A new concept of the “specialised bank” was introduced into Lithuanian law on 1 January 2017. Although initially designated for implementing reform in the credit union sector, in practice this regulation serves as a basis for developing a more favourable regulatory environment for local and foreign non-banking financial companies seeking to extend the scale of their business activities.

With that in mind, we are pleased to present this newsflash focusing on recent trends as well as regulatory issues related to specialised bank regulation in Lithuania.

KEY FEATURES OF A SPECIALISED BANK

  • Capital: minimum capital requirement of EUR 1 million compared to EUR 5 million for a “traditional” bank. However, a specialised bank is subject to the same ratios and prudential requirements (eg, own funds and liquidity requirements, maximum exposure to a single borrower ratio) and falls under the SSM principles in the same way as a “traditional” bank.
  • Scope of services: a specialised bank can receive deposits, lend funds, transfer funds and provide other standard banking services but ‒ compared to a “traditional” bank ‒ is limited in terms of providing investment and other financial services of a similar nature.
  • Area of activity: a specialised bank licence is valid across the EEA, thus enabling access to the EEA financial services market.
  • Staff: staff needs are primarily driven by the complexity of the business model and the scale of the bank. The minimum number of staff when applying for a licence can be as few as 9 – 10 individuals. However, this does not eliminate the obligation to create and further maintain appropriate frameworks ‒ corporate governance, internal organization (risk management, compliance and audit) ‒ to ensure sound and prudent activities, comply with capital adequacy and regulatory reporting requirements, and implement internal and external audits.
  • Timing: the licensing process takes about 10-11 months from the initial application. Depending on the complexity of the business model and the scale of the bank, the timeline may vary within the range from 6 to 12 months.
  • Deposit insurance: deposits for any one individual up to EUR 100,000 are insured under the deposit insurance scheme.
  • Licence fee: EUR 4,157.

ADVANTAGES OF A SPECIALISED BANK LICENCE

  • Competitive advantages: a specialised bank licence enables access to financial markets in Lithuania and other EEA members by significantly reducing incorporation and operational costs.
  • Diversifying financing sources and reducing costs: acceptance of deposits and other repayable funds from retail clients involves obtaining a credit institution licence. Non-bank financial institutions are often financed by their shareholders or via non-retail focused capital market instruments. Access to retail depositors or investors is very much limited to these companies. Becoming a licensed specialized bank would enable instant access to Lithuanian and other EEA retail deposit markets. The possibility to accept deposits from retail clientele would in turn benefit diversifying financing sources and reducing costs.
  • Tool to expand business activities: a specialised bank licence can serve as an attractive tool for organic development of a payment or electronic money institution’s business activity if it seeks to extend the scale of its activity to lending services.
  • Quick processing: a specialised bank licence can be obtained within 10-11 months. This is significantly shorter compared to the timescale for licencing a bank in other jurisdictions.
  • Customer trust: As most traditional banks are associated with trust and security, a banking licence might be more attractive for building long-term relationships with the bank’s clientele.
  • Digital bank: As remote verification of clients can be implemented, a specialised bank is seen as an option for establishing a digital bank.

SPECIFICS OF THE MARKET

  • Becoming a specialised bank only makes sense if the applicant seeks to engage in typical banking activities, including lending and deposit-taking activities.
  • A specialised bank must have a genuine interest in the Lithuanian market, ie “venue shopping” is not tolerated by the Lithuanian FSA.
  • The Bank of Lithuania is committed to supporting newcomers and not applying fines or other restricting measures for minor infringements during the first year of operation.
  • The Bank of Lithuania operates a “Newcomer Programme”. This is a one-stop shop for meetings and consultations with potential financial market participants.

The Sorainen Finance & Insurance Practice Group is ready to provide support needed in obtaining a licence and starting a specialised bank.

We have already assisted: