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UK financial institutions will lose EU “passporting rights” after the BREXIT, EU chief negotiator Michel Barnier says

UK financial institutions will lose EU “passporting rights” after the BREXIT, EU chief negotiator Michel Barnier says

23-11-2017

BREXIT means BREXIT, everywhere. Those who claim that the UK should pick parts of the single market must stop this contradiction. The single market is a package, with four indivisible freedoms, common rules, institutions, and enforcement structures”, EU chief BREXIT negotiator Michel Barnier states in his speech in Brussels on 20 November 2017. It could be no options to parts of the single market for certain industries. UK financial service providers will lose their access to the common European market of 500 million consumers and 22 million businesses.

The Independent reports on Mr. Barnier speech at Brussels Centre for European Reform  – http://www.independent.co.uk/news/uk/politics/brexit-passporting-rights-banks-financial-services-michel-barnier-speech-talks-david-davis-a8064836.html

Michel Barnier, photo author - Ralf Roletschek
Michel Barnier, photo author – Ralf Roletschek

Now there is no doubt remaining that UK banks, investment managers, payment service providers and other financial institutions will lose their “passporting rights” to do business in the European Union after BREXIT. Currently UK licensed financial service providers enjoy the possibility to access all EU financial markets passporting their UK issued licenses in to the other EU member-states. “On financial services, UK voices suggest that BREXIT does not mean BREXIT. BREXIT means BREXIT, everywhere”, Mr. Barnier said.

In the same day, the EU announced relocation of European Banking Authority (currently based in London) to Paris.

Over 5,400 London City firms rely on passporting rights to bring in £9bn in revenue every year to UK. The British Bankers’ Association has said the loss of passporting would be “disruptive, costly and time-consuming”.

The UK licensed financial services providers need to act now, in order not to lose their access to European common market of 500 million consumers. The solution is not so costly and time-consuming as British Bankers’ Association says. Other EU member-states extensively offer their licensing jurisdiction for UK companies. Malta, Ireland and Luxembourg even considered overcrowded by the applicants and currently facing delays in the licensing procedures. Presumably, when the BREXIT deadline will come closer, these jurisdictions will be unable to process all the applications in time.

That’s why being one of the most Euro optimistic country, Lithuania is considered as one of the most UK friendly states. Lithuania and primarily its capital Vilnius is becoming a new hub for the finance institutions focusing on European financial markets. Favourable regulatory and tax environment, excellent infrastructure, fastest internet and quality English speaking talent pool makes Vilnius attractive for large international companies as well as Fintech start-ups. “The rapidly expanding FinTech sector in Lithuania brings us distinct advantages – a favourable regulatory regime may help our country to make its mark on the highly-potential FinTech map”, – says Mr. Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.

Favourable regulatory and tax environment, excellent infrastructure, fastest internet and quality English speaking talent pool makes Vilnius attractive for large international companies as well as Fintech start-ups.

From 2009, UK Barclays Bank operates Barclays Technologies Centre Lithuania in Vilnius, offering IT and other services to Barclay’s businesses across the world. UK fast growing payment service provider REVOLUT announced applying for Lithuanian Specialized Bank license, already provides Lithuanian IBAN format account numbers for REVOLUT clients in 42 countries and uses SEPA MMS payment system managed by the Bank of Lithuania processing pan-European payments.

Operator of the world’s first electronic stock market NASDAQ has a strong presence in Lithuania establishing NASDAQ Technology and Business Support Competence Centre in Vilnius. NASDAQ Stock Exchanges in Tallinn, Riga and Vilnius form the Baltic Stock Market. NASDAQ is operator of Central Securities Depository in the Baltics, providing high-level depository services.

The Bank of Lithuania, combining functions of the central bank and financial regulatory authority in Lithuania applies the simplified licensing procedure for the companies already having UK issued FCA or PRA licenses. In practice it means that UK licensed financial institutions may expect to get another EU passportable license quickly and continue their pan-European business. Currently Lithuanian jurisdiction is not overcrowded. Regulatory licensing decisions take 3 months (or even less) for payment and electronic money institutions to 6 months for securities brokers, investment advisors and banks. Taking in to the account timing necessary for the collection of all licensing documentation and application preparation, licensing procedure in Lithuania may take from 4 to 9 months, depending on the type of license. Application for payment and electronic money institution license is accepted without establishing a company and freezing equity capital. Regulator allows to incorporate the company later, when the license is granted.

