Authorisation of Financial Brokerage Firms
Authorisation of Financial Brokerage Firm
The aim of this Guide is to introduce persons concerned to the authorisation process for financial brokerage firms conducted by the Bank of Lithuania, requirements for financial brokerage firms 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.
Financial brokerage firm licence
A financial brokerage firm is a market participant whose permanent activity is professional provision of one or more investment services and/or professional engagement in one or more types of investment activities. A financial brokerage firm holding a licence has the right to provide the following investment services:
- acceptance and transfer of orders;
- execution of orders at the expense of clients;
- conclusion of transactions at one’s own expense;
- management of the financial instruments portfolio;
- investing consultancy;
- signing and/or distribution of financial instruments by undertaking to distribute them;
- distribution of financial instruments without undertaking to distribute them;
- administration of a multilateral trading system;
- operation of an organised trading facility.
Minimum equity capital requirements for a financial brokerage firm
The initial capital of a financial brokerage firm consists of the sum of the shares of equity capital specified in sub-paragraphs a–e of Article 26 of Regulation (EU) No 5752016.
The initial capital of financial brokerage firms other than those further specified shall not be less than EUR 730 thousand.
The initial capital of financial brokerage firms which do not have the right to provide investment services specified in sub-paragraphs 3 and 6 of Article 3(26) of the Law on Markets in Financial Instruments, but store clients’ money or financial instruments and provide one or more of the investment services specified in sub-paragraphs 1, 2 and 4 of Article 3(26) of this Law, shall not be less than EUR 125 thousand.
The initial capital of financial brokerage firms which do not have the right to provide investment services specified in sub-paragraphs 3 and 6 of Article 3(26) of the Law on Markets in Financial Instruments, also to store clients’ money or financial instruments, shall not be less than EUR 50 thousand.
Financial brokerage firms specified in Article 4(1)(2) of Regulation (EU) No 575/2013 shall satisfy one of the following requirements:
- hold initial capital of EUR 50 thousand;
- have professional indemnity insurance valid in the entire territory of the EU throughout the entire period of their activities or other similar coverage of responsibility for damage of at least EUR 1 million per insured event and EUR 1.5 million for all insured events per year;
- have combined initial capital and professional indemnity insurance, matching the coverage level set forth in paragraph 1 or 2 of this section.
The approach of the Bank of Lithuania to the authorisation process for financial brokerage firms, 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 brokerage firm to contact us 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 brokerage firm 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 for a financial brokerage firm licence 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 for a financial brokerage firm licence and attached 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 for a financial brokerage firm licence, asking to submit additional information or documents. In such a case, the time limit for review is extended;
- 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 financial brokerage firm licence 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 brokerage firms.
The representatives of firms that 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 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 with and answer all the questions that arose in the pre-application stage, to find out what licence needs to be issued or what licence is fit. The attendees of 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); 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 brokerage firm 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 the financial brokerage firm;
- 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 brokerage firm licence fee
Prior to applying for a licence of a financial brokerage firm 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 947 (the amounts of levies are established by the Republic of Lithuania Government Resolution No 1458 of 15 December 2000).
The procedure for the generation of orders to the income collection accounts of the STI via online banking and the numbers of the income collection accounts are available on the STI website.
Key requirements for a financial brokerage firm being established or authorised
Taking into account that, at the time of authorisation, the financial brokerage firm being established or authorised must be prepared to comply with all requirements set for it, as a financial brokerage firm 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 the activities of financial brokerage firms and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- compliance with minimum capital requirements for a financial brokerage firm;
- fitness and propriety of the financial brokerage firm and its shareholders (holders of voting rights): entities with a qualifying holding in the financial brokerage firm’s authorised capital and/or voting rights must be able to ensure sound and prudent management of the financial brokerage firm, have good repute and be financially sound;
- fitness and propriety of heads of a financial brokerage firm: the heads of a financial brokerage firm 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 brokerage firm’s founders (shareholders or holders of voting rights) to implement it, while the prospective financial brokerage firm must, at the time of authorisation, be prepared to provide financial services in a safe and sound manner.
It should be noted that, given the need to ensure sound and prudent management of the financial brokerage firm, such firms must have a detailed procedure, adequate to the nature, scope and complexity of the financial brokerage firm’s activity, including an organisational structure allowing to ensure the differentiation of functions and vertical as well as horizontal responsibilities with clearly defined, transparent and consistent limits of responsibility, a system for the identification, management, monitoring of risk which arose or may arise, a management information and internal control system, including reliable administrative measures and an accounting system.
