Proposals and Changes in relevant Legal Acts
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Proposals to the Bank of Lithuania (Lietuvos bankas) on Protection of Customer funds held by Payment and Electronic Money Institutions
Date: June 20, 2019 Proposals from the Bank of Lithuania (listed in the consultation): Legal measures on the national level: 1. POSSIBILITY TO KEEP FUNDS WITH THE BANK OF LITHUANIA (currently, allowed only for CentroLINK participants): - Fintech Hub LT has agreed that it should also be allowed for EMIs/PIs (whether it must be a locally or EU licensed institutions was not debated) that are not participants in CentroLINK. 2. REQUIREMENTS ON DIVERSIFICATION OF FUNDS AND THE USE OF THE INVESTMENT POSSIBILITY (Specify investing Clients’ funds into in secure, liquid low-risk assets): – Fintech Hub LT rejected the proposal due number of reasons: 1) yearly investment management fees are usually higher than negative Central Bank interest rates or local deposit insurance schemes; 2) secure, liquid low-risk assets currently have negative yields; 3) to be able to invest Clients’ funds the account within a credit institution or broker is needed anyway, which is even more difficult to be opened for EMIs/PIs than segregated accounts for their clients’. 3. POSSIBILITY OF A SPECIALISED BANK (Large EMIs/PIs that already reached around the required capital of 1 000 000 EUR equal to specialized bank should apply and become Specialized Banks):- Fintech Hub LT rejected the proposal since not all EMIs/PIs want to provide lending products, which now are a must to apply for Specialized Bank license. 4. INCLUSION OF EMI/PI CUSTOMER FUNDS HELD IN CREDIT INSTITUTIONS INTO THE DEPOSIT INSURANCE SYSTEM (Include EMIs/PIs deposits in credit institutions to be insured with deposit insurance in Lithuania) - Fintech Hub LT agreed with the possibility to explore such an option, however, the additional fees levied by credit institutions will be likely transferred to EMIs/PIs making them less competitive and/or credit institutions will be even more discourage to open any account to EMIs/PIs. 5. SPECIAL STATUS OF A CUSTOMER FUNDS ACCOUNT ENSURING IMMUNITY OF FUNDS (PROTECTION FROM LOSS) IN THE EVENT OF BANKRUPTCY OF A CREDIT INSTITUTION (TRUST DEPOSIT): – Fintech Hub LT rejected a proposal as too complex and not significantly different from the previous proposals. Legal measures on the European Union level: 6. INCLUSION OF EMI/PI CUSTOMER FUNDS HELD WITH CREDIT INSTITUTIONS IN INSURED DEPOSITS ACCORDING TO REQUIREMENTS FOR DEPOSIT INSURANCE: – Fintech Hub LT did not find this proposal much different from proposal no. 4. 7. CONSOLIDATION OF THE CONCEPT OF A PAYMENTS BANK (introducing Specialized bank license that does not require lending products): – Fintech Hub LT completely supported this proposal and found it the most interesting, besides the fact that it would only apply to large EMIs/PIs (view proposal no. 3) and that it may take at least a few years to introduce such a license on the European level. Additional proposals from Fintech Hub LT (not listed in the consultation, in order of priority): Infrastructure measures on the national level: 1. The Bank of Lithuania should allow EMIs/PIs to keep their Clients’ funds in other currencies that EUR at the Central Bank account starting with other European Union currencies (however, the transfers to and from these accounts at the Central Bank would be allowed only from and to EMIs/PIs accounts at other financial institutions, therefore this would not be equal to correspondent banking/SWIFT services). Legal measures on the national level: 2. Change the Law on Electronic Money Institutions by allowing to keep their Clients’ funds within other reliable Payment Service Providers in addition to currently allowed Central Banks and Credit Institutions (or in liquid investments or insured). Which PSPs could be deemed as reliable could be specified by the Bank of Lithuania or EMIs themselves internally. 3. Allow EMIs/PIs to voluntarily join national deposit insurance scheme in Lithuania, which should lift the requirement to keep the Clients’ funds only within Central Banks and Credit Institutions since it would be insured (the costs levied by EMIs/PIs still seem lower than other alternatives). Legal measures on the European Union level: 4. Specialized Payments Bank License introduction (same as BoL proposal no. 7) – explore the options to implement it within national legal frame. Tha Bank of Lithuania has acknowledged the opinion and proposals from Fintech Hub LT and agreed to distribute them within the organization and investigate them. If you have any other proposals or questions regarding our position or consultation, please do not hesitate to let us know. Next step will be to submit all our comments and proposals to the Bank of Lithuania with an official response to the consultation by 1 August 2019.
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