Regulation of crowdfunding in the Republic of Lithuania

5 min. skaitymo

Peer-to-peer (P2P) lending and crowdfunding known globally for over a decade is quite actively pushing its way in Lithuania as well. In the past few years, five peer-to-peer lending platforms have started operations in Lithuania. As amendments to the Law on Consumer Credit came into force on 1 February 2016, they introduced requirements for peer-to-peer (P2P) lending activities, and platform operators. Currently no specific regulation applies to crowdfunding activities in the Republic of Lithuania, but a draft Law on Crowdfunding has been registered with the Parliament of the Republic of Lithuania. It provides for the following new aspects in legal regulation of crowdfunding in the Republic of Lithuania.

REQUIREMENTS FOR INVESTORS

Under the draft Law on Crowdfunding, natural persons, legal entities and other subjects (e.g., investment funds) will have the right to be the investor (financing party), i.e., the investor making an investment in a specific investment project.

The platform operator will have to ensure that one investor will not be able to finance projects with an amount exceeding EUR 1,000 in 12 months through the relevant platform. This restriction will not apply provided:

• the operator of crowdfunding platform assesses suitability of a specific financing transaction to an investor before presenting the latter with an opportunity to enter into the financing transaction through that crowdfunding platform (i.e., the operator assesses knowledge and experience in the area of investments, the financial standing and aims sought by the investor through services of the crowdfunding platform operator), and determines whether that financing transaction is suitable for the funder;
• the investor is a well-informed investor.

REQUIREMENTS FOR CROWDFUNDING PROJECTS

The owner of the project eligible for financing could be a natural person or a legal entity who/which has duly registered their activities for which funding is sought. Financing transactions could be made for the purposes of business, professional, scientific, research or other needs, except consuming. The project owner will be able to receive financing as a loan or in other monetary form, or through acquisition of financial instruments issued by the project owner.

The draft law distinguishes the following requirements for attracting funds:

• if the amount to be raised is lower than EUR 100,000 in 12 months, no additional requirements for attracting funds are applied;
• if the amount to be raised is EUR 100,000 or higher, but does not exceed EUR 5 million in 12 months, the owner of the project eligible for financing will have to draft an information document and submit it to the crowdfunding platform operator for approval. Such information document is subject to the criteria similar to those stipulated in the Law on Companies for an information document regarding public offerings of mid-range value issues;
• if the amount to be raised is EUR 5 million or higher in 12 months, the owner of the project eligible for financing will have to issue securities in the manner prescribed by the Law on Securities, i.e., having prepared a prospectus and obtained an approval of the Bank of Lithuania. In such case only a legal entity can be the project owner.
  Where the project owner seeks to enter into a financing transaction for EUR 100,000 or a larger sum through a crowdfunding platform, such project owner will have to allocate at least 10 per cent of its own funds to finance the project.

REQUIREMENTS FOR OPERATOR OF CROWDFUNDING PLATFORM

Under the draft law, only a legal entity can be the operator of a crowdfunding platform. The legal entity may gain the right to engage in such activities only when the Bank of Lithuania includes it in the Public List of Crowdfunding Platform Operators. The crowdfunding platform operator will also be able to render other financial services subject to licensing (e.g., payment services, investment services), but only after obtaining a relevant licence, save for one exception where the crowdfunding platform operator intends to engage in activities of a financial advisory firm, then such operator will not need to apply separately for an authorisation to operate as a financial advisory firm.

Only persons of impeccable reputation may act as managers of platform operators, or participants directly or indirectly holding 20 (and more) per cent of voting rights or authorised capital, or those who can exert decisive influence on the operator.

In addition, the crowdfunding platform operator will be subject to certain requirements in terms of own equity, or the requirement to have a suretyship insurance bond issued by an insurance company, or a suretyship or guarantee from a financial institution for an amount no less than EUR 100,000 per claim, and for EUR 500,000 in the annual aggregate.

The crowdfunding platform operator will also have to comply with certain organisational requirements, for example, the operator will need to assess of project owner’s reliability, will need to have a plan for continuity of activities of the crowdfunding platform operator, will need to disclose certain information, etc.

POSSIBILITIES FOR FOREIGN OPERATORS OF CROWDFUNDING PLATFORM

A company from other EU (EEA) Member States, which is authorised and has the right to provide financial services related to the intermediation in conclusion of financial transactions in its “home” Member State, can act as the operator of a crowdfunding platform in Lithuania after the Bank of Lithuania will include such company into the Public List of Crowdfunding Platform Operators. Thus, the draft law provides good possibilities for cross-border activity for operators of crowdfunding platforms from other EU (EEA) Member States.

Disclaimer:

The above information is provided for informational purposes only to permit you to learn more about the future crowdfunding regulation in the Republic of Lithuania. The information presented is not legal advice, is not to be acted on as such, and is subject to change without notice. Law firm TVINS in any case is not liable for any loss incurred by a person acting relied on the above information.
For further information please contact:
Tomas Talutis
Managing partner
Law firm TVINS
Jogailos str. 4 Vilnius, Lithuania
Tel. +370 681 37655
E-mail: tomas.talutis@tvinslaw.com
Internet: www.tvinslaw.com