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 to assist in the formation of a common opinion and in reaching a decision about the application. 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 passes comments to the firm, 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 brokerage firm is requested not for all services that can be provided under the licence of a financial brokerage frim, the scope of provided documents should be smaller; hence, the assessment could be faster.
All applicants for a licence of a financial brokerage firm 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 brokerage firm
An application to the Bank of Lithuania for a licence of a financial brokerage firm must be accompanied by the following:
- business plan;
- data about the legal person and documents:
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;
6) data about the participants who own a holding in the firm and information about the acquisition of the holding in the firm and its financing;
- 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, as laid down in the Law on Markets in Financial Instruments;
- a capital adequacy calculation report and documents confirming that the authorised capital has been paid up;
- data about close links with other natural or legal persons of the Republic of Lithuania (a description is to be attached and the nature of the financial brokerage firm and of these links is to 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 financial brokerage firm and these persons (capital, management, etc.) is to 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;
- a detailed description of available or leased premises and equipment;
- documents confirming a commitment to become a member of a recognised insurance scheme of investors;
- data about financial brokers employed or to be employed and other employees providing investment services;
- documentary proof of the payment of a state levy for the granting of a licence of a financial brokerage firm;
- documents and data of measures and procedures to ensure compliance with the requirements set for financial brokerage firms:
1) activity organisation policy;
2) the firm’s going concern policy (measures and procedures to ensure ongoing and uninterrupted provision of investment services);
3) a description of the administration and accounting policies and procedures;
4) compliance policy and data about the compliance officer or head of the compliance unit: name, surname, personal code, education; information about his/her experience in the market for financial instruments, position, phone and fax numbers, email address;
5) a description of the risk management policy, procedures and measures;
6) policy for the avoidance of conflicts of interests;
7) rules for dealing with customer complaints;
8) a description of measures for the control of personal transactions, ensuring of security of clients’ assets, reduction or loss of clients’ assets;
9) order execution policy;
- procedure for the implementation of the prevention of money laundering and terrorist financing;
- information about the preparation to provide transaction data, using the Transaction Reporting System (TRS) of the Bank of Lithuania;
- information about the architecture of IT systems used, including information about contracts with sub-contractors and their modifications, structural scheme of IT processes used, a description of the software used, key data and IT system security measures and procedures (the procedure for making back-up copies, plan for the continuity of IT systems, audit of IT systems, etc.).
The authorisation procedure for financial brokerage firms is established in Resolution No 03-114 of the Board of the Bank of Lithuania of 20 June 2018 on the Approval of the Rules for the Issuance of Licenses under the Law on Markets in Financial Instruments of the Republic of Lithuania (172 KB ).
Laws and legal acts regulating the activities and authorisation of financial brokerage firms
- Law on Markets in Financial Instruments of the Republic of Lithuania;
- Republic of Lithuania Law on Companies2;
- Law of the Republic of Lithuania on the Prevention of Money Laundering and Terrorist Financing (173.2 KB )3;
- 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 );
- 2018 m. birželio 20 d. Lietuvos banko valdybos nutarimas Nr. 03-111 „Dėl Finansų maklerio įmonių veiklos organizavimo ir investicinių paslaugų teikimo taisyklių patvirtinimo" (55.9 KB );
- Resolution No 03-114 of the Board of the Bank of Lithuania of 20 June 2018 on the Approval of the Rules for the Issuance of Licenses under the Law on Markets in Financial Instruments of the Republic of Lithuania (186 KB );
- Resolution No 03-105 of the Board of the Bank of Lithuania of 6 June 2013 on the Approval of the Rules for the Handling of Complaints Received by Financial Market Participants (187 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 (94.6 KB )4;
- Capital Requirements Directive and Regulation (CRD IV/CRR);
- 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 );
- Other legal acts.
1 – Lithuanian consolidated version valid as of 1 January 2017. English version last amended on 4 December 2015.
2 – Lithuanian consolidated version valid as of 1 November 2016. English version last amended on 14 October 2014.
3 – Lithuanian consolidated version valid as of 1 December 2016. English version last amended on 17 January 2008.
4 – Lithuanian consolidated version valid as of 30 July 2019. English translation as of 28 August 2019.