Authorisation Financial Advisor Companies
Authorisation of Financial Advisor Company
The aim of this Guide is to introduce persons concerned to the authorisation process for financial advisor companies conducted by the Bank of Lithuania, requirements for financial advisor companies being established (legal persons not yet established) or being authorised (already established legal persons), set out the approach of the Bank of Lithuania to new market participants, set out a list of the documents to be submitted with an application for authorisation, and to identify other major aspects of authorisation.
Licence of a financial advisor company
Article 4 of the Law on Markets in Financial Instruments of the Republic of Lithuania lays down that a financial advisor company shall have the right to provide in the Republic of Lithuania the investment services provided for in Article 3(13)(1)–(5) of this Law regarding transferable securities and securities of collective investment undertakings, provided the company does not store funds and financial instruments of clients and cannot become a debtor of the clients due to this, and may transmit orders of clients only to:
- financial brokerage companies licensed in a Member State;
- credit institutions authorised in a Member State;
- branches of financial brokerage firms and credit institutions established in third countries, which are subject to the requirements not less stringent than set forth in legal acts of the European Union;
- collective investment undertakings which, in compliance with the legal acts of the Member State of their registered office, have the right to distribute to the public securities of a collective investment undertaking, also managers thereof;
- investment companies with fixed capital as defined in Article 15(4) of Council Directive 77/91/EEC, the securities of which are admitted to trading on a regulated market.
Capital and civil liability insurance of a financial advisor company
A financial advisor company is not subject to capital requirements and other prudential requirements established in Articles 12 and 15 of the Law; however, it must insure its professional civil liability. The amount of insurance must be no less than EUR 296,000 per one insured event and EUR 145,000 for all insured events over a year. A financial advisor company must possess insurance coverage for the entire period of its activities.
The approach of the Bank of Lithuania to the authorisation process for financial advisor companies, as well as for other institutions, is, as far as possible, an open one and normally begins well before an application for an authorisation is submitted to it. We encourage all applicants who actively seek a licence of a financial adviror company to contact us as early as possible in their planning process so that we can discuss it together and help assess their proposed operating plans. This allows us to be clearer in explaining the authorisation process and its meaning, our requests, requirements, expectations and all other major aspects that may affect the authorisation process.
The following basic stages in the authorisation process can be singled out:
- the pre-application stage: introducing the representatives of a prospective financial advisor company to the regulation applied in Lithuania, pre-application meetings and discussions with specialists of the Bank of Lithuania, a concise discussion of the list of submitted documents and their contents;
- submission of an application to the Supervision Service of the Bank of Lithuania (hereinafter ‘Supervision Service’): the Supervision Service, within 5 business days, reviews whether all necessary documents have been submitted and, where no formal deficiencies are identified, accepts the application for consideration;
- assessment of an application to issue a licence of a financial advisory company and attached documents;
- issuance of a licence or refusal to issue a licence: after finishing assessment of submitted documents, the Board of the Bank of Lithuania analyses summary information submitted by the Supervision Service and takes a decision regarding the issuance of a licence or refusal to issue it.
The supervisory authority notifies an applicant of the decision regarding the issuance of a licence no later than within 6 months of submission of all required documents and information. Upon request by the Bank of Lithuania of additional data or explanations, the term is calculated from the submission of the latest documents or data.
The Bank of Lithuania, knowing that the legal acts regulating the authorisation process may not always be clear for both newcomers to the financial sector and experienced specialists, encourages applicants for a licence of a financial advisor company to contact the Bank of Lithuania at an early stage. The Bank will provide more detailed information about the authorisation process and the requirements for prospective (existing) financial advisor companies.
The representatives of firms who participated in pre-application meetings with representatives of the Bank of Lithuania more than once emphasised the benefits of such meetings, as they not only helped get the answers to the questions that arose, but also enter into a direct contact with the specialists of the Bank of Lithuania. The number of pre-application meetings is subject to the applicant’s experience and knowledge; however, usually a minimum of one pre-application meeting is organised to get acquainted and to answer all questions that arose in the pre-application stage, to find out what licence needs to be issued or what licence is fit. The attendees to such meetings typically include at least two specialists from the Supervision Service or another structural unit (who typically answer the questions about the authorisation process); however, any other, e.g. technical specialists may be required to attend as well.
