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Official translation
REPUBLIC OF LITHUANIA
LAW ON THE SUPPLEMENTARY SUPERVISION OF ENTITIES
IN A FINANCIAL CONGLOMERATE
15 July 2004 No IX – 2387
Vilnius
CHAPTER ONE
GENERAL PROVISIONS
Article 1. Purpose and Scope of the Law
1. The purpose of the Law is to set the supplementary supervision requirements for credit institutions, insurance undertakings and financial brokerage firms in a financial conglomerate in order to ensure stability and reliability of the financial system.
2. The Law shall be applied for the purpose of determining whether the regulated entities established in the Republic of Lithuania should be included in a financial conglomerate. The Law shall establish the rights and duties of the regulated entities established in the Republic of Lithuania in implementing the requirements for supplementary supervision, the rights and duties of competent authorities of the Republic of Lithuania in carrying out supplementary supervision as well as the rights of competent authorities of other EU Member States in carrying out supplementary supervision with respect to the regulated entities established in the Republic of Lithuania which belong to a financial conglomerate.
3. As used in this Law, a management company shall mean a part of the financial sector in which it is included when carrying out consolidated supervision.
4. The purpose of this Law is to ensure the application of the legal act of the European Union specified in the Annex to this Law.
Article 2. Definitions
For the purposes of this Law:
1. ”relevant competent authorities” shall mean:
1) competent authorities of the Republic of Lithuania and/or other EU Member States responsible for the sectoral group-wide supervision of any of the regulated entities in a financial conglomerate;
2) the coordinator referred to in Article 13 of this Law if it is an authority other than the authorities indicated in the first subparagraph of this paragraph;
3) other competent authorities of the Republic of Lithuania and/or European Union Member States if the market share of the regulated entities of the conglomerate in other European Union Members States exceeds 5% or if, in the opinion of the institutions referred to in the first and second subparagraphs of this paragraph, it is necessary taking into account the market share of the regulated entities of the conglomerate (if it does not exceed 5%) in other European Union Member States and the importance in the conglomerate of any regulated entity established in another Member State;
2. “entity providing services ancillary to the activities of the credit institution” shall mean an entity the principle activities whereof is asset management, use and disposal thereof, data processing or provision to one or several credit institutions of other services without which the credit institution may not be provided financial services or which are otherwise directly connected with the financial services provided by the credit institution;
3. “participation” shall mean the direct or indirect ownership (under the agreement of voting, transfer of rights, authorisation, etc.) of 20% or more of all the voting rights at the meeting of the undertaking’s participants or of the shares, units of the undertaking or the shares in the undertaking’s capital;
4. “insurance undertaking” shall mean an insurance undertaking, an insurance undertaking of another EU Member State or of a foreign state insurance undertaking within the meaning of the Law of the Republic of Lithuania on Insurance;
5. “insurance holding company” shall mean an insurance holding company within the meaning defined in the Law of the Republic of Lithuania on Insurance;
6. “subsidiary undertaking” shall mean an undertaking which meets at least one of the following criteria:
2) it is an undertaking in which another undertaking, being its member, has the right to appoint or remove a majority of the members of its administrative, management or supervisory body;
3) it is an undertaking over which another undertaking has the right to exercise a dominant influence pursuant to a contract entered into with it or a provision in its memorandum or articles of association;
4) it is an undertaking in which another undertaking controls a majority of voting rights pursuant to agreements with its members;
5) it is an undertaking over which, in the opinion of competent authorities, another undertaking effectively exercises a dominant influence;
7. “a European Union Member State” shall mean the Republic of Lithuania or any other Member State of the European Union. For the purposes of this Law the concept “European Union Member State” shall also cover the European Economic Area Member States.
