BREXIT dramatically changes UK financial services landscape allowing Lithuania to become the new destination for UK-based FinTech companies securing their licenses for continental Europe. Revolut Payments already holding Lithuanian EMI license got Insurance Broker intermediary license taking advantage of the recent amendments of the Lithuanian Law on Insurance allowing the EMI and other financial license holders obtain Insurance Broker license. Few other members of British Insurance Brokers Association BIBA are in authorization process with the Bank of Lithuania. Contis Group secured its Lithuanian EMI license and now transferring European clients form UK entity.
The impact of Brexit on the UK-based insurance companies
Existing passporting arrangements (also during transition period) allow UK based firms to access and offer services throughout the EEA without the need for separate authorisation in each jurisdiction. However, it remains difficult to predict whether or not agreement will be reached within the transition period, especially where cross-border services are concerned. One of the industry’s biggest concerns has therefore been whether it will be able to use benefits of cross-border EEA/UK policies that expire after the exit date. A no-deal Brexit, which could come to pass 1 January 2021, would bring a sudden end to ability of U.K. insurers and brokers to trade across the European Economic Area (EEA), using their home license through the financial services passporting regime. EU/EEA branches of UK-based (re)insurers will become third-country branches and vice versa.
Without passporting, U.K.-based insurers would no longer be able to collect premiums, pay claims on policies for EEA/EU customers, and U.K.-based brokers would no longer be able to service EEA/EU risks. The disruption is likely to be bigger for U.K.-based companies, given that U.K. financial regulators have implemented a temporary permissions regime during transition period to allow EEA firms to continue to passport into the U.K.
Insurers have been bracing themselves for the loss of passporting by setting up subsidiaries in the remaining 27 EU countries to ensure that they can continue to access European business. Existing business has been transferred to these new subsidiaries, or previously established ones where available.
Lithuanian licensed insurance companies, intermediaries provide significant competitive advantage and opens up European insurance market at a significantly lower incorporation and operational costs. There are 101 insurance broker intermediaries, 8 insurance companies currently operating in Lithuania.
“Fast licensing process, favourable regulatory environment makes Lithuania attractive jurisdiction for insurance companies entering European insurance market as well InsurTech and FinTech start-ups introducing innovative insurance products and looking for the possibility to distribute them in single European insurance market. Lithuanian license opens the ways for non-European insurance companies sell their insurance products in European market including big national markets, such as Germany and France”, – says attorney at law of ECOVIS ProventusLaw Loreta Andziulytė.
Residence permits for non-European citizens running innovative business allowing free access to all Schengen zone and E-residency programme, which will come to an air as of 1st of January 2021 are making Lithuania are another main advantages for UK-based insurance companies looking for the residence in the EU/EEA.
Differences between insurance broker and insurance agent
Insurance intermediaries in Lithuania are divided into insurance brokers and insurance agents. The roles of an insurance broker and an insurance agent are different, as an insurance broker represents the interests of the policyholder, while the insurance agent represents the interests of the insurance company.
An insurance broker undertaking shall have the right to engage in insurance mediation authorised by an insurer, a policyholder, an insured person, a beneficiary or an injured third party; however, an insurance broker undertaking must act in the interests of the policyholder, the insured person, the beneficiary or the injured third party. The provision of insurance services and insurance brokerage is a licensed activity Lithuania. The licences are issued by the Bank of Lithuania. In order to be entered on the list of insurance broker undertakings an insurance broker undertaking must comply with all requirements set for it by the Bank of Lithuania. When handling the list of insurance broker undertakings, the Bank of Lithuania takes an open attitude. It encourages all to contact as early as possible so that operating plans could be discussed and assessed.
Minimum equity capital amount for insurance broker company is 4 % of the sum of annual premiums received, subject to a minimum of EUR 19,510. Insurance broker company undertaking must be insured with professional civil liability. The sum insured must be at least EUR 1 300 380 per insured event and EUR 1 924 560 for all insured events per year. Insurance coverage must be valid in all countries of the EEA. An insurance broker company must have insurance coverage throughout its activities carried out insurance distribution services while being dependent to an insurance undertaking.
Insurance agent company in Lithuania considered to be a legal entity that carries out insurance distribution services while being dependent to an insurance undertaking. An agent company cannot offer analogous or similar insurance products from different insurers. The authorized capital requirement is significantly lower than for insurance brokerage companies (EUR 2500). The limits of civil liability insurance of at least EUR 1 300 380 per insured event and EUR 1 924 560 for all insured events per year are required for insurance agent undertakings.
Agent and distributor of licensed Payment and E-Money Institution
Moreover, UK based payment service providers (PSPs) aiming to access the EEA market as well unlicensed companies willing to enter EEA market shall become either agents (intermediaries) or distributors of licensed Payment Institution (PI) or Electronic Money Institution (EMI). Agents and distributors are allowed to have their own clients and service them using EU/EEA passportable license of partnering financial institution without any additional licensing, which means that this might be also a delightful solution for businesses in order to ensure business continuity in the light of Brexit.
There must be incorporated a company in EU/EEA which acts on behalf of Lithuania-based financial institution in order to passport a license via agent and / or distributor . However, such member states as Austria, France, Germany, Latvia (the list might expand in the future) reject passporting applications, unless the agent and / or distributor would solely operate in that specific country. Therefore, it is strongly recommended to establish a company in Lithuania in order for agent distributor to be able to operate in the whole EU/EEA.
Differences between agent and distributor
The main difference is regards of the scope of activities – distributor acts on behalf of an EMI to distribute and/or redeem electronic money, while the agent can provide all payment processing, payment card acquiring and issuing, e-wallet, IBAN account opening, e-merchant payment collection, electronic money issue and any other services licensed PI’s or EMI’s can provide. This difference in the scope of activities causes some differences in legal requirements for agents and distributors – the agent has to be included in the public list of electronic money / payment institutions.
A company for both – agent and distributor, may be established within 1-2 weeks after all necessary documentation is received. It usually takes 3 months for EMI/PI to passport the license via agent/ distributor from the moment all necessary documentation is gathered.
ECOVIS provides full scale of the licensing services including preparation of licensing documentation, representation at the Bank of Lithuania (Regulator) during the licensing procedure, company incorporation, office registration, advice on IT, HR, compliance and other matters rising during the incorporation of financial institution in Europe. After the licensing procedure completed, ECOVIS offers accounting, reporting, audit, compliance and legal services for the operational business.