Crowdfunding License in Lithuania

Crowdfunding license conditions in Lithuania

1. Under Regulation (EU) 2020/1503, crowdfunding service providers must assess whether crowdfunding services are appropriate for prospective non-sophisticated investors by evaluating their knowledge, experience and understanding of investment risks. The assessment must be performed before providing unrestricted access to crowdfunding investments and reviewed in accordance with the applicable regulatory requirements. Crowdfunding service providers must also comply with the investment loss simulation, risk warning and investor protection requirements established by Article 21 of the Regulation. For the purposes of this article, a financing transaction is defined as a specific type of financing transaction (investment or credit) (specific financial instrument, loan, claims rights, etc.).
2. The crowdfunding platform operator, when assessing the suitability of a particular type of financial transaction for the financier, should request information from the financier on his knowledge and experience in the field of investment related to the type of financial transaction planned. Taking into account the information received from the financier, the crowdfunding platform operator should assess whether a particular type of financial transaction is acceptable to the financier.
3. Where the entry knowledge test indicates that a prospective non-sophisticated investor has insufficient knowledge, skills or experience, the crowdfunding service provider must issue the warnings required by Article 21 of Regulation (EU) 2020/1503. Additional investor protection requirements apply where an individual investment exceeds the higher of EUR 1,000 or 5% of the investor’s net worth. These include an explicit risk warning, express investor consent and confirmation that the investor understands the investment and its risks.
4. In the event of a financier’s refusal to provide the crowdfunding platform operator with information, or to provide insufficient information on its knowledge and experience in concluding a particular type of financial transaction, crowdfunding operator should warn the financier that the failure of the financier to provide the necessary information or not all the necessary information to provide information does not allow the crowdfunding platform operator to determine Whether a particular type of financial transaction is suitable for the client and provide the financier with the information provided for in paragraph 2 of paragraph 1 of Article 13.
5. The requirements of paragraphs 1-4 of this Article shall not apply if the financier is an informed investor.
6. The procedure for assessing the suitability of the type of financial transaction for the financier shall be specified by the supervisory authority.
7. If a crowdfunding platform operator submits a Financial Instrument Markets Act with certain investment services, it must additionally comply with the Financial Instrument Markets Act obligations imposed on the financial brokerage company, providing investment services to clients.

Requirements for obtaining a crowdfunding provider license

A legal entity intending to provide crowdfunding services must apply to the Bank of Lithuania for a crowdfunding provider’s license.

Crowdfunding service providers in Lithuania are primarily regulated by Regulation (EU) 2020/1503 on European crowdfunding service providers for business, together with applicable delegated and implementing regulations adopted by the European Commission. The European Securities and Markets Authority (ESMA) develops relevant regulatory and implementing technical standards, while the Bank of Lithuania acts as the competent national authority responsible for authorisation and supervision. The applicable standards should be described as adopted EU regulatory requirements rather than merely draft technical standards.

The application for a crowdfunding service provider must contain all the elements set out in article 12, part 2, of the Crowdfunding Regulations.

Applications for authorisation as a crowdfunding service provider must comply with Article 12 of Regulation (EU) 2020/1503 and Commission Delegated Regulation (EU) 2022/2112, which establishes regulatory technical standards specifying the requirements and arrangements for applications for authorisation. Applicants must submit the prescribed information and supporting documentation to the Bank of Lithuania, including details of the proposed business model, governance arrangements, prudential safeguards, management suitability, shareholder structure, investor protection procedures and operational systems.

Requirements:

• The applicant’s business plan should specify the types of crowdfunding services he intends to provide and the crowdfunding platform he intends to administer, including where and how crowdfunding offers will be sold;
• The applicant must specify how to make payments when providing crowdfunding services;
• The applicant must prepare operational contractual descriptions of management procedures and internal controls to ensure compliance with the Crowdfunding Regulations, including risk management and accounting procedures;
• The applicant must have developed systems, resources and procedures to control and protect the data processing systems, as well as operational risk descriptions;
• The applicant must prepare a description of the prudential protection measures and provide evidence that they will comply with them;
• The applicant should prepare a description of the procedures for verifying the completeness and clarity of the information and investment document on the basis of the information;
• The applicant should prepare a description of procedures related to investment restrictions applied to inexperienced investors;
• The applicant must prepare a business continuity plan describing the measures and procedures to be followed, taking into account the nature, scope and complexity of the crowdfunding services the applicant intends to provide, Ensuring that, in the event of non-compliance by the applicant, critical services related to the existing investment will continue to be provided and that agreements between the applicant and its clients are duly respected;
• The applicant must provide information on the persons responsible for the administration of the applicant and proof that they have a good reputation and possess relevant knowledge, skills and experience;
• The applicant must provide basic information about its 20 per cent shareholders. or more authorized capital and/or voting rights of the applicant, as well as proof that these persons enjoy a good reputation;
• The applicant must prepare a suitable description of the internal rules preventing shareholders, managers, employees or natural or legal persons of the applicant, controlled by them as project owners, from using the crowdfunding services offered by the applicant;
• The applicant must prepare a description of procedures for handling customer complaints.