8. “financial undertaking” shall mean an undertaking of the Republic of Lithuania or another EU Member State or any other foreign state, the principle activities whereof is provision of one or more financial services specified in subparagraphs 2-8, 16 and 17 of Article 3(1) of the Law of the Republic of Lithuania on Financial Institutions;
9. “financial conglomerate” shall mean a group or subgroup which meats the following conditions specified in subparagraphs 1, 2, 4 and 5 or 1, 3, 4 and 5 of this paragraph:
1) a regulated entity is at the head of the group or at least one of the subsidiaries in the group is a regulated entity;
2) where there is a regulated entity at the head of the group, it is either: a parent undertaking of an entity in the financial sector; an entity which holds a participation in an entity in the financial sector; an entity which, though not connected with one or more other entities in the financial sector by a relationship within the meaning of paragraphs 6 and 19 of this Article is, nevertheless, managed on a unified basis pursuant to a contract concluded with that entity or provisions in the memorandum or articles of association of those entities or the administrative, management or supervisory bodies of that entity and of one or more other entities consist for the major part of the same persons in office during the financial year and until the consolidated accounts are drawn up;
3) where there is no regulated entity at the head of the group, but the group’s, activities mainly occur in the financial sector within the meaning of Article 3(1) of this Law;
4) at least one of the entities in the group is within the insurance sector and at least one is within the bank or investment services sector;
5) the consolidated and/or aggregated activities of the entities in the group within the insurance sector and the consolidated and/or aggregated activities of the entities within the banking or investment services sector are both significant within the meaning of Article 3(2) or (3), except where the relevant competent authorities decide not to regard the group as a financial conglomerate within the meaning of article 3(4) of this Law;
10. “financial brokerage firm” shall mean an entity of the Republic of Lithuania or any other European Union Member State, professionally engaged in the provision of investment services to third persons or a regulated entity of another foreign state licensed in another foreign state, which abides by the established set of rules on the prudential supervision which, in the opinion of the competent authority, are no less strict than those established in the European Union and which would be considered according to the type of transactions as a financial brokerage firm if it were established in the Republic of Lithuania or any other EU Member State.
11. “financial sector” shall mean a sector composed of:
1) the banking sector composed of a credit institution, a financial undertaking or an ancillary banking services undertaking are operating;
2) the insurance sector composed of an insurance undertaking, a reinsurance undertaking or an insurance holding company;
3) the investment services sector composed of a financial brokerage firm or a financial undertaking;
12. “close links” shall mean a situation in which two or more persons are linked by control or participation. A situation in which two or more persons are linked to one and the same person by a control relationship shall be regarded as constituting a close link between such persons.
13. “group” shall mean a group of undertakings, which consists of a parent undertaking, its subsidiaries and the entities in which the parent undertaking or its subsidiaries hold a participation, as well as the undertaking which, although not linked to another undertaking or undertakings by a relationship within the meaning of paragraphs 6 and 19 of this Article, are managed on a unified basis pursuant to a contract concluded with those undertaking or provisions in the memorandum or articles of association of those undertakings; or the administrative, management or supervisory bodies of that undertaking or undertakings consist for the major part of the same persons in office during the financial year and until the consolidated accounts are drawn up;
14. “intra-group transactions” shall mean all transactions by which regulated entities within a conglomerate rely either directly or indirectly upon other undertakings within the same group or upon any natural or legal person linked to the undertakings within that group by "close links", for the fulfilment of an obligation, whether or not contractual and whether or not other grounds;
15. “competent authorities” shall mean the authorities of the Republic of Lithuania and/or other EU Member States empowered to supervise credit institutions and/or insurance undertakings and/or financial brokerage firms. The competent authorities of the Republic of Lithuania shall be the Bank of Lithuania, the Insurance Supervisory Commission of the Republic of Lithuania and the Securities Commission of the Republic of Lithuania;
16. “control” shall mean the relationship between a parent undertaking and a subsidiary in all the cases referred to in subparagraphs 6 and 19 of this Article, ort a similar relationship between any natural or legal person and an undertaking. Control may be direct or indirect. Any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary of a parent undertaking which is at the head of those undertakings;
17. “credit institution” shall mean an undertaking of the Republic of Lithuania or any other EU Member State, whose business is to receive deposits or other repayable funds from the public (non-professional market participants) and to grant credits for its own account or to issue and administer electronic money, or an undertaking of another foreign state which holds a licence issued by the competent institution of that state for the pursuit and is pursuing the business of receiving deposits or other repayable funds from the public (non-professional market participants) and to grant credits for its own account or to issue and administer electronic money;
18. “mixed financial holding company” shall mean a parent undertaking, other than a regulated entity, which together with its subsidiaries, at least one of which is a regulated entity which has its head office in the Community, and other entities, constitutes a financial conglomerate;
19. “parent undertaking” shall mean an undertaking which meets at least one of the following criteria:
1) the undertaking has a majority of the shareholders' or members' voting rights in another undertaking;
2) the undertaking, being a participant in another undertaking, has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of another undertaking;
3) the undertaking has the right to exercise a dominant influence over a subsidiary undertaking pursuant to a contract entered into with that undertaking or a provision in its memorandum or articles of association;
4) the undertaking controls, pursuant to an agreement entered into with the participants in that undertaking, a majority of shareholders' or members' voting rights in that undertaking;
5) the undertaking which, in the opinion of the competent authority, exercises an effective dominant influence over that undertaking;
22. “regulated entity” shall mean a credit institution, an insurance undertaking or a financial brokerage firm;
23. “risk concentration” shall mean all exposures with a loss potential borne by entities within financial conglomerate, which are large enough to threaten the solvency/capital adequacy or the financial position in general of the regulated entities in the financial conglomerate; such exposures may be caused by counterparty risk/credit risk, investment risk, insurance risk, market risk, other types of risk or combination or interaction of these risks;
24. “sectoral rules” shall mean the legislation regulating the activities of credit institutions, insurance undertakings and financial brokerage firms, including the EU legislation;
25. “management company” shall mean a company licensed in the Republic of Lithuania or other EU Member States, the principal business whereof is management of investment funds or investment variable capital companies, or regulated entity of another foreign state licensed in another foreign state, which is subject to a comprehensive set of rules on the prudential supervision which, in the opinion of the competent authority, are no less strict than those established in the European Union and which according to the main business pursued by it would be treated as a management company if established in the Republic of Lithuania or any other EU Member State;
Article 3. Thresholds for Identifying a Financial Conglomerate
1. For the purposes of determining whether the activities of a group mainly occur in the financial sector the ratio of the balance sheet total of the regulated and non-regulated financial sector entities in the group to the balance sheet total of the group as a whole should exceed 40 %.
