Following the legal requirements as well as an analysis of recent practice and focus of the Bank of Lithuania, in order to strengthen the internal control of financial institutions and avoid cases where the application of sanction from the regulator would be imposed, we are providing a reminder on two topics, attention to which is significantly increasing.
Conflict of interests
Proper management of conflict of interest is a sign of good internal governance in the financial institution.
Bank of Lithuania, as a supervisory institution for the financial institutions licensed in Lithuania, is paying special attention to the organizational structure of the financial market participants, in particular, possible conflict of interests and its mitigation.
- The three lines (business; compliance and risk management; internal audit) shall be clearly separated.
- To prepare an internal policy on the management of conflict of interests, work regulations of the Management Board, and agreements regarding the activity of members of the Management Board.
Change of information of shareholders and members of the management body and key function holders
During the licensing process or upon later acquisition of shares of financial institution, each shareholder having qualifying holding of the authorized capital and/or voting rights by filling the notification form as required in resolution of the Bank of Lithuania No 03-138, commits to inform the Bank of Lithuania, without undue delay, but no later than within 15 working days, of any changes in the information provided in the mentioned notification and submit the supporting documents. This information includes but is not limited to questions related to shareholder‘s reputation, shares owned and positions held in other companies. Although the commitment is made by shareholders, it is important to note that financial institution shall also take actions to ensure proper internal control and governance.
Additionally, management body members (Chief Executive Officer, Members of the Management Board, Members of the Supervisory Board, if Supervisory Board is established) and key function holders by filling questionnaire form as required by resolution of the Bank of Lithuania No 03-181 oblige to inform the financial market participant, without undue delay, but no later than within 15 working days, of any changes in the information provided in that questionnaire form. Accordingly, representative of financial institution by signing the same questionnaire also obliges to inform regulator about changes in the questionnaire within fifteen working days.
This commitment is made by financial market participant as well as by management body members and key function holders. For the same purpose of proper internal control and governance, financial institution shall take measures that these requirements would be followed.
- to prepare internal policy in regards to obligation of shareholders to notify the Bank of Lithuania, to familiarize all direct and indirect shareholders in regards to their obligations;
- to prepare internal procedure for periodic reassessment of manager and key function holders;
- to periodically carry out assessment of the shareholders and members of the management body and submit relevant information about changes to the Bank of Lithuania.
As your legal advisors we are happy to assist you regarding all of the above addressed questions, including legal advice as well as revision and preparation of your internal documents.