During the pre-application meeting, the Bank of Lithuania aims at discussing the following:
- Who the applicant is and what kind of entity it will be?
- Who are (will be) the shareholders, holders of voting rights and investors of the prospective financial advisor company and what is their country of origin?
- How advanced or developed is the applicant’s proposition? In some cases it may be too early to have a meeting.
- Is the applicant part of a larger group?
- Who will be responsible for running the business?
- Summary of the applicant’s operating plan.
- Details of the products/services, target markets, delivery channels, pricing policy, and the corresponding regulated activities that will be applied for.
- Funding sources of a financial advisor company;
- Anticipated staffing levels.
- Key outsourcing arrangements.
It is our view that the process works well if the above information is provided to us in the form of a presentation ahead of the first meeting. We therefore urge prospective applicants to answer all the above questions before the anticipated meeting, i.e. to check whether all necessary information has been collected to be able to talk in detail in this regard and also to be prepared to be challenged on any aspects of their plans.
Financial advisor company licence fee
Prior to applying for a licence of a financial advisor company it is necessary to pay into the account of the State Tax Inspectorate (STI) a state levy for the granting of the licence, which currently is EUR 574 (the sizes of levies are established by Resolution No 1458 of the Government of the Republic of Lithuania of 15 December 20001).
The procedure for the generation in the online banking system of banking orders to the income collection accounts of the STI and the numbers of the income collection accounts are available on the STI website.
1 – Available only in Lithuanian.
Key requirements for a financial advisor company being established or authorised
Taking into account that, at the time of authorisation, the financial advisor company being established or authorised must be prepared to comply with all requirements set for it, as a financial advisor company in operation, the Bank of Lithuania requests that detailed data is submitted already at the time of application. Nevertheless, when assessing the critical aspects that may determine authorisation, the following basic elements can be singled out:
- fitness of submitted documents: the documents submitted must comply with the requirements of the legal acts regulating financial advisor company activities and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- fitness and propriety of the financial advisor company and its shareholders (holders of voting rights): entities with a qualifying holding in the financial advisor company’s authorised capital and/or voting rights must be able to ensure sound and prudent management of the financial advisor company, have good repute and be financially sound;
- fitness and propriety of heads of a financial advisor company: the heads of a financial advisor company must be of good repute and possess the qualification and experience necessary to properly perform their duties.
- The planned business plan must correspond to the possibilities of the financial advisor company’s founders (shareholders and/or holders of voting rights) to implement it, while the prospective financial advisor company must, at the time of authorisation, be prepared to provide financial services in a safe and sound manner.
Assessment of submitted documents
Prior to submission of documents to the Supervision Service, we recommend that you should perform a self-control test, which will help determine whether all necessary documents have been prepared.
The process usually involves verification and assessment by a number of specialists from the Supervision Service and other structural units of the Bank of Lithuania. They present a common opinion and conclusions regarding authorisation. During the assessment period, the following processes are also carried out:
- regular communication and meetings with representatives of the applicant firm (when required);
- The Supervision Service provides comments to the company, while it must eliminate identified deficiencies according to them.
The duration and level of scrutiny of documents is subject to the amount of activities the applicant plans to undertake, specified in the operating plan. Where the application for a licence of a financial advisor company is requested not for all services that can be provided under the licence of a financial advisor company, the scope of provided documents should be smaller; hence, the assessment could be faster.
All applicants for a licence of a financial advisor company have direct access to Bank of Lithuania specialists, who are experts in assessing submitted documents. We are on hand to take applicants through the authorisation process, inform about the progress of the process, and aim to ensure a cooperation-based relationship between the Bank of Lithuania and financial market participants during both the authorisation process and after it.