The documents submitted to the Bank of Lithuania must confirm the applicant’s compliance with the requirements set out in the Crowdfunding Regulation and the willingness to provide crowdfunding services.

Prudential Requirements for Crowdfunding Service Providers

Under Article 11 of Regulation (EU) 2020/1503, crowdfunding service providers must maintain prudential safeguards equal to at least the higher of:

• EUR 25,000; or
• One quarter of the fixed overheads of the preceding year, including the cost of servicing loans for three months where the provider also facilitates the granting of loans.

These safeguards may take the form of own funds, an insurance policy covering the relevant risks, or a combination of both, subject to the applicable regulatory requirements.

Crowdfunding service providers must also comply with investor protection rules, governance requirements, operational resilience obligations and restrictions on conflicts of interest.

The framework generally applies to crowdfunding offers with a total consideration of up to EUR 5 million per project owner over a 12-month period. Activities exceeding the applicable threshold or falling outside the scope of Regulation (EU) 2020/1503 may require separate regulatory authorisation.

Crowdfunding platform operator activities

1. Since the expiry of the transitional arrangements under Regulation (EU) 2020/1503 on 10 November 2023, crowdfunding platforms providing services within the scope of the Regulation must operate under the European crowdfunding service provider authorisation framework. In Lithuania, authorisation is granted by the Bank of Lithuania in accordance with Article 12 of Regulation (EU) 2020/1503. Inclusion in the former Lithuanian national public list of crowdfunding platform operators is no longer sufficient to provide crowdfunding services covered by the EU Regulation.
2. A person carrying out or intending to carry out the activities of a crowdfunding platform operator in the Republic of Lithuania shall have a registered office in the Republic of Lithuania, except where in accordance with the laws of the Republic of Lithuania, Persons established in other Member States have the right to act as intermediaries in financial transactions without registering their location in Lithuania in the Republic or by establishing branches in the Republic of Lithuania.
3. Authorisation under Regulation (EU) 2020/1503 permits a crowdfunding service provider to carry out the crowdfunding services covered by that Regulation. It does not automatically authorise investment services falling outside its scope. Where the proposed business model includes regulated activities governed by Directive 2014/65/EU (MiFID II), the provider must separately assess whether investment firm authorisation or another applicable regulatory permission is required. Crowdfunding service providers must also ensure that any payment services are provided by an appropriately authorised payment service provider in accordance with Directive (EU) 2015/2366.
4. The crowdfunding platform operator provides services to the crowdfunding platform operator, financier and project owner, concluding a contract with each of them to provide services to the crowdfunding site operator.
5. A crowdfunding service provider may perform activities within the scope of its authorisation and enter into contractual arrangements with investors and project owners in accordance with Regulation (EU) 2020/1503. Any additional services involving legal representation, the exercise of shareholder rights, debt recovery or the management of investments must be assessed separately under applicable Lithuanian and EU legislation. A contractual provision alone does not automatically authorise the provider to conduct regulated investment services or exercise rights that require a specific legal mandate or professional qualification. If this is stipulated by the crowdfunding platform operator’s contract with the financier, the crowdfunding operator is entitled to assign these functions to another person.
6. The crowdfunding platform operator has the right to exercise the rights of the mortgagor or mortgage lender on behalf and in the interests of the sponsor when the obligations of the project owner are secured by the property pledge or mortgage, respectively. Crowdfunding platform operator in case of default by the project owner of obligations (or part thereof), the execution of which is secured by the property pledge or mortgage, respectively, is obliged to transfer money and/or other property received from the project owner and/or third parties to financiers.

Evaluation of submissions

The submitted documents are evaluated by specialists of the Bank of Lithuania divisions, which form the general opinion and conclusions on the license issue. After identifying deficiencies in the application, the responsible specialists can contact the applicant for correction.

The duration of the evaluation of documents depends on the volume and quality of the request.

Throughout the assessment period, regular communication and meetings are held with the applicant as required. Applicants can communicate directly with specialists of the Bank of Lithuania, who evaluate the submitted documents. The Bank of Lithuania is ready to provide all information related to the licensing process, to inform on the progress of the process and to establish cooperation relations between the Bank of Lithuania and financial market participants both during and after licensing.

The timing of the crowdfunding license

Within 25 working days from the date of receipt of the application, the Bank of Lithuania assesses the completeness of the application, verifying whether all the required information has been submitted. If the application is incomplete, the Bank of Lithuania may set a deadline by which the applicant must provide the missing information. If the missing information is not added to the application after the deadline, the Bank of Lithuania may refuse to consider the application and return the submitted documents to the applicant.

