An emerge of newly established licensed entities providing financial services is currently observed in Lithuania. Inter-lending platforms, payment, electronic money institutions, specialized banks are being established. The license-regulated market extends services even to traditionally unregulated businesses. There is no surprise at all that retailers can cash out or pay for utility bills. Net interconnected telecommunications companies have recently announced plans to develop a single instant payment service.
The platforms offered by the business offers a chance to make money, but also creates additional troubles. An entry into the financial services market is not so easy. You need to know where there is a threshold that requires a license. Where’s the bar? Here are some control questions.
- Does your company collect money from third parties?
- According to the client’s instructions, your company distributes cash to third parties?
- Do you offer investment to third parties?
- Are you lending money to third parties?
- Do you create a tool for a customer (say, a platform) that allows him to pay for goods or services?
- Are you using financial instruments belonging to the client as collateral?
If you answered yes to any of the above questions, then the threshold has already been reached. Even if your company does not need a license today, you can not be sure that it will not need it tomorrow. The need for licensing can grow as the company grows by expanding its service package. The same happened to “Lietuvos paštas”, whose main activities are presentations of correspondence, press and parcels. In order to expand the range of services, the company needed an electronic money institution license. Retail and retail chains Maxima and IKI became the intermediaries of payment and electronic institutions.
Just enter the list
Licensing is like a puzzle – if you choose the wrong puzzle details, the picture will not come out right. Therefore, the type of a license should be chosen with great care. The choice is compounded by the varying regulatory requirements, the growing variety of licenses. It’s no wonder that it‘s easy to get mixed up. Without being a specialist, you may simply not be aware of all the appropriate alternatives provided by different licensing rules.
It is true that the provision of financial services does not always require a license; in some cases, it is sufficient to register with the lists administered by the Bank of Lithuania: the operators of the co-financing platform, the inter-lending platform operators, consumer credit providers, etc.
Sometime the services provided are complex, so you may need to register in several lists. Suppose the company provides a consumer credit service and creates an online platform where a lender and a loan seeker meet. Such a service provider needs to be listed in the list of consumer credit intermediaries and inter-lending platform operators.
One service, several solutions
There are currently eight different types of licenses in the credit and payment market, and nine in the financial instruments market. There are also nine different service providers’ lists. So, in order to choose the most suitable combination of license (regulated activity), you will have to put in a lot of effort. What license is required for your company depends on the specifics of the service offered, the regions, the directions of the proposed activity, the size of the planned investments.
Suppose you want to provide payment services. In this case, you can receive a payment, electronic money institution or bank license. For payments, the license of electronic money institutions can be of two types – limited and unlimited. Instead of a traditional bank license, you can obtain a license of a specialized bank. So, one service – 6 options. It is possible, of course, to start with a limited-payment institution’s license until the business establishes itself in Lithuania. Shortly afterwards, with the increase in turnover and considering the expansion of activities to other European countries, the license can be extended to unlimited.
Or, suppose you want to establish payment instruments or to keep customers’ funds, so there will be a natural need for an electronic money institution or a specialized bank license. If you are late, the lack of a license will slow down business development, if you go into licensing too early you will experience extra unnecessary costs. So there is no single recipe which license to choose – each case is unique.
One spark would be enough
Any company changes from the very beginning of its operations – it grows, expands, and certain business changes may cause it operate within licensing activities. Let’s say you are a bookkeeping company that calculates salaries for employees every month. The customer transfers, for example, 10 thousand to your company. asking you to distribute the money as salaries. You complete the client’s request. Such actions already have the characteristics of payment services and if you do not have the appropriate license, you risk being penalized for carrying out the task.
You need to have a license, even if you collect money from third parties for the purpose of distributing them. Let’s say you’re in the apartment building community. The Community accounting officer collects contributions from the population and distributes them, so the company performs a payment function. Not surprisingly, some of the communities are already registered as payment institutions.
What if you suddenly find yourself running without a license? Of course, fine or even criminal liability. Both a legal person and a natural person can be punished. Imagine having one spark, one unhappy client, to get into a fire.
The business community is dominated by the stereotype that licensed activity is an unbearable burden. However, this may only be the first impression. Yes, the license undoubtedly implies additional administrative costs, but the company that buys it eventually wins. Owning a license creates an image of a safe and reliable business partner, as well as opens the door for complex services.