Documents and information to be submitted to the Bank of Lithuania in order to be granted a licence of a financial advisor company
An application to the Bank of Lithuania for a licence of a financial advisor company must be accompanied by the following:
- a business plan, prepared according to the requirements of the Regulations;
- documents and data on a legal person:
1) statement of the Register of Legal Persons;
2) the latest version of registered articles of association;
3) registered office of the permanent management body;
4) financial statements for the last financial year;
5) independent auditor’s report (where financial statements must be audited);
- data on participants;
- data on heads is provided in the Application Form of the Head of a Financial Market Participant Supervised by the Bank of Lithuania and of a Key Function Holder (Annex to the guidelines on the assessment of members of the management body and key function holders of the financial market participants supervised by the Bank of Lithuania, approved by Resolution No 03-181 of the Board of the Bank of Lithuania of 14 November 2013 on approval of the Guidelines on the Assessment of Members of the Management Body and Key Function Holders of the Financial Market Participants Supervised by the Bank of Lithuania), filled in by a nominee for a head;
- data about close links with other natural or legal persons of the Republic of Lithuania (a description must be attached and the nature of these links must be indicated (capital, management, etc.);
- data about close links with third party natural or legal persons (a description is to be attached and the country with whose natural or legal persons there is a close link, the nature of the link between the management company and these persons (capital, management, etc.) must be indicated; it is also required to confirm that the requirements of the laws or other legal acts regulating the status of the persons from the country indicated and the implementation of these requirements will not prevent the Bank of Lithuania from exercising effective supervisory functions;
- data about financial brokers employed or to be employed;
- documentary proof of the payment of a state levy for the granting of a licence of a financial advisor company;
- documents and data on measures and procedures ensuring compliance with the requirements for financial advisor companies for the provision of organisational and investment services;
- documentary proof that the financial advisor company has a professional indemnity insurance laid down in Article 4(9) of the Law on Markets in Financial Instruments.
The licensing procedure for financial advisor companies is established in Resolution No 03-264 of the Board of the Bank of Lithuania of 13 December 2012 on approval of the rules for the issue and revocation of licenses, organisation of activities and provision of investment services of the financial advisory firms.
Laws and legal acts regulating the activities and authorisation of financial advisor companies
- Law on Markets in Financial Instruments of the Republic of Lithuania2;
- Republic of Lithuania Law on Financial Institutions3;
- Republic of Lithuania Law on Companies4;
- Law of the Republic of Lithuania on the Prevention of Money Laundering and Terrorist Financing (173.2 KB )5;
- Resolution No 58 of the Board of the Bank of Lithuania of 6 May 2004 on the approval of the General Regulations on the Submission and Examination of the Applications for Authorisations of the Financial Market Participants Supervised by the Bank of Lithuania and on the Granting of the Authorisations (62 KB );
- Resolution No 1K-11 of the Securities Commission of the Republic of Lithuania of 22 March 2007 on the Approval of Rules on the Internal Capital Adequacy Assessment Process of Financial Brokerage Firms and Management Companies (82.5 KB );
- Resolution No 03-264 of the Board of the Bank of Lithuania of 13 December 2012 on approval of the rules for the issue and revocation of licenses, organisation of activities and provision of investment services of the financial advisory firms (251.5 KB );
- Resolution No 03-181 of the Board of the Bank of Lithuania of 14 November 2013 on approval of the Guidelines on the Assessment of Members of the Management Body and Key Function Holders of the Financial Market Participants Supervised by the Bank of Lithuania (93.4 KB )6;
- Other legal acts.
2 – Lithuanian consolidated version valid as of 1 January 2017. English version last amended on 4 December 2015.
3 – Lithuanian consolidated version valid as of 1 March–30 June 2017. English version last amended on 12 March 2015.
4 – Lithuanian consolidated version valid as of 1 November 2016. English version last amended on 14 October 2014.
5 – Lithuanian consolidated version valid as of 1 December 2016. English version last amended on 17 January 2008.
6 – Lithuanian consolidated version valid as of 1 January 2015. English version last amended 14 November 2013.