks and other credit and payment institutions, securities and insurance markets, and investigates disputes between consumers and financial institutions. Up till now, these functions were performed by the liquidated Securities Commission and Insurance Supervisory Commission, as well as the Credit Institutions Supervision Department of the Bank of Lithuania. The State Consumer Rights Protection Service and the Insurance Supervisory Commission were responsible for the investigation of the disputes between consumers and financial institutions.
The Board of the Bank of Lithuania authorized the Supervision Service to solve independently, according to its competence, certain financial institution supervision issues.
The Supervision Service of the Bank of Lithuania was authorized to apply enforcement measures provided by the laws, to issue instructions and obligations, to apply prohibitions and other measures to the supervised financial market participants, with the exception of banks, the Central Credit Union of Lithuania, insurance undertakings, branches of foreign banks and insurance undertakings established in the Republic of Lithuania.
The Supervision Service was also authorized to solve issues related to the issue of licences, permissions, consents, approvals, non-objections, suspension of their validity, cancellation of the suspension of their validity and their revocation (cancellation of validity), with the exception of some cases.
Even after the delegation of part of the functions to the Supervision Service, the Board of the Bank of Lithuania retained the right to solve any issue to be solved by structural units of the Bank of Lithuania.
The Bank of Lithuania performs an ongoing analysis of the financial situation in credit and payment institutions, assesses their performance, controls their compliance with prudential or other requirements, analyses the performance and trends of the system of credit and payment institutions, issues licences, permissions and consents to supervised institutions. It also investigates disputes among consumers and supervised institutions and provides recommendations on how, according to the Bank of Lithuania, a particular dispute between a consumer and a financial institution should be settled.
Supervision of Credit Institutions
The goal of the supervision of credit institutions is to monitor compliance of credit institutions with the standards of safe and sound banking set by the laws and legal acts of the Bank of Lithuania and recommended in the International Accounting Standards and decisions of the Basel Committee.
The Bank of Lithuania performs ongoing analysis of the financial situation of credit institutions, makes an assessment of their activities, controls their compliance with prudential requirements, analyses the performance and trends of the banking system. The Bank of Lithuania also periodically performs inspections and examinations of credit institutions. Inspections are usually performed when needed, including them in the Bank of Lithuania's approved annual inspection plan. When necessary, unplanned inspections may also be performed. During the inspections, main focus is on the areas of greatest risk in credit institution operations, the aim is to examine whether the credit institutions are in compliance with legal acts regulating their operation, requirements of documents of foundation and internal regulation, principles of safe and reliable operation. In case any drawbacks of the operation of credit institutions or non-compliance cases are discovered, the institution is asked to remove them or, if necessary, enforcement measures established by legal acts are applied.
The supervision of branches established by banks of EU Member States in Lithuania is performed by the supervisory authority of the state under whose jurisdiction the foreign bank falls.
Single Supervisory Mechanism
The Single Supervisory Mechanism (SSM) provides for a broader European Central Bank (ECB) mandate which will exercise supervision of the largest eurozone credit institutions closely cooperating with national regulators. According to the Chair of the Supervisory Board Ms Daniele Nouy, “the Single Supervisory Mechanism […] ensures that strong supervisory standards are applied in a homogenous way across the euro area." The participants in the SSM are all the countries that form part of the Eurosystem and all European Union countries which are not in the euro area, but which want to establish a close cooperation with the ECB and therefore accept this new supervision system.
The SSM is only one part of the planned European banking union. The purpose of the banking union is to strengthen financial stability and extend supervision of the banking sector. Three keystones for successful implementation are: 1) SSM; 2) single resolution mechanism for the troubled banks, to avoid as much as possible costly banking bail-outs for tax-payers in the future; 3) harmonised deposit guarantee scheme. For more detail information please visit the ECB website.
The ECB directly supervises institutions which are considered to be significant, while all other less-significant institutions will be directly supervised by national competent authorities (NCAs), and indirectly supervised by the ECB. See the List of significant and less-significant institutions.
Historically the Bank of Lithuania had an overall responsibility for the licensing and supervision of credit institutions operating in the Republic of Lithuania. From 1 January, 2015 a number of supervisory responsibilities and decision making powers moves to the ECB, however, the experts of the Bank of Lithuania will have to closely cooperate with the ECB, for the supervisory process to be smooth and well-tuned.
NCB experts will be part of Joint Supervisory Teams (JST) and will be core link between the Bank of Lithuania and the ECB for the prudential supervision of the local institutions. For significant institutions, consisting of the largest institutions operating within Lithuania, including SEB, Swedbank and DNB, a Joint Supervisory Team (JST), led by the ECB and consisting of both ECB and the Bank of Lithuania supervisors will directly supervise these institutions.
Supervision of Payment Institutions
A payment institution is an economic entity providing payment services, which is neither a credit institution nor an electronic money institution and may not accept deposits or other repayable funds from unprofessional market participants and issue electronic money. In addition to payment services, payment institutions have a right to provide additional services closely related with these services and they are also permitted to perform other activities not associated with payment services.
The Bank of Lithuania performs regular off-site inspections of payment services provided by payment institutions and additional services closely related thereto. If needed, it conducts on-site inspections and prepares legal acts regulating the requirements for payment institutions activities, risk management, internal control and other requirements.
The Bank of Lithuania provides methodological assistance to payment institutions in implementing the provisions of laws and legal acts adopted by the Board of the Bank of Lithuania that regulate the requirements for payment institutions activities, risk management, internal control and other requirements.
The goal of the supervision of electronic money institutions — monitor whether electronic money institutions and foreign electronic money institution branches operating in Lithuania, having a license issued by the Bank of Lithuania, are in compliance with the requirements provided in the laws and the Bank of Lithuania’s statutory requirements.