2. For the purposes of determining whether activities in different financial sectors are significant, for each financial sector the average of the ratio of the balance sheet total of that financial sector to the balance sheet total of the financial sector entities in the group and the ratio of the solvency (capital adequacy) requirements of the same financial sector to the total solvency (capital adequacy) requirements of the financial sector entities in the group should exceed 10 %.
3. The most important financial sector in a financial conglomerate shall be the sector with the highest average established pursuant to paragraph 2 of this Article. The smallest financial sector in a financial conglomerate shall be the sector with the smallest average. For the purposes of calculating the said average and for the measurement of the smallest and the most important financial sectors, the banking sector and the investment services sector shall be considered together.
4. Cross-sectoral activities shall also be presumed to be significant if the balance sheet total of the smallest financial sector in the group exceeds EUR 6 billion. If the group does not reach the threshold referred to in paragraph 2 of this Article, the relevant competent authorities of the Republic of Lithuania shall have the right to decide by common agreement with other relevant competent authorities not to regard the group as a financial conglomerate, or not to apply the provisions of Articles 8, 9 or 10 of this Law if they are of the opinion that the inclusion of the group in the scope of this Law or the application of such provisions would be inappropriate or misleading. Making such decisions regard shall be had to the objectives of supplementary supervision, taking into account the fact that:
1) the relative size of its smallest financial sector of the financial conglomerate does not exceed 5 %, measured either in terms of the average referred to in paragraph 2 of this Article or in terms of the balance sheet total or the solvency (capital adequacy) requirements of such financial sector; or
5. The competent authorities of the Republic of Lithuania which took part in the taking of decisions in accordance with paragraph 4 of this Article shall notify the decisions to the other competent authorities concerned specified in the third subparagraph of paragraph 1 of Article 2 of this Law.
6. For the application of paragraphs 1 to 4 of this Article, the relevant competent authorities of the Republic of Lithuania may by common agreement with other relevant competent authorities:
1) exclude an entity when calculating the ratios, established in paragraphs 1 to 4 of this Article, in the cases referred to in paragraph 6 of Article 7 of this Law;
7. Where a financial conglomerate has been identified according to paragraphs 1 to 4 of this Article, the decisions referred to in the first subparagraph of paragraph 6 of this Article shall be taken on the basis of a proposal made by the competent coordinator of the Republic of Lithuania of that financial conglomerate.
8. For the application of paragraphs 1 to 3, the relevant competent authorities of the Republic of Lithuania may, in exceptional cases and by common agreement with other relevant competent authorities, replace the criterion based on balance sheet total with one or both of the following parameters or add one or both of these parameters, if they are of the opinion that these parameters are of particular relevance for the purposes of supplementary supervision under this Law: income structure, off-balance-sheet activities.
9. For the application of paragraphs 1 to 3, if the ratios referred to in those paragraphs fall below 40 % and 10 % respectively for conglomerates already subject to supplementary supervision, a lower ratio of 35 % and 8 % respectively shall apply for the following three years to avoid sudden regime shifts.
10. For the application of paragraph 4 of this Article, if the balance sheet total of the smallest financial sector in the group falls below EUR 6 billion for conglomerates already subject to supplementary supervision, a lower figure of EUR 5 billion shall apply for the following three years to avoid sudden regime shifts.
11. During the period referred to in paragraphs 9 and 10 of this Article, the coordinator may, with the agreement of the other relevant competent authorities, decide that the lower ratios or the lower amount referred to in paragraphs 9 and 10 of this Article shall cease to apply.
