Brokerage services are usually defined as buying and selling of financial securities (or financial instruments) which include research and advice for the clients of a brokerage firm. Not to be confused with investment banking, brokerage services are actually a narrower concept. In Lithuania a financial brokerage firm is a legal person whose regular business is provision of one or more investment services to third parties and/or the performance of one or more types of investment activities on a professional basis. Below you will find the requirements for establishment of brokerage firms.
Licence types in Lithuania
In Lithuania all the legal persons which are planning to engage in provision of investment services shall obtain a licence which is issued by the Central Bank of the Republic of Lithuania.
According to the Licensing rules of brokerage firms, there are three types of licenses: A, B and C.
Type A license covers the widest range of services: reception and transmission of orders; execution of orders on behalf of clients; dealing on own account; management of a financial instrument portfolio; provision of investment advice; underwriting and/or placing of financial instruments on a firm commitment basis; placing of financial instruments without a firm commitment basis; operation of a multilateral trading facility.
Type B licence covers the following services: reception and transmission of orders; execution of orders on behalf of clients; management of a financial instrument portfolio; provision of investment advice; placing of financial instruments without a firm commitment basis;
Type C licence covers the following services: reception and transmission of orders; provision of investment advice; placing of financial instruments without a firm commitment basis. Type C licence holders can manage of a financial instrument portfolio by passing on execution of orders, safekeeping, accounting and management of financial instruments to another brokerage firm.
A brokerage firm can apply for all the activities which cover a certain licence or a part of the activities.
Share capital requirements
In order to obtain a licence, a brokerage firm shall comply with share capital requirements. Minimum share capital in order to acquire a type A licence is 730 000 EUR, type B licence – 125 000 EUR, type C licence – 50 000 EUR.
There are additional requirements to maintain certain share capital throughout the activities of brokerage firm in order to reduce risks. In addition, each brokerage firm shall prepare a capital adequacy assessment report.
A legal person which applies for a licence shall submit the following documents to the Central Bank of the Republic of Lithuania:
- Business plan;
- Information about the legal person (including Commercial Register extracts);
- Information about shareholders;
- Information about the manager of the legal person;
- Documents confirming that share capital has been paid as well as capital adequacy assessment report;
- Information about close relations with other natural and legal persons in the Republic of Lithuania;
- Information about close relations with other natural and legal persons in third countries;
- Description of the office and equipment;
- Documents confirming commitment to become a member of recognized investors’ insurance system;
- Information regarding financial brokers to be employed;
- Documents confirming payment of state fees;
- Documents and information confirming compliance with requirements for brokerage firms;
- Information regarding implementation of money laundering and terrorist financing prevention measures;
- Information regarding ability to provide data about transactions using Transaction Reporting System;
- Information about IT systems.
The Central Bank of the Republic of Lithuania
adopts the decision to issue a licence or reject the application within 6
months from the provision of all the above mentioned documents.
State fee for brokerage licence is 868 EUR.