Dear clients and cooperation partners,
On 3 November 2016, the Lithuanian Parliament adopted the Law on Crowdfunding. The law will eliminate regulatory obstacles in Lithuania to establishing and running debt based and equity based crowdfunding platforms. The law will also establish regulation of marketplace lending platforms engaged in assignment of claim rights deriving from credit agreements already concluded. The Law on Crowdfunding will come into force on 1 December 2016.
Key features of the Law on Crowdfunding:
- Legal entities will be allowed to raise capital through crowdfunding platforms using one of four different instruments: (i) simple loan agreement; (ii) issue of debt securities (ie bonds); (iii) issue of equity securities (ie shares); or (iv) assignment of claim rights deriving from credit agreements already concluded. However, private limited liability companies will not be allowed to publicly offer their shares.
- Legal entities will be allowed to act as operators of crowdfunding platforms. Before starting their activities, operators must be included in the Public List of Crowdfunding Platforms Operators managed by the Bank of Lithuania. Operators included in the list will be considered to be financial advisory firms under the Law on the Market in Financial Instruments (the Law on MiFI). In other words, a financial advisory firm is a firm that enjoys exemption from Article 3 of the Markets in Financial Instruments Directive (the MiFID). According to the Law on MiFI, a financial advisory firm may provide (i) execution-only services (ie reception and transmission of orders) and (ii) offer investment recommendations. According to the Law on Crowdfunding, an operator that wishes to provide investment services other than execution-only services and investment services must be licensed under the Law on MiFI as a financial brokerage firm.
- Investors will be able to freely invest in crowdfunding projects without limitations. Investors will have to do an appropriateness test. If the results of the test are negative, the operator must provide a warning/disclaimer and then the investor can start investing.
- The secondary market for crowdfunding platforms is qualified as a multilateral trading facility and falls under regulation of the Law on MiFI, which in turn implements the MiFID. This requirement for the secondary market will apply only for the secondary market in financial instruments other than claim rights.
- If the offering is up to EUR 5 million, the project owner must prepare an information document which must be approved by the operator. There is no need to prepare a prospectus. An information document is a simple form of document that contains general information about the project owner and risks related to the offering. Offerings above EUR 5 million require a prospectus.
- The capital requirement for the operator amounts to EUR 40,000. However, the own capital cannot be lower than the bigger of the following amounts: EUR 40,000 or the need of own capital, which must be at least 0.2% of the amount of outstanding funds financed through the crowdfunding platform and not repaid to investors.
- Other requirements for operators, eg, risk management procedures, business continuity strategy, information disclosure requirements, management of good repute.
With balanced regulation on crowdfunding, recent regulatory changes on non-face-to-face identification of clients enabling use of modern tech solutions as well as with the intention of the Ministry of Finance and the Bank of Lithuania to make the country a leading FinTech jurisdiction, Lithuania aims to be a home for hybrid crowdfunding platforms thinking about global expansion.
Sorainen was actively involved in providing suggestions how to create modern, well-balanced regulation meeting international standards and with a focus both on the local market and beyond. Sorainen associate Artūras Asakavičius was involved in the legislative procedure from the first day and suggested several concepts which were successfully implemented in the law.