12. The calculations referred to in this Article regarding the balance sheet shall be made on the basis of the aggregated balance sheet total of the entities of the group, according to their annual accounts. For the purposes of this calculation, undertakings in which a participation is held by other entities of the financial conglomerate shall be taken into account as regards the amount of their balance sheet total corresponding to the aggregated proportional share held by the group. However, where consolidated accounts are available, they shall be used instead of aggregated accounts.
Article 4. Identifying a Financial Conglomerate
1. Competent authorities of the Republic of Lithuania which have issued licenses to the regulated entities shall, on the basis of Articles 2, 3 and 5 of this Law, identify any group which includes the said regulated entities and which should be subject to supplementary supervision. For this purpose the competent authorities shall:
1) where necessary, cooperate closely between themselves and with the competent authorities of other EU Member States;
2) communicate its view to the other competent authorities concerned if it is of the opinion that the regulated entity which has received the licence issued by the competent authorities is a member of the group which may be a financial conglomerate which has not already been identified according to the criteria set in this Law.
2. If a competent authority of the Republic of Lithuania is appointed the coordinator in accordance with Article 13 of this Law, it shall inform within a reasonable time period the parent undertaking at the head of a group or, where a parent undertaking is not at the head of the group, the regulated entity with the largest balance sheet total in the most important financial sector in a group, that the group has been identified as a financial conglomerate and of the appointment of the coordinator. The coordinator shall also inform the competent authorities which have issued licences to the regulated entities in the group and the competent authorities of the Member State in which the mixed financial holding company has its head office as well as the European Commission.
Article 5. Scope of Supplementary Supervision
1. Without prejudice to the provisions on supervision contained in the sectoral rules, the regulated entities referred to in paragraphs 2 to 5 of this Article shall be subject to supplementary supervision in the manner prescribed by the above-mentioned paragraphs.
2. The following regulated entities shall be subject to supplementary supervision at the level of the financial conglomerate in accordance with Articles 7 to 18 of this Law:
2) every regulated entity, the parent undertaking of which is a mixed financial holding company which has its head office in a Member State of the European Union;
3) every regulated entity which, even though not linked with another or other financial sector entity by a relationship within the meaning of paragraphs 6 and 19 of Article 2 of this Law, are nevertheless managed on a unified basis pursuant to a contract concluded with those undertakings or provisions in the memorandum or articles of association of those undertakings; or the administrative, management or supervisory bodies of that undertaking and of one or more other undertakings with which it is not connected consist for the major part of the same persons in office during the financial year and until the consolidated accounts are drawn up.
3. Where a financial conglomerate, identified with the competent authorities of the Republic of Lithuania participating, is a subgroup of another financial conglomerate the regulated entities of which are subject to supplementary supervision as provided by paragraph 2 of this Article, the provisions of Articles 6 to 18 of this Law may be applied to the regulated entities within the latter group only and any reference in this Law to the terms group and financial conglomerate will then be understood as referring to that latter group.
4. Every regulated entity which is not subject to supplementary supervision in accordance with paragraphs 2 and 3 of this Article, the parent undertaking of which is a regulated entity or a mixed financial holding company, having its head office situated in a foreign state, shall be subject to supplementary supervision at the level of the financial conglomerate in the manner prescribed in Article 19.
5. Where persons hold participations or capital ties in one or more regulated entities or exercise significant influence over such entities without holding a participation or capital ties, other than the cases referred to in paragraphs 2 to 4 of this Article, the relevant competent authorities of the Republic of Lithuania shall have the right to determine, taking into account the objectives of supplementary supervision, by common agreement with other relevant competent authorities, whether and to what extent supplementary supervision of the regulated entities is to be carried out, as if they constitute a financial conglomerate. In order to apply such supplementary supervision, at least one of the entities must be a regulated entity and the conditions set out in subparagraphs 4 and 5 of paragraph 9 of this Article must be met.
6. For the purposes of applying paragraph 5 of this Article, the relevant competent authorities of the Republic of Lithuania shall take their decision on the influence exercised by persons on the regulated entities, taking into account the public financial commitment of these groups with respect to other financial entities.
7. The exercise of supplementary supervision at the level of the financial conglomerate shall in no way imply that the competent authorities of the Republic of Lithuania are required to play a supervisory role in relation to mixed financial holding companies, foreign state regulated entities in a financial conglomerate or unregulated entities in a financial conglomerate, on a stand-alone basis.
Article 6. Prudential Requirements Applicable to Entities Subject to Supplementary Supervision
The following prudential requirements shall be applicable to entities subject to supplementary supervision:
Article 7. Capital Adequacy Requirements
1. The rules on the amount, calculation of the capital adequacy requirements and the application thereof (hereinafter referred to as the Rules) shall be approved by the Government of the Republic of Lithuania.
