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Opportunities and challenges to Fintech in Lithuania

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Recently Lithuania is experiencing a rise of the number of participants in the Fintech sector. This is primarily due to the opportunities that the supervisory institution – the Bank of Lithuania has opened up for this sector. First of all, it has lowered the regulatory barrier to enter the banking industry. While prudential requirements remain the same, the fee for banking license was decreased from EUR 50,000 to EUR 4,000. Deposit insurance payments for banks are reduced three-fold and amendments of the law have been passed to open the gates for activities of specialized banks. Specialized banks can be established with authorized capital as low as EUR 1 mln. There are certain limitations to the kinds of financial services that specialized banks can provide, but that does not impact their right to provide deposit collection, lending, payment, financial intermediation, issue of electronic money and certain other financial services.

Besides regulatory changes, the Bank of Lithuania has increased its involvement in the pre-application stages. Any potential market participants, planning to apply for a license of a financial institution are invited to initiate meetings and discussions with the Bank of Lithuania well before applying for the license. This is expected to help potential applicants to better assess their possibilities of getting a license as well as the extent of information and documents that they may need to submit during application procedure. For example, license for an electronic money institution has to be issued within 3 months after all required documents and information are submitted, knowing forehand what exactly needs to be submitted reduces the waiting period for the license. 

As of July 2018 the Bank of Lithuania has implemented a smart e-licensing measure to help potential participants of financial markets to submit an application for license remotely, rendering the procedure faster and cheaper.

The Bank of Lithuania has also become known world-wide for its active involvement in the development of Fintech sector. It has received EU structural funds for development of the platform where Fintech players will be allowed to try out blockchain based solutions both technologically and in Lithuanian legal regime under supervision of the regulator. The platform is expected to start functioning in 2019.

The Bank of Lithuania recently announced that as of 15 October 2018 it is opening the regulatory sandbox to test financial innovations. Sandbox regime will allow startups and other market participants to try out financial innovations in live environment subject to limited regulatory requirements. The envisaged initial testing period is 6 months, which can be extended for up to 12 months. Afterwards the innovator can decide whether to continue the provision of respective service (after obtaining a license, if necessary).

Multiple opportunities attract international and newly rising players to conduct their activities in Lithuania. Yet, the Bank of Lithuania has repeatedly stressed that while the barriers to enter the market are being dismantled, the prudential requirements remain in place. Licenses are only issued when all statutory conditions are satisfied. After receipt of license the company must operate in accordance with respective legal requirements. The later position has been recently once again stressed by the Bank of Lithuania, when a fine of EUR 0.7 mln was imposed on payments institution, with additional fine of EUR 0.5 mln to its CEO for improper client risk assessment and respective infringement of the Law on the Prevention of Money Laundering and Terrorist Financing.

If you would like to learn more about possibilities for your financial innovation product or service in Lithuania, to apply for a license or discover other applicable legal requirements, please contact us.

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