Latest News
Bank of Lithuania’s Response to the Covid-19 Crisis: Responsible Action or Over-Regulation?
The Covid- 19 Pandemic has created many novel situations that are unlikely to disappear in the near future. Like in the majority of novel post- apocalyptic scenarios, the uncertainty of the a new world order, especially in the financial sector, is always looming upon not only the governmental sector, but also on the private sector, which leads to many legal lacunas.
Within the EU financial sector, it is still uncertain whether the crisis has entered into its second act, or if it is still at the overture level.
The Bank of Lithuania, for example, has demonstrated great resilience with the initial response to the Crisis, that was remarkable in comparison to the initial response of ESMA. The Bank has issued six points of reference to the financial institutions which are regulated under the Bank which are crucial for each Electronic Money Institution’s (hereinafter- EMI) reporting duties and financial duties.
For instance, part of these requirements are in direct correlation to the Market Abuse Regulation, 5 AMLD, PSD2, and MiFID II. When discussing the Market Abuse Regulation, the Bank has issued a notice that processes and business decisions issued within the quarantine time are considered inside information, and should be disclosed under the appropriate framework.
Bank of Lithuania is also aware that regulated entities, especially EMIs and Payment Institutions (hereinafter-PI) which have not been working from their usual headquarters, but on a remote basis, still have to continue their financial and regulatory report as usual. Documents should be sent on a password controlled basis, and physical documentation should not contain confidential or sensitive information.
In regards to trading activity and trading in a regulated environment, the Bank has announced its intentions for allocating means for legal enforcement for proper functioning of the market in Lithuania. By this, the Bank has decided to examine requests for suspended trading only after receiving well- reasoned submissions, which are objective, reasoned and legally justified.
This is not the first time that the objective, reasoned and legally justified criteria has been raised in a European context. The criteria is remarkably similar to the Subsidiarity and Proportionality principle of EU jurisprudence, which has been discussed countlessly in the Treaty of Maastricht, the Single European Act (SEA), and in T29/92, which established that the subsidiarity principle does not constitute sufficient grounds to tackle the legality of an EU legal act, especially in trade aspects between Member States and Association Agreement Countries.
In the financial services realm, this is one of the few times that this has occurred. Implementing the Subsidiarity and Proportionality Criteria in the Lithuanian context, has surpassed the EU Agency level (ESMA) and has been directly implemented by the Lithuanian Regulator.
It may seem to some that this leap is the first sign of over-regulation in Member States, which tend to over-regulate in times of crisis, yet this measure can also be deemed as responsible action. The fact that the Bank of Lithuania has managed to implement the measure in a short time frame, with minor and almost non-existent instructions from ESMA, proves once again that in cases of financial services, mutual and not exclusive competence is the golden route for financial institutions.
EMIs and crypto exchanges that have been licensed in Estonia in comparison, which have lately been scrutinized by regulatory enhanced enforcement, have not received any formal notification in regards to the Covid-19 crisis, and have not received an extension for financial and regulatory reporting, bearing in mind the July 1st deadline that is looming on the entire crypto industry in Estonia.
EMIs in Lithuania on the other hand, have received specific instructions on their financial and regulatory reporting, and the widely anticipated API open banking system will be presented during the Payment Council later this year.
Be that as it may, EMIs that are licensed in Lithuania need to bear in mind that additional enhanced procedures are anticipated from the Bank, and they need to prepare themselves for the regulatory whirlwind that will hit the compliance and operational desks within the foreseeable future.