2. The regulated entities established in the Republic of Lithuania shall be required to ensure that the capital adequacy requirements are complied with at the level of the financial conglomerate in accordance with the Rules.
3. Where the coordinator is a competent authority of the Republic of Lithuania, it shall ensure that the calculation of the capital adequacy requirements is carried out at least once a year either by the regulated entities or by the mixed financial holding company.
4. The results of the calculation and the relevant data for the calculation of the capital adequacy requirements shall be submitted to the coordinator by the entity established in the Republic of Lithuania in case it is the regulated entity at the head of the financial conglomerate, or, where the financial conglomerate is not headed by a regulated entity, by the mixed financial holding company or by the regulated entity in the financial conglomerate identified by the coordinator after consultation with the other relevant competent authorities and with the financial conglomerate.
5. For the purposes of calculating the capital adequacy requirements, the following entities shall be included in the scope of supplementary supervision in the manner and to the extent defined in the Rules:
6. The competent authority of the Republic of Lithuania, being a coordinator, may decide not to include a particular entity in the scope when calculating the capital adequacy requirements in the following cases:
1) if the head office of the entity is situated in a foreign state where there are legal impediments to the transfer of the necessary information, without prejudice to the sectoral rules regarding the obligation of competent authorities to refuse authorisation where the effective exercise of their supervisory functions is prevented;
2) if the entity is of negligible interest with respect to the objectives of the supplementary supervision of regulated entities in a financial conglomerate;
7. If several entities are to be excluded pursuant to subparagraph 2 of paragraph 6 of this Article they must nevertheless be included when collectively they are of non-negligible interest.
8. In the case mentioned in subparagraph 3 of paragraph 6 of this Article a competent authority of the Republic of Lithuania, if it is the coordinator shall consult the other relevant competent authorities before taking a decision. In cases of urgency a decision may be taken without consulting the said institutions.
9. In case the coordinator that is a competent authority of a EU Member State decides not to include a particular entity in the scope when calculating the adequate capital requirements for reasons analogous to those specified in subparagraphs 2 and 3 of paragraph 6 of this Article, the competent authority of the Republic of Lithuania which supervises the entity may ask the entity which is at the head of the financial conglomerate for information which may facilitate its supervision of the regulated entity. Having received an analogous request from the competent authority of any other EU Member State, the competent authorities of the Republic of Lithuania shall furnish the required information.
Article 8. Requirements for Limitation of Risk Concentration
1. The coordinator shall have the right to require the regulated entities or mixed financial holding companies to report on a regular basis to the coordinator any significant risk concentration at the level of financial conglomerate in accordance with the provisions of paragraphs 2 to 4 of Article 10 of this Law and following the procedure specified in Article 11 of this Law. The reports shall be submitted to the coordinator by the regulated entity established in the Republic of Lithuania in case it is at the head of the financial conglomerate or, where the financial conglomerate is not headed by a regulated entity, by the mixed financial holding company identified by the coordinator after consultation with the other relevant competent authorities and with the financial conglomerate.
2. The risk concentration shall be subject to supervisory overview by a competent authority of the Republic of Lithuania in case it is the coordinator.
Article 9. Intra-group Transactions Requirements
1. The coordinator shall have the right to require that regulated entities or mixed financial holding companies report on a regular basis to the coordinator all significant intra-group transactions of regulated entities within a financial conglomerate with regard to the provisions of this Article and those of paragraphs 2 to 4 of Article 10 of this Law and in accordance with the procedure specified in Article 11 of this Law. An intra-group transaction shall be presumed to be significant if its amount exceeds at least 5 % of the total amount of capital adequacy requirements at the level of a financial conglomerate. The reports shall be submitted to the coordinator by the entity established in the Republic of Lithuania in case it is a regulated entity which is at the head of the financial conglomerate or, where the financial conglomerate is not headed by a regulated entity, by the mixed financial holding company or by the regulated entity in the financial conglomerate identified by the coordinator after consultation with the other relevant competent authorities and with the financial conglomerate.
2. These intra-group transactions specified in paragraph 1 of this Article shall be subject to supervisory overview by a competent authority of the Republic of Lithuania provided it is a coordinator.
Article 10. Internal Control and Risk Management
1. The regulated entities established in the Republic of Lithuania shall ensure that adequate risk management procedures and internal control system, including sound governance and management structures and accounting system, are implemented at the level of the financial conglomerate. The risk management procedures and internal control system, including governance and management structures and accounting system meeting the requirements of paragraphs 2 and 3 of this Article shall be considered as adequate.