Electronic money institution — a public limited liability company or private limited liability company which has been issued a license with the right to issue electronic money.
Electronic money — when electronic money issuers receive funds from natural or legal persons, the monetary value of the currency issued into circulation, expressed as a requirement for its issuer, is held in electronic devices designed for payment transactions and is received by persons who are not issuers of that electronic money (e.g. product vendors and service providers).
The Bank of Lithuania performs on-going documentary supervision of electronic money institutions; if necessary, inspects, prepares legislation regulating electronic money institution requirements on their activities, risk management, internal control; analyses their financial condition and operations; monitors the prudential requirements for operational risk, analyses the electronic money institutions’ system performance data and trends, provides the supervised electronic money institutions a wide range of permits, permissions. In addition, the Bank of Lithuania examines disputes between consumers and electronic money institutions, settles disputes and provides recommendations on how, in the opinion of the Bank of Lithuania, a particular dispute between the consumer and electronic money institution should be resolved. The Bank of Lithuania provides methodological assistance to electronic money institutions when implementing provisions of laws and legal acts adopted in the Board of the Bank of Lithuania that regulate activities of electronic money institutions, risk management, internal control and other requirements.
Maintenance of a foreign electronic money institution’s branches, operating in Lithuania, is subject to the same requirements as electronic money institutions, taking into account the branch’s legal status and the activity characteristics, as well as the exceptions provided in the Republic of Lithuania’s Law on Electronic Money and Electronic Money Institutions.
The purpose of supervision of insurers and insurance intermediaries is to ensure reliability, efficiency, safety and stability of the insurance system and protection of the interests of the policyholders, insured, beneficiaries and injured third parties (thereinafter—users) Following the requirements of the European Union directives, international standards and insurance supervision best practice, the Bank of Lithuania conducts the supervision and legal regulation of insurance market participants.
The Bank of Lithuania controls compliance of insurers and insurance intermediaries with the requirements of the legal acts regulating their activities and with the licensing conditions. The supervision of insurers and insurance intermediaries is conducted by analysing the data of their financial and statistical reports and other information provided to the supervisory authority (by performing documentary supervision) and by conducting inspections of companies.
As a preliminary extrajudicial dispute resolution authority, the Bank of Lithuania investigates disputes between consumers and insurers. A consumer who considers that an insurer violated their contractual or related rights or legitimate interests and seeks to protect them may contact the Bank of Lithuania. Moreover, the Bank of Lithuania examines complaints concerning the activity of insurance market participants and provides methodological assistance to insurance market participants.
In order to be an active participant in the formation and implementation of the insurance and insurance supervision policy of the state and to provide information to the public on the changes in the insurance market, the Bank of Lithuania constantly analyses insurance market indicators and forecasts its development trends.
Supervision of Insurers
The Bank of Lithuania monitors the financial situation of insurance companies registered in the Republic of Lithuania, controls their compliance with the requirements of adequacy of technical provisions and their coverage by assets, solvency margin, guarantee fund, reinsurance, assesses efficiency of their internal control and risk management systems and the behaviour of insurance companies in the market with respect to users.
The financial supervision of branches of insurance companies of other European Union Member States established in Lithuania (thereinafter—branches) is conducted by the supervisory authorities of respective Member States where the companies (founders of branches) are registered. In order to have sufficient information on the financial situation of these companies, the Bank of Lithuania cooperates with their supervisory authorities. It also investigates the disputes of consumers with the branches and complaints concerning their activity and conducts the supervision of their behaviour in the market with respect of users.
Insurers must comply with the established requirements on the provision of information to the public. The insurance company’s or branch’s website must contain essential information about the company, financial statements, descriptions of insurance products, the procedures of compensation payment and complaints and disputes resolution, the lists of dependent insurance intermediaries.
Supervision of Insurance Intermediaries
Independent insurance intermediaries—insurance broker companies—represent the interests of consumers by acting as intermediaries during the acquisition of insurance protection. Insurance broker companies are licensed by the Bank of Lithuania and must comply with the requirements established for this activity (capital adequacy, professional indemnity insurance, separate bank account, information provision to consumers and establishment of their needs). The Bank of Lithuania also organises qualification examinations for insurance brokers—only persons who passed such examinations and became members of the Chamber of Insurance Brokers may engage in the activity of insurance brokers.
The activity of dependent insurance intermediaries—insurance agents—is not licensed; insurance companies represented by these intermediaries are directly responsible for their activity.
Participants of the financial instruments market are financial brokerage firms, financial advisor companies, management companies, investment companies, banks providing investment services, regulated markets and their members, the Central Securities Depository of Lithuania and account managers.
The main objective of the supervision of financial instruments market participants is to ensure an honest, effective and transparent operation of the domestic financial market, mitigate systemic risk of the market, encourage a sustainable development and ensure the provision of information to investors and their protection.
The Bank of Lithuania issues licences and permissions to securities market participants, suspends or revokes them, performs monitoring and control to ensure a stable operation of market participants, their reliable management and capability to fulfil their obligations.
In addition, the Bank of Lithuania performs the supervision of regulated market participants to ensure their observance of the fair trade rules and a timely provision to investors of all information that is required to be disclosed by the legal acts.
At the same time, it is sought to ensure that in providing investment services investors were served in an honest, fair and professional manner and were given all required information, allowing to make rational investment decisions.
In order to form as favourable conditions for the development of the capital market as possible, the Bank of Lithuania ensures the quality of regulation and legal clarity: it submits proposals on the formulation of the state economic policy, stimulating the development of the markets in financial instruments, disseminates information about operational principles of the markets in financial instruments and undertakes other measures to implement the Law on Markets in Financial Instruments and other legal acts related with the markets in financial instruments.