Authorisation of Banks
Authorisation of Banks
The aim of this Guide is to introduce persons concerned to the authorisation process for banks conducted by the Bank of Lithuania, requirements for banks being established (legal persons not yet established) or banks 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.
Banks (as well as credit unions) differ from other financial market participants in that, according to Regulation (EU) No 575/2013, they are considered to be credit institutions. Only credit institutions have the exclusive right to accept deposits and other repayable funds from non-professional market participants, while unauthorised provision of financial services is prohibited. Due to this, a firm that seeks to receive deposits from non-professional market participants (all persons other than the Bank of Lithuania, financial institutions, insurance undertakings, also other persons able of qualified assessment of borrowing risk), must, prior to this, obtain a banking licence from the Bank of Lithuania.
The coming into force of amendments to the Republic of Lithuania Law on Banks in 2017 provided conditions for authorising a specialised bank. This form of a bank has been devised in order to establish a favourable environment for Lithuanian and foreign startups seeking to begin providing various financial services in the European Economic Area. The key feature of a specialised bank is the minimum capital requirement of EUR 1 million, while for a traditional bank it is EUR 5 million. Nevertheless, compared to a traditional bank, a specialised bank may provide somewhat fewer services – it is subject to limitation in investment and a number of other financial services (the complete list of permitted activities is presented in Article 4(5) of the Republic of Lithuania Law on Banks1).
1 – Lithuanian consolidated version valid as of 1 March 2017. English version last amended on 26 November 2015.
The approach of the Bank of Lithuania to the authorisation process for banks, 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. We encourage all prospective applicants to contact us as early as possible in their planning process so that we can discuss 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 bank 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 and attached documents: the Supervision Service, after starting the assessment procedure for the application and submitted documents, transfers all data to the European Central Bank (ECB). Since that moment, the Supervision Service and the ECB together in parallel assess the submitted documents. Where the documents submitted have no deficiencies, the licence is issued within the shortest possible 6 month-term. Nevertheless, our experience shows that submitted documents in only exceptional cases do not contain deficiencies of some sort; therefore, the Supervision Service usually submits comments to the applicant, asking to submit additional information or documents. In that case, the timeframe for assessment is extended;
- issuance of a licence or refusal of authorisation: after assessment of submitted documents is completed, the Bank of Lithuania formulates its conclusions and submits them to the ECB, which takes the final decision regarding granting of an authorisation.
Legislation provides that a banking application must be assessed within: 1) 6 months of submission of proper and sufficiently informative documents; 2) within 12 months of submission of a banking application, where the submitted documents are not full or are deficient.
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 applicant entities 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) banks.
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 answers to the questions that arose, but also enter into direct contact with 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 two pre-application meetings with firms are organised: 1) to get acquainted with and answer the questions that arose in the early stage; and 2) to review the list of documents to be submitted. The attendees to such meetings typically include at least two specialists from the Supervision Service of the Bank of Lithuania (who typically answer questions about the authorisation process and capital adequacy); however, any 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 the owners and/or major capital investors 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?
- The applicant’s funding model.
- Details of the products/services, target markets, delivery channels, pricing policy, and the corresponding regulated activities that will be applied for.
- Financing sources.
- 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.
Banking licence fee
Prior to applying for a banking licence it is necessary to pay into the account of the State Tax Inspectorate (STI) a state levy for the granting of a banking licence, which currently is EUR 4,157 (the sizes of levies were established by Resolution No 1458 of the Government of the Republic of Lithuania of 15 December 20002). Specialised banks are currently subject to a uniform levy size.
The procedure for the generation of orders to the income collection accounts of the STI in online banking and the numbers of the income collection accounts are available on the STI website.
2 – Available only in Lithuanian.
Key requirements for a bank being established or authorised
Taking into account that, at the time of authorisation, the bank being established or authorised must be prepared to comply with all requirements set for it, as a bank 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 banking 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 banking activities and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- compliance with the minimum capital requirement for banks: according to the provisions of Regulation (EU) No 575/2013, the equity capital of a bank must be not less than EUR 5 million, of a specialised bank – EUR 1 million. Please note that, following the provisions of this Regulation, the capital requirement may be higher subject to the activities the bank is engaged in;
- fitness and propriety of the firm and its shareholders or holders of voting rights: entities acquiring (holding) a qualifying holding in the bank’s authorised capital and/or voting rights or, in the absence of such persons, 20 founders acquiring (holding) the major part of the authorised capital and/or voting rights (where the legal person is already established – the shareholders) must have sufficiently high repute and be financially sound;
- fitness and propriety of the firm’s management: the management must have sufficiently high repute, the qualification and experience that would allow them to adequately perform their duties (in addition, at least one head of the bank’s administration must know the Lithuanian language and permanently reside in the Republic of Lithuania);
- The operating plan must correspond to the possibilities of the bank’s founders (shareholders or holders of voting rights) to implement it, while the prospective bank must, at the time of authorisation, be prepared to provide financial services in a safe and sound manner.