2. The risk management processes shall include:
1) sound governance and management with the approval and periodical review of the strategies and policies by the appropriate governing body of the regulated entity at the level of the financial conglomerate with respect to all the risks assumed;
2) adequate capital adequacy policies in order to anticipate the impact of their business strategy on risk profile and capital adequacy requirements;
3) adequate procedures to ensure that the risk monitoring systems of the entities of the financial conglomerate are well integrated into their organisation and that all measures are taken to ensure that the systems implemented in all the undertakings included in the scope of supplementary supervision are consistent so that the risks can be measured, monitored and controlled at the level of the financial conglomerate.
3. The internal control mechanisms shall include:
1) adequate mechanisms as regards capital adequacy to identify and measure all material risks incurred and to appropriately relate own funds to risks;
4. It shall be ensured that in all undertakings established in the Republic of Lithuania which are included in the scope of supplementary supervision pursuant to Article 5 of this Law there are adequate internal control mechanisms for the processing and production to the competent authorities of any data and information which would be relevant for the purposes of the supplementary supervision.
5. The processes and mechanisms referred to in paragraphs 1 to 4 of this Article shall be subject to supervisory overview by the competent authority of the Republic of Lithuania provided that it is the coordinator. The competent authority of the Republic of Lithuania where it is the coordinator shall have the right to give binding directions and/or recommendations on risk management and control issues.
Article 11. Technical Requirements for Intra-group Transactions and Risk Concentration
The competent authority of the Republic of Lithuania, if it is the coordinator, shall:
1) taking into account the specific group and risk management structure of the financial conglomerate and after consultation with the other relevant competent authorities, set the procedure for reporting on intra-group transactions and risk concentration of regulated entities within a specific financial conglomerate;
Article 12. Requirements for Management Body Members of Mixed Financial Holding Companies
1. Mixed financial holding companies established in the Republic of Lithuania must be of sufficiently good repute and have sufficient qualification and experience to perform those duties.
2. A person shall not be of sufficiently good repute if:
1) he has been convicted of a serious or particularly serious crime or a criminal offence to the financial system, economy and business practice or of a crime against property, property rights and property interests and the conviction is not spent or has not been quashed;
CHAPTER FOUR
APPOINTMENT OF THE COORDINATOR, HIS FUNCTIONS AND COOPERATION BETWEEN THE COMPETENT AUTHORITIES
Article 13. Competent Authority (Coordinator) Responsible for Exercising Supplementary Supervision
1. The competent authority of the Republic of Lithuania or any other EU Member State, appointed based on the criteria specified in Article 14 of this Law, shall be the coordinator responsible for coordinating and exercising supplementary supervision.
2. Relevant competent authorities of the Republic of Lithuania shall have the right to decide by common agreement with other relevant competent authorities to waive the criteria set in Article 14 of this Law where their application would be inappropriate, taking into account the structure of the conglomerate and the relative importance of its activities in different countries, and appoint a different competent authority as coordinator. In these cases, before taking their decision, the competent authorities shall give the conglomerate an opportunity to state its opinion on that decision.
3. If the coordinator is a competent authority of an EU Member State other than the Republic of Lithuania, it shall have the same right of access to information on the regulated entities established in the Republic of Lithuania, as that held under this Law by the competent authority of the Republic of Lithuania which is the coordinator.
Article 14. Criteria on which the Appointment of the Coordinator is Based
1. Where a financial conglomerate is headed by a regulated entity, the functions of the coordinator shall be exercised by the competent authority which has issued that regulated entity with a licence under sectoral rules.
