Lithuania Bank Licence: Specialised Bank and Full Bank Authorisation

Specialised bank or bank: which licence fits

The Law on Banks defines a bank as a credit institution that takes deposits and other repayable funds from the public and lends them out. A bank may provide all financial services unless a law restricts it. A specialised bank may provide only the services listed in Article 4(5). The Bank of Lithuania gives two examples of what a specialised bank cannot do: provide investment services, or operate a crowdfunding or peer-to-peer lending platform.

What a specialised bank may do

Article 4(5) of the Law on Banks gives an exhaustive list. A specialised bank may provide only these financial services:

• - Receipt of deposits and other repayable funds
• - Lending, including mortgage loans
• - Financial leasing
• - Payment services
• - Issuing and administering travellers' cheques, bankers' drafts and other means of payment
• - Financial guarantees and assurances
• - Financial mediation as an agent
• - Administering money
• - Credit rating services
• - Lease of safes
• - Cash currency exchange
• - Issuing electronic money

The roles of the Bank of Lithuania and the ECB

Every euro area bank licence is an ECB decision. Under Article 14 of the SSM Regulation, the application is filed with the national supervisor. Where the applicant meets every condition in national law, the Bank of Lithuania sends a draft decision to the ECB and the applicant. The draft is deemed adopted unless the ECB objects within ten working days, which it can extend once in duly justified cases. The ECB may object only where conditions in EU law are not met. Where national conditions are not met, the Bank of Lithuania rejects the application itself.

In practice the two authorities work as one team. The Bank of Lithuania transfers the application to the ECB, they assess the documents together and they draft any requests for further information jointly. The ECB assesses four areas: capital and regulatory requirements, the programme of operations and structure, the fitness and propriety of the management body, and the suitability of shareholders.

Once licensed, a bank that is not classed as significant is supervised day to day by the Bank of Lithuania within the SSM.

Ex-ante evaluation: the pre-application stage

The Bank of Lithuania encourages contact well before an application, through what it calls ex-ante evaluation. It is optional and recommended. It covers preliminary meetings with Bank of Lithuania specialists and an early review of draft documents, and the ECB may take part where needed.

• - Business model, financial capacity and strategy
• - Risks and how they will be managed
• - Shareholders and sources of funding
• - Managers and organisation
• - Readiness for licensing

The documents in a strong application

Article 9(6) of the Law on Banks lists what must accompany the application. The detailed list is in the Annex to the Bank of Lithuania's Rules for Licensing of Bank Activities (Resolution No 03-196).

• - Articles of association, memorandum of association and deed of incorporation, and minutes of the founding meeting
• - List of founders or shareholders with their share of capital and voting rights
• - Information on each qualifying holder (10% or more), or on the 20 largest founders where there are none, to assess reputation, financial soundness and a transparent source of funds
• - Proposed bank heads, with fitness and propriety documents for each
• - Evidence that shares are fully paid up and that the minimum capital is in place
• - Approval or non-objection from the home supervisor where a foreign bank is the founder
• - A three-year operating plan that matches what the founders can realistically deliver
• - Management and organisational structure, draft accounting policy, internal control, staffing, IT security, premises and insurance arrangements

Management and local presence

Lithuanian banks run a two-tier structure: a Board that manages the bank and a Supervisory Board that oversees it. The law requires a head of administration and a deputy, and the chair of the Board must be one of them. At least one head of the bank's administration must speak Lithuanian, and bank heads may serve only with the supervisor's authorisation.

The Bank of Lithuania publishes an indicative minimum of ten management positions. It notes this is not a legal requirement or an official position, and that more complex banks need more.

• - At least three Board members and three Supervisory Board members
• - Head of administration and deputy, one of whom chairs the Board
• - Chief Risk Officer and Chief Financial Officer on the Board
• - Head of internal audit
• - Chief Technical Officer and Chief Legal Officer, recommended to sit outside the Board
• - Risk Committee members drawn from the Supervisory Board

Capital and prudential requirements after licensing

The €1 million and €5 million figures are minimum equity capital at licensing (Article 40 of the Law on Banks). €1 million is the lowest level EU law allows for any category of credit institution under Article 12(4) of the Capital Requirements Directive, and the Bank of Lithuania may require more depending on the activities.

From authorisation the bank meets the Capital Requirements Regulation in full: a Common Equity Tier 1 ratio of 4.5%, a Tier 1 ratio of 6% and a total capital ratio of 8% of risk-weighted assets, plus buffers, Pillar 2 requirements and liquidity rules. The bank documents its own view of the capital and liquidity it needs in its ICAAP and ILAAP (internal capital and liquidity adequacy assessments).

EU passporting from Lithuania

A Lithuanian licence lets the bank serve the European Economic Area without a separate licence in each country. It notifies the Bank of Lithuania, which passes the notification on to the host supervisor.

• - Branch: the Bank of Lithuania communicates the notification to the host supervisor within three months (CRD Article 35). The host has two months to prepare for supervision, after which the branch may open (CRD Article 36)
• - Cross-border services without a branch: the Bank of Lithuania forwards the notification within one month (CRD Article 39)
• - Host country conduct and consumer rules continue to apply to the services provided there

Deposit insurance and financial crime

Deposits at a Lithuanian bank are insured up to €100,000 per depositor per bank by the public institution Deposit and Investment Insurance, the level set by the EU Deposit Guarantee Schemes Directive.

The bank runs an anti-money laundering programme under Lithuanian law and the EU anti-money laundering framework, and reports suspicious activity to the Financial Crime Investigation Service, Lithuania's financial intelligence unit. The quality of this programme, and of the source of funds evidence for shareholders, is assessed in detail at licensing.