The Bank of Lithuania, combining functions of the central bank and financial regulatory authority in Lithuania applies the simplified licensing procedure for the companies already having UK issued FCA or PRA licenses.

Business oriented regulatory behaviour and significantly lower finance institution incorporation, licensing and maintenance costs is what makes Lithuania preferred jurisdiction for the UK financial institutions looking to secure their access to common European financial market. Description of financial licenses issued by the Bank of Lithuania can be found at http://ecovis.lt/fintech/, as well as short information video can be viewed in our FinTech video at at our Youtube channel.

Lithuanian Specialised Bank license was introduced in 2017 and it allows to provide almost all traditional banking services in EU market having only EUR 1 000 000 equity capital and it is considered as unique deposit taking “light” banking license in EU jurisdiction. It opens large European banking market at significantly lower cost and allows new players and FinTech companies challenge traditional players in their large national markets, such as Germany and France. You may find more information on Specialised Bank license as well as short information video at http://ecovis.lt/fintech/specialized-banks/. Short information video is also found in our Specialised bank video at our Youtube channel.

Currently Lithuania is the only European jurisdiction allowing non-banks have direct access to Single Euro Payments Area (SEPA) through SEPA-MMS payment system managed by the Bank of Lithuania (regulator) and process EUR payments in SEPA without commercial bank intermediaries. Client funds are kept at account with Bank of Lithuania – Central Bank, which is a part of Eurosystem, so it is eliminated the risk of the commercial bank insolvency. System managed by the Bank of Lithuania allows process instant pan-European payments 24/7/365, including weekends and holidays. Lithuania also provides non-banks with their own sorting codes for individual client IBAN account generation as only the banks does in other EU jurisdictions.

Ant there are many more reasons why Lithuania is one of the top jurisdictions in EU for finance institution licensing:

– No particular requirement for company management to reside in Lithuania.

– Application for a license submitted without establishing a company.

– Fast licensing process. Issue of Payment or Electronic Money Institution license about 3 months and even faster.

– Licensing documentation submitted in English and amended “on the go”.

– Possibility for non-banks to get own sorting codes for IBAN client accounts generation.

– Non-banks have direct access to SEPA through SEPA-MMS payment system managed by the Regulator. Instant pan-European payments 24/7/365.

– Remote client verification. Innovative “know your customer” processes for remote client verification allows open client accounts without physical presence of the client.

– No regulatory sanctions for the first year. The Bank of Lithuania is committed to support newcomers and not to punish them during the first year of operation for minor infringements.

– Start-up visa. Special visas for the citizens of non-EU countries running innovative businesses in Lithuania.

– Companies licensed in Lithuania allowed being direct members of the stock exchanges, depositories and clearinghouses registered in any other EU jurisdiction.

ECOVIS International is a leading global consulting firm having over 5000 professionals operating in 68 countries. ECOVIS ProventusLaw is a Lithuanian member firm of ECOVIS International. ECOVIS experience in licensing of finance institutions starts since the incorporation of first modern NSEL 30 Index fund in Lithuania and fund’s management company 15 year ago. Recently we licensed European branch of California based e-payment company Alternative Payments, servicing over 100 000 websites around the world, global financial advisor deVere Group getting e-money license, advised Singapore-based InstaReM, operating in more than 50 countries, by getting the e-money institution license for their European business. We are the founders of Lithuanian FinTech association FINTECH HUB LT. More about ECOVIS experience at http://ecovis.lt/fintech/why-lithuania/

Kęstutis Kvainauskas

Partner, Attorney-at-Law ECOVIS ProventusLaw – member of ECOVIS International

Kęstutis Kvainauskas has more than 20 year of experience in financial and banking sector working in SEB Bank and being member of the board of investment management company managing index investment fund and US Small cap. equity fund. Starting from 2000 attorney-at-law Kestutis Kvainauskas has his own legal practice, specializing in finance law and licensing of financial institutions. 

 

 

Kestutis Kvainauskas