Bank of Lithuania
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The Bank of Lithuania warns electronic money and payment institutions of the responsibility, possible consequences and necessary control measures when they use agents or e-money distributors in their activities. 

“A licensed institution using agents or e-money distributors in its activities must have a clear understanding of the risks it takes on, assess and manage them, as it is the institution itself that bears the responsibility for the activities of the agents and e-money distributors used and the legal and reputational consequences that may arise,” says Simonas Krėpšta, Member of the Board of the Bank of Lithuania.

Licensed institutions are required to develop internal procedures for the control of their agents or e-money distributors (including how ML/TF and other compliance risks will be managed and how the requirements of international sanctions will be implemented), and to ensure that these procedures are effectively implemented in practice. To manage the risks, institutions need to be fully prepared before they start providing services through agents or e-money distributors. 

The Bank of Lithuania notes that in many cases electronic money and payment institutions have not assessed the increased ML/TF and other compliance risks resulting from the activities of agents or e-money distributors and consequently do not have adequately adapted control measures, such as an appropriate organisational structure, internal control system or an assessment of the financial impact on the institutions. This poses a significant risk that the institutions acting through agents or e-money distributors will not ensure proper compliance with AML/CTF and other compliance requirements as well as international sanctions, which could have very serious consequences for the licensed institution itself.

It is equally important that in each individual case a licensed institution would assess whether what the financial market participant refers to as white label (where a product or service created by one entity is branded by another) is not intermediation, e-money distribution or outsourcing, as such a business model is often interpreted differently by different financial market participants. According to the assessment of the Bank of Lithuania, a white label business model usually has the characteristics of agency relationship. If electronic money or payment institutions have so far treated the white label model as a outsourcing to other persons, they should assess the compliance of this model with the legislation. If it has the characteristics of intermediation, institutions should apply to the Bank of Lithuania for the use of e-money distributors or the inclusion of agents in the public list.

Before applying to the Bank of Lithuania for inclusion of agents in the public list or using e-money distributors, electronic money or payment institutions must:

  • Assess whether the institution will provide financial services through an agent or e-money distributors. The intermediary may provide payment services on behalf of the electronic money or payment institution. E-money distributors cannot do this. They can only distribute e-money (e.g. payment cards issued by an e-money institution but may not provide payment services related to them).
  • Fully assess the business partners to be used, the reputation of their managers, the risks associated with intermediation or distribution activities, and the specific measures to be taken to control the activities of agents or e-money distributors.
  • Develop appropriate internal processes, procedures and specific measures to ensure the right to control agents, e-money distributors and the payment services provided through them, to obtain the necessary information on the institution’s clients using payment services through agents and their balances, and to provide for the liability of agents for the non-performance or inadequate performance of contractual obligations. Electronic money and payment institutions should pay particular attention to the prevention of money laundering and terrorist financing, the safeguarding of client funds, the calculation of own funds requirements and the handling of client complaints.
  • If an intermediary or e-money distributor is found to be acting in breach of the legal requirements, appropriate internal control procedures and measures, including termination of the business relationship, should be applied. 

The Bank of Lithuania intends to review the existing legislation in the near future and to tighten the regulation related to the above-mentioned business models, and to include in its inspections the areas of control over the activities of agents or e-money distributors.