2. Where a financial conglomerate is not headed by a regulated entity, the functions of the coordinator shall be exercised by the competent authority identified in accordance with the following principles:
1) where the parent of a regulated entity is a mixed financial holding company, the functions of coordinator shall be exercised by the competent authority which has issued that regulated entity with a licence pursuant to the relevant sectoral rules;
2) where more than one regulated entity with a head office in the EU Member State have as their parent the same mixed financial holding company, and one of these entities has been issued with a licence by the EU Member State in which the head office of the mixed financial holding company is situated, the functions of coordinator shall be exercised by the competent authority which has issued the regulated entity in that EU Member State with a licence;
3) where more than one regulated entity, being active in different financial sectors, have been issued with a licence in the EU Member State in which the mixed financial holding company has its head office, the functions of coordinator shall be exercised by the competent authority which has issued with a licence the regulated entity active in the most important financial sector;
4) where the financial conglomerate is headed by more than one mixed financial holding company whose head offices are situated in different EU Member States and there is a regulated entity in each of these States, the functions of coordinator shall be exercised by the competent authority of the regulated entity with the largest balance sheet total if these
entities are in the same financial sector, or by the competent authority of the regulated entity in the most important financial sector;
5) where more than one regulated entity with a head office in the EU Member State have as their parent the same mixed financial holding company and none of these entities has been issued with a licence for activities in the EU Member State in which the mixed financial holding company has its head office, the functions of coordinator shall be exercised by the competent authority which issued with the licence the regulated entity with the largest balance sheet total in the most important financial sector;
Article 15. Functions of the Coordinator
1. The functions to be carried out by the competent authority of the Republic of Lithuania where it is the coordinator shall include:
1) coordination of the gathering and dissemination of relevant or essential information in going concern and emergency situations, including the dissemination of information which is of importance for a competent authority's supervisory functions under sectoral rules;
3) assessment of compliance with the capital adequacy and risk concentration and intra-group transactions requirements as set out in Articles 7 to 9 of this Law;
4) assessment of the financial conglomerate's structure, organisation and internal control system as set out in Article 10 of this Law;
5) planning and coordination of supervisory activities in going concern as well as in emergency situations, in cooperation with the relevant competent authorities involved;
6) passing of legal acts provided for in this Law and other legal acts elaborating on the provisions of this Law;
2. The competent authority of the Republic of Lithuania, where it is the coordinator, and where necessary other competent authorities concerned, shall have supplementary supervision coordination arrangements in place. The coordination arrangements may entrust additional functions to the coordinator and may specify the procedures for the decision-making process among the relevant competent authorities as referred to in this Law, Articles 3 and 4, paragraphs 5 and 6 of Article 5, Article 7, paragraphs 4 and 5 of Article 16, Articles 18 and 19, and establish other procedures for cooperation with other competent authorities.
Article 16. Cooperation between Competent Authorities
1. The competent authorities of the Republic of Lithuania responsible for the supervision of regulated entities in a financial conglomerate shall cooperate closely with the coordinator of the conglomerate. They shall provide the coordinator and the coordinator, where it is the competent authority of the Republic of Lithuania, other competent authorities with any information which is essential for the exercise of supervisory functions under the sectoral rules and for the carrying out of supplementary supervision. In this regard, the competent authorities of the Republic of Lithuania and the coordinator, where it is the competent authority of the Republic of Lithuania shall communicate on request all relevant information and shall communicate on their own initiative all essential information.
2. The cooperation referred to in paragraph 1 of this Article shall provide for the gathering and exchange of information with regard to the following items:
1) identification of the group structure of all major entities belonging to the financial conglomerate, as well as of the competent authorities of the regulated entities in the group;
3) the financial situation of the financial conglomerate, in particular compliance with the capital adequacy requirements, intra-group transactions, risk concentration and profitability;
6) procedures for the collection of information from the entities in a financial conglomerate, and the verification of that information;
7) adverse developments in regulated entities or in other entities of the financial conglomerate which could seriously affect the regulated entities;
3. The competent authorities of the Republic of Lithuania shall also be entitled to exchange with the following authorities such information as may be needed for the performance of their respective functions, regarding regulated entities in a financial conglomerate, in line with the provisions laid down in the sectoral rules: central banks, the European System of Central Banks and the European Central Bank.
4. The competent authorities concerned shall, prior to their decision, consult each other with regard to the following items, where these decisions are of importance for other competent authorities' supervisory functions:
1) changes in the shareholder, organisational or management structure of regulated entities in a financial conglomerate, which require the approval or authorisation of the competent authority;
5. In cases of urgency or where such consultation may jeopardise the effectiveness of the decisions a competent authority of the Republic of Lithuania shall have the right to decide without consulting with other competent authorities in accordance with paragraph 4 of this Article. However, in this case, the competent authority shall, without delay, inform the other competent authorities of the decisions taken
6 The competent authority of the Republic of Lithuania, were it is the coordinator, shall have the right to apply to the competent authorities of another EU Member State in which a parent undertaking has its head office, and which do not themselves exercise the supplementary supervision pursuant to this Article, to ask them for any information which would be relevant for the exercise of its coordinator’s functions.
Article 17. Access to Information and Verification
1. The entities included within the scope of supplementary supervision, whether or not a regulated entity, shall have the right, regardless of the restrictions set in the laws of the Republic of Lithuania or the supporting legislation, to exchange amongst themselves any information which would be relevant for the purposes of supplementary supervision.
2. When approaching any of the entities in a financial conglomerate, whether or not a regulated entity, the competent authorities responsible for supplementary supervision shall have access to any information which would be relevant for the purposes of supplementary supervision.