The articles of association, operating plan, management and organisational structure, risk management system, remuneration policy and practice, accounting system, internal control system, technical, information and technological security means, premises, insurance of property of a bank applying for a licence must ensure safe and sound activities of the bank and comply with the relevant legal acts. The bank must also meet other requirements set by the Law on Banks, including the requirements for legal form, minimum capital, and registered office.
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 submitted.
The process usually involves verification and assessment by a number of specialists from the Supervision Service and other structural units to assist in the formation of a common opinion and in reaching a decision about the application. During the assessment period, the following also takes place:
- regular communication and meetings with representatives of the applicant firm (when required);
- submission of comments by the Supervision Service, according to which the firm must eliminate established material deficiencies. Upon request of additional information or data, the decision must be taken within 6 months of the receipt of the additional documents and data; however, in any case, the decision regarding authorisation or refusal of authorisation is taken within 12 months of the receipt of the application for authorisation;
- 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 banking licence is requested not for all services that can be provided under the banking licence, the scope of provided documents should be smaller; hence, the assessment could be faster.
All applicants 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
Here (30.7 KB download icon) you can download a detailed list of documents that need to be submitted in order to receive a banking licence. Please note that in examining the topic of bank licence issue it may be asked to provide additional information or specify the available information. In the future, this list may be changed.
We would like to emphasise that a request for issue of a licence is submitted in line with the Republic of Lithuania law on Banks, other Republic of Lithuania legal acts, documents specified by legal acts of the Bank of Lithuania (the procedure for the licensing of a bank is established by Resolution No 03-196 of the Board of the Bank of Lithuania of 22 December 2016 on the Approval of the Regulations on the Licensing of Banking Activities (27.6 KB download icon)).
Minimum number of bank management employees
On the basis of the provisions of legal acts regulating the activities of banks and inter-institutional recommendations, it is considered that the minimum number of a bank’s management employees can be 10 people:
- at least 3 Members of the Board (+3);
- at least 3 Members of the Supervisory Council (+3);
- Head of the administration and Deputy Head (+1, Chair of Board has to be the Head of the administration or the Deputy Head);
- Head of the Internal Audit Service (+1, can be a member of the Supervisory Council, should be independent person);
- Audit Committee (+0, can be Supervisory Council members);
- Risk Committee (+0, can be Supervisory Council members only);
- Credit Committee (+0, can be Members of the Board);
- CTO – Chief Technical Officer (+1, for the exclusion of business execution, organisation and supervision it is recommended to not appoint a member of the Board or Supervisory Council);
- CRO – Chief Risk Officer (+0, should be a Member of the Board);
- CLO – Chief Legal Officer (+1, for the exclusion of business execution, organisation and supervision it is recommended to not appoint a member of the Board or Supervisory Council);
- CFO – Chief Financial Officer (+0, should be a Member of the Board).
We would like to note that only a preliminary minimum number of bank employees is presented in this list; therefore, taking into account the complexity, scale, geography of activity and other factors of the bank to be licensed, prior to issuing a licence it may be required to increase the number of persons organising the bank’s activities. This list is not established in legislation and cannot be seen as the official position of the Bank of Lithuania. In the future, this list may be changed.
Laws and legal acts regulating the activities and authorisation of banks
- Civil Code of the Republic of Lithuania3;
- Republic of Lithuania Law on Banks4;
- Republic of Lithuania Law on Financial Institutions5;
- Republic of Lithuania Law on Companies6;
- Resolution No 03-196 of the Board of the Bank of Lithuania of 22 December 2016 on the approval of the Regulations of the Licensing of Banking Activities (27.6 KB download icon);
- 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 download icon);
- 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 (94.6 KB download icon)7;
- Resolution No 03-138 of the Board of the Bank of Lithuania of 12 September 2017 on the Approval of the Rules for the Submission of the Notification of the Acquisition and Disposal of a Qualifying Holding of the Capital and/or of the Voting Rights in Financial Market Participants Under Supervision of the Bank of Lithuania (88.3 KB download icon);
- Resolution No 7 of the Board of the Bank of Lithuania of 24 January 2008 on Approval of Minimum Requirements for the Strategic Operating Plan of the Bank (42.5 KB download icon)8;
- Resolution No 99 of the Board of the Bank of Lithuania of 10 June 2004 on the approval of the rules on outsourcing (60.5 KB download icon);
3 – Lithuanian consolidated version valid as of 2 January–30 June 2017. English version last amended on 9 June 2011.
4 – Lithuanian consolidated version valid as of 1 March 2017. English version last amended on 26 November 2015.
5 – Lithuanian consolidated version valid as of 1 March–30 June 2017. English version last amended on 12 March 2015.
6 – Lithuanian consolidated version valid as of 1 November 2016. English version last amended on 14 October 2014.
7 – Lithuanian consolidated version valid as of 30 July 2019. English version last amended on 28 August 2019.
8 – Lithuanian consolidated version valid as of 31 March 2017. English unofficial translation as of 24 January 2008.