Authorisation of Management Companies Acting in accordance with the Law on Collective Investment Undertakings Intended for Informed Investors
Authorisation of Management Companies Acting in accordance with the Law on Collective Investment Undertakings Intended for Informed Investors
The aim of this Guide is to introduce persons concerned to the authorisation process for management companies, acting in accordance with the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors (the Law on IICIU), conducted by the Bank of Lithuania, requirements for management 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.
Management companies, acting in accordance with the Law on IICIU, licence
Management company of collective investment undertakings Intended for Informed Investors (IICIU) acting in accordance with the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors1 – an undertaking whose main activity is management of collective investment undertakings intended for informed investors.
1 – Lithuanian consolidation version valid as of 1 January 2017. English version last amended on 1 January 2016.
Minimum equity capital requirements for a management company, acting in accordance with the Law on IICIU
The capital of a management company of collective investment undertakings intended for informed investors operating according to the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors is subject to the requirements of legal acts regulating a respective legal form.
The approach of the Bank of Lithuania to the authorisation process for management 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 management 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 management 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 management 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 must notify an applicant of the agreement or disagreement to issue a licence of a management company of collective investment undertakings intended for informed investors, operating according to the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors, within 3 months of submission of all documents, data and explanations. The term of processing the application shall be calculated from 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 management 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 a prospective (existing) management company (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 of the Bank of Lithuania (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 management 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 the management 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.
Management company licence fee
Prior to applying for a licence of a mangement 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 826 (the sizes of levies are established by Resolution No 1458 of the Government of the Republic of Lithuania of 15 December 20002).
The procedure for the generation of orders to the income collection accounts of the STI online and the numbers of the income collection accounts are available on the STI website.
2 – Available only in Lithuanian.
Key requirements for a management company being established or authorised
Taking into account that, at the time of authorisation, the management company being established or authorised must be prepared to comply with all requirements set for it, as a management 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 legal acts regulating the activities of management companies and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- fitness and propriety of a management company and its shareholders (holders of voting rights): entities with a qualifying holding in the management company’s authorised capital and/or voting rights must be of good repute and have required competence;
- fitness and propriety of heads of a management company: the heads of a management 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 founders of the management company (shareholders or holders of voting rights) to implement it, while the prospective management 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 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);
- submission of comments by the Supervision Service, according to which the management company must eliminate identified material deficiencies.
All applicants for a licence of a management 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 management company, acting in accordance with the Law on IICIU
To obtain an authorisation for management activities of a collective investment undertaking intended for informed investors operating according to the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors, the company which intends to obtain an authorisation for the activities of a management company, must attach to an application the following:
- registered articles of association;
- agreements (if any) with the future depositary of the assets of the collective investment undertaking, the manager of accounts, the person to provide administrative services and other service providers whose services will have a major impact on the activities of the management company;
- information about the auditor;
- curriculum vitae (certified by the signature) of each candidate to the positions of the manager and the person who will take investment decisions in the management company indicating the date it has been drawn up and other information that confirms that these persons satisfy the requirements set out in this Law and other legal acts;
- documents allowing to assess the compliance of candidates to the managerial positions of the management company with the requirement for good repute and other requirements laid down in this Law and other legal acts. If the owners of shareholdings are public limited liability companies or private limited liability companies, a set of financial reports for the previous financial year and, if the laws or articles of association provide for an obligation to audit the set of financial reports of the financial year, an independent auditor’s report shall also be submitted. The data referred to in this paragraph shall be submitted about the owners of the shareholdings of the management company – public limited liability companies or private limited liability companies – disclosing the data up to natural persons who hold more than 10 per cent of voting rights and/or authorised capital, while in case of the owners of shareholdings are general partnerships or limited partnerships, data shall be disclosed up to participants – natural persons (in case participants of the partnership that holds a shareholding are public limited liability companies or private limited liability companies, data shall be disclosed up to natural persons who hold more than 10 per cent of voting rights and/or authorised capital);
- data confirming that not a single employee of the management company is an employee of the operator of the regulated market operating in the Republic of Lithuania and/or of a multilateral trading facility, the supervisory authority or the Central Securities Depositary of Lithuania;
- description of organisational structure;
- description of the system of control of core functions;
- policy for management of conflicts of interest.
Laws and legal acts regulating the activities and authorisation of management companies
- Republic of Lithuania Law on Financial Institutions3;
- Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors;
- Law of the Republic of Lithuania on the Prevention of Money Laundering and Terrorist Financing (173.2 KB )4;
- 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 03-144 of the Board of the Bank of Lithuania of 12 July 2012 on the Approval of the Rules on the Organisation and Conduct of Business of Management Companies (58.3 KB );
- Resolution No 1K-2 of the Securities Commission of the Republic of Lithuania of 5 March 2009 on the Approval of the Guidance for the Financial Brokerage Firms, Investment Companies, Management Companies and Depositories Aimed at the Prevention of Money Laundering and/or Terrorist Financing (45 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 );
- Capital Requirements Directive and Regulation (CRD IV/CRR);
- other legal acts.
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 December 2016. English version last amended on 17 January 2008.