3. Where, in applying this Law, the competent authority of the Republic of Lithuania wishes to verify the information concerning an entity, whether or not regulated, which is part of the financial conglomerate, whose head office is situated in another EU Member State, it shall have the right to ask the competent authorities of that EU Member State to have the verification carried out or shall carry out the verification itself with the agreement of the competent authority of the other EU Member State.
4. The competent authorities of the Republic of Lithuania which receive a request from the competent authorities of any other EU Member State to carry out verification of the information concerning an entity established in the Republic of Lithuania, whether or not regulated, shall, within the framework of their competences, act upon it either by carrying out the verification themselves, by allowing the auditor or expert named by the competent authority of the EU Member State to carry it out, or by allowing the competent authority which made the request to carry it out itself. In case the competent authority of another EU Member State which made the request does not carry out the verification itself, it shall have the right to participate in the verification carried out by the competent authority of the Republic of Lithuania.
Article 18. Sanctions
1. A competent authority of the Republic of Lithuania, if it is the coordinator and if it establishes that the regulated entities of the financial conglomerate infringe this Law or the legal acts adopted in accordance with this Law or the legal acts of other EU Member States enacted to implement the EU Directive referred to in the Annex to this Law, or where the capital adequacy requirements are insufficient to ensure safe and sound activities of the regulated entities or if the intra-group transactions or the risk concentrations are a threat to the regulated entities' financial position, it shall submit relevant information to the other competent authorities of the Republic of Lithuania entitled to apply sanctions with respect to the regulated entities established in the Republic of Lithuania or to the competent authorities of the other EU Member States, entitled to apply sanctions with respect to the regulated entities or mixed financial holding companies which have their head office in those EU Member States.
2. If the regulated entities of the financial conglomerate, established in the Republic of Lithuania do not comply with the requirements set in this Law or in the legal acts adopted in accordance with this Law or where the capital adequacy requirements are insufficient to ensure safe and sound activities of the regulated entities, or if the intra-group transactions or the risk concentrations are a threat to the regulated entities' financial position, each competent authority of the Republic of Lithuania shall be entitled to apply with respect to the regulated entity supervision of which it performs according to sectoral rules sanctions specified in relevant sectoral rules according to the procedure established in the relevant sectoral rules. The sanctions shall be applied taking account of the information submitted by the coordinator. Breach of this Law and of legal acts adopted on the basis of this Law shall be held equivalent to the breach of the relevant sectoral rules.
Article 19. Parent Undertakings having their Head Offices in Foreign States
1. In the case referred to in paragraph 4 of Article 5 of this Law competent authorities shall verify whether the regulated entities, the parent undertaking of which has its head office in a foreign state, are subject to supervision by a foreign state competent authority, which is equivalent to that provided for by the provisions of this Law on the supplementary supervision of regulated entities referred to in paragraphs 2 and 3 of Article 5 of this Law. The verification shall be carried out by the competent authority of the Republic of Lithuania which would be the coordinator if the criteria set out in Article 14 of this Law were to apply, on the request of any of the regulated entities issued with a licence in any EU Member State or on its own initiative. For this purpose the competent authority of the Republic of Lithuania, before taking a decision, shall consult other relevant competent authorities and the European Financial Conglomerates Committee set up according to Article 21 of Directive 2002/87/EC of the European Parliament and of the Council, indicated in the Annex to this Law, and shall take into account any guidance prepared by the Committee.
2. In the absence of equivalent supervision by the foreign state competent authorities, established when implementing paragraph 1 of this Article, the provisions concerning the supplementary supervision of regulated entities, referred to in paragraphs 2 and 3 of Article 5 of this Law shall be applied, by analogy, or the issues of supplementary supervision may be resolved in accordance with the provisions of paragraph 3 of this Article.
3. The competent authorities of the Republic of Lithuania shall have the right to apply the provisions ensuring appropriate supplementary supervision of regulated entities in a financial conglomerate, including the right to require the establishment of a mixed financial holding company with its head office in any of the EU Member States and apply this Law to the regulated entities in the financial conglomerate headed by that holding company. These measures may be applied if agreed by the coordinator after consultation with the other relevant competent authorities.
Article 20. Entry into Force and Application of the Law
Article 21. Proposal to the Government of the Republic of Lithuania
The Government of the Republic of Lithuania shall draw up and approve the Rules for Capital Adequacy Requirements Amount, Calculation and Application.
I promulgate this Law passed by the Seimas of the Republic of Lithuania
PRESIDENT OF THE REPUBLIC VALDAS ADAMKUS
Annex to the Law of the Republic of Lithuania on the
Supplementary Supervision of Entities in a Financial Conglomerate
EU LEGