We currently supervise over 470 financial market participants – banks, credit unions, insurance undertakings, payment institutions, management companies, consumer credit providers, issuers, etc. In supervising the financial market, we use risk-based supervision, meaning that we allocate our resources towards systemically most significant financial market participants or financial services and products posing the highest risk for consumers. We supervise the financial market by following the financial market supervision policy.
In supervising the financial market, we aim to ensure that
- it operates reliably and effectively, develops sustainably, whereas market participants act responsibly
- consumers make rational financial decisions and their rights are protected
We implement this objective through micro-prudential supervision and financial services and markets supervision.
Prudential supervision is focused on operations of financial market participants. We aim to ensure that financial market players operate in a safe and sound manner, are sufficiently and adequately capitalised, liquid, have a well-functioning governance system, and effectively manage the risks assumed, thus contributing to the stability and credibility of the overall financial system.
Financial services and markets supervision
Financial services and markets supervision is centred on consumers and the relationship between consumers and financial service providers. We seek to ensure that financial services are provided in a proper manner, without prejudice to the interest of financial service consumers, and that financial market participants provide fair and adequate information on financial products and services to the consumers. In supervising the financial services and markets, providing proposals on how to better regulate this area, and making information on financial services and markets public, we work towards ensuring that individuals take rational financial decisions and their rights are protected.
How do we supervise the financial market?
We grant authorisations and issue licences to financial market participants. By authorising, we aim to ensure that the participants entering the market are reliable, transparent and financially viable, while their management is competent and of good repute.
Off-site supervision. Under current domestic legislation, market participants are obligated to periodically present financial data and other operational information to the Bank of Lithuania. We evaluate and analyse this data, seeking to assess and prevent potential risks in the early stages.
Inspections: On-site visits and investigations. We periodically carry out inspections of financial market participants (on-site visits and investigations). An on-site inspection plan is prepared annually, however, it can be adjusted taking into account the risk assessment.
Single Supervisory Mechanism. After becoming a member of the euro area, on 1 January 2015 Lithuania also joined the banking union’s Single Supervisory Mechanism. The European Central Bank, in cooperation with Bank of Lithuania experts, supervises the major banks registered in Lithuania.
We ensure that financial market participants provide services honestly, fairly and professionally, as well as solve disputes between consumers and financial service providers. Having received a consumer complaint, we may proceed with an inspection of a financial market participant – an investigation or an on-site visit.
In order to ensure the quality and legal clarity of regulation, we draft various legal acts and regulations for market participants. We also submit proposals on the legislative process or amendments to the laws to other state authorities.
What is risk-based supervision?
We use risk-based supervision to supervise the financial market. The main precondition for this approach is that not all financial market participants or services provided by them pose equal threats to the stability of the financial system and consumers. Hence, we, as a supervisory institution, firstly allocate our resources towards systemically more significant financial market participants or financial services and products posing the highest risk for the stability of the financial system and consumers. In this case, risk related to less important financial market participants or low-risk services is more tolerated.
The risk-based approach to supervision is based on the risk assessment system.
The risk assessment system helps to identify and assess:
- current and future risks, to which a financial market participant is or might be exposed;
- abilities of a financial market participant to identify the risk as well as assess, monitor and manage it;
- the risk, to which a financial market participant is or might be exposed due to fraudulent, negligent or unauthorised actions of financial market participants.
Financial market participants under our supervision are assigned to one of four categories in descending order of supervision priority, i.e. the highest-priority financial market participants are assigned to the first category, the lowest-priority – to the fourth category.
A financial market participant is assigned to a category taking into account its size, systemic importance, uniqueness and other quantitative and qualitative indicators; all these indicators serve as a basis for the econometric model. Based on this model, an importance rank of financial market participants is established and a category is assigned. With regard to this, the Supervision Service of the Bank of Lithuania draws a priority and risk map, which is updated on a regular basis.