Within 3 months from the date of receipt of the detailed application, the Bank of Lithuania assesses whether the applicant meets the requirements set out in the Crowdfunding Regulation and makes a fully informed decision on issuing a license to a crowdfunding service provider or refusing to issue it. If the applicant does not meet the requirements set out in the Crowdfunding Regulations and if the applicant’s governing body may jeopardize its effectiveness, reasonable and reasonable management and business continuity and its ability to pay sufficient attention to customer interests and market integrity.

License fee for a crowdfunding provider

Before submitting an application for a crowdfunding company license, you must pay the state fee for issuing a crowdfunding company license to the current account of the State Tax Inspectorate – 710 EUR.

Requirements for crowdfunding providers wishing to provide services in other European Union member countries

A crowdfunding provider with a license issued by the Bank of Lithuania to provide services in another EU member state must provide the Bank of Lithuania with the following information:

• A list of Member States in which a crowdfunding provider intends to provide crowdfunding and specific services in those Member States covered by the Crowdfunding Regulations;
• Identification of individuals and entities responsible for the provision of crowdfunding services in these Member States;
• the date on which the crowdfunding service provider intends to provide;
• A list of all other activities carried out by a crowdfunding provider that are not covered by the Crowdfunding Regulations.

The Bank of Lithuania immediately informs the crowdfunding service provider that it has transmitted the information received to the competent authority of the member State where the crowdfunding service provider intends to provide crowdfunding services, and to ESMA.

A crowdfunding provider may start providing crowdfunding services in another European Union member state when it receives notification from the Bank of Lithuania that this member state and ESMA have been informed of the intentions of the crowdfunding provider, or after 15 calendar days from the date of submission of information to the Bank of Lithuania.

Requirements for participants and managers of the crowdfunding platform operator

Under Article 12(2) of Regulation (EU) 2020/1503, applicants must provide information about persons responsible for their management and shareholders holding 20% or more of the share capital or voting rights. These persons are subject to the applicable good repute requirements, while management must also demonstrate appropriate knowledge, skills and experience. The assessment includes relevant criminal convictions, regulatory infringements and other legally specified circumstances. Eligibility must be assessed under the current European crowdfunding regulatory framework rather than solely under the former Lithuanian national legislation.

1) An individual has been found guilty of a serious, particularly serious crime or misdemeanor against property, property rights and interests, economy and economic system, financial system, public security, public service and public interest, or relevant criminal acts under the criminal law of other States, If his conviction for the above-mentioned offenses is not extinguished or has not been extinguished or three years have passed since the entry into force of the court sentence to which the natural person was found guilty of the criminal offenses referred to in this paragraph;

2) a legal person shall be sentenced by a court for the commission of the offenses referred to in paragraph 1 of this paragraph and not more than 3 years have passed since the date of entry into force of the sentence;

3) for gross violation of the requirements of the law or other legal act regulating the provision of financial services or the activities of financial institutions, The Law of the Republic of Lithuania on the Prevention of Money Laundering and Financing of Terrorism Violation has been subject to administrative penalty or other sanction of the Law, if from the date of entry into force of the Decision on the Application of Administrative Penalty or Other Penalty, 3 years established by law;

4) he directly or indirectly owns or disposes of a significant share of the authorized capital and (or) voting rights or shares enabling him to exert a direct and (or) indirect decisive influence on the legal person, or is or was a manager of the legal entity, who has been deprived of the right to provide financial services, on presentation or for gross violation of the requirements of the law or other legal act regulating the provision of financial services or the activities of financial institutions, has been subjected to another measure, If, after three years, no decision on the application of a preventive measure or a legal person has been handed down for the commission of this criminal offence, referred to in paragraph 1, and no more than three years have passed since the court entered into force.

Joining the public list of crowdfunding platform operators

A legal entity seeking authorisation to provide crowdfunding services in Lithuania must submit an application to the Bank of Lithuania under Article 12 of Regulation (EU) 2020/1503. The application must contain the information required by Article 12(2) and the applicable regulatory technical standards, including the programme of operations, governance and internal control arrangements, prudential safeguards, business continuity plan, investor protection procedures, management suitability documentation and shareholder information. Authorised crowdfunding service providers are included in the relevant European regulatory register maintained by ESMA.

1) Request for inclusion in the public list of crowdfunding site operators;

2) Documents, information and particulars of the persons referred to in article 8, paragraph 1, and their conformity with the requirements specified in article 8, paragraph 1;

3) Information on the fulfilment of the requirements of Article 7;

4) a description of the operating model of the crowdfunding platform;

5) Rules for assessing the reliability of project owners;

6) Business continuity plan.

Company in Lithuania UAB can help your company to obtain the license of the provider of crowdfunding services in Lithuania and is ready to accompany you at all stages of application. Contact us and get a consultation today.