Last call for UK based Finance Institutions and FinTech’s losing their EU license passports after the BREXIT

As from the 1 February 2020 The United Kingdom (UK) is no longer a member of the European Union (EU) and a transition period till 31 December 2020 is being applied during which the EU and the UK must agree on further relations. Financial service providers can still use the UK licenses trough the established European legal framework for cross-border services and benefit from the advantages of a Single European Market.

Situation during the BREXIT transitional period

Regardless of the outcome of the negotiations, the UK will acquire third country status at the end of the transitional period. Therefore, registered FinTech companies from the UK should assess the impending impact of the end of the transition period on the services provided and properly inform their EU customers about the coming changes.

If no further transition periods come into force and the UK and the EU are unable to agree on specific provisions regarding the financial services sector, the third country regime will be applied to the UK without any restrictions from 1 January 2021. As a result the European passport could then no longer be used by UK financial service providers operating within the EU. UK FinTech’s hoping to expand into in the EU with their UK banking, payment or e-money licenses can no longer do so.

Many UK FCA license holders already have direct SEPA access through the CENTROlink system managed by the Bank of Lithuania (Central Bank and the regulator). According to information announced by the Bank of Lithuania financial services providers must ensure that their existing EU customers are properly and adequately informed about the availability and continuity of the services provided to them after the end of the transitional period, i.e. what changes await them from 31 December 2020.

Therefore, financial institutions aiming to operate in the EU and continue to provide services to their EU customers should have the necessary authorization in place before the end of the transitional period, i.e. 31 December 2020 and to ensure that companies are able to manage the risks they face effectively”, says Kestutis Kvainauskas attorney at law of ECOVIS ProventusLaw specialising in finance institution licensing.

The Bank of Lithuania draws attention that that even if a FinTech institution apply for a financial services authorization by 31 December 2020 and does not receive an actual authorization until the end of the transitional period, it will not be entitled to continue to provide financial services in the EU and get SEPA access from 1 January 2021.

BREXIT drives Financial Institutions from the UK in to the European continent

In preparation for the end of the transition period and in suspending their activities under UK FCA license in the EU, financial institutions should comply with EU law, with particular emphasis on risk management, consumer protection and anti-money laundering requirements. In addition, they must inform their EU customers of their termination in a timely and appropriate manner, explaining to them and how to continue to use such services in order to avoid any negative impact on customers.

Many FinTech companies are already putting safety measures in place to ensure they can continue to operate both within the United Kingdom and the European Union once Britain leaves the EU. Deutsche Bank has already announced plans to shift hundreds of billions of assets from London to Frankfurt after Brexit due to complexity of its UK operations after Brexit. Revolut obtained a European banking and EMI licenses in Lithuania. All companies cited Brexit as a factor affecting their decisions.

July 2019 Contis Group secured Lithuanian Electronic Money Institution license. Flavia Alzetta, CEO of Contis said after the grant of Lithuanian license: “This licence provides Contis with the flexibility it seeks to leverage its SEPA capabilities and deliver a compelling, comprehensive banking and payments offering across the continent of Europe irrespective of the outcome of Brexit.  We are delighted to extend our regional footprint through a regulator as rigorous and progressive as the Bank of Lithuania”.

Attorney at Law Kestutis Kvainauskas at ECOVIS ProventusLaw firm advising Contis during the licensing process in Lithuania noticed “that starting right time Contis got European EMI license in Lithuania exactly in time, because No-deal-BREXIT seems to be the reality”.

Last call for the licensing in EU. Lithuania – among top destinations for UK FinTech’s

Mr. Kvainauskas disclosed that there is a number of other UK applicants in the licensing process with the Bank of Lithuania. “The fact that applicant holds a license issued by UK’s Financial Conduct Authority usually is considered as an advantage allowing to expect faster licensing process and still be on time till the end of 2020”.

The Bank of Lithuania jointly with Parliament and the Cabinet of Ministers has already applied the following measures in order to establish a country as FinTech centre:

  • Payment and electronic money institutions in Lithuania can access the Single Euro Payment Area (SEPA) through the infrastructure of the Bank of Lithuania, enabling them to avoid the broking services of many commercial banks.
  • The Bank of Lithuania allows to submit all the documents required to obtain a license not only in Lithuanian, but also in English.
  • There is no particular requirement for company management to reside in Lithuania or Europe.
  • Application for a license submitted without establishing a company. Incorporation of the company starts only after the decision to grant the license taken.
  • Fast licensing process.
  • Remote client verification. Innovative “know your customer” processes for remote client verification allows open client accounts without physical presence of the client.
  • Start-up visa. Special visas for the citizens of non-EU/EEA countries running innovative businesses in Lithuania.

ECOVIS – the experienced financial licensing advisor in Lithuania

ECOVIS ProventusLaw is a part ECOVIS International – leading global consulting group having over 7500 professionals operating in more than 80 countries around the World. ECOVIS is the most experienced licensing advisor in Lithuania. As an interdisciplinary network of legal, audit and tax professionals, ECOVIS advises on all aspects of finance institution incorporation and licensing process, including preparation of the business plan, tax advice and human resources. Deep local knowledge in the home country and international expertise of the interdisciplinary network of ECOVIS International professionals ensure fast and efficient services for the client. This makes ECOVIS different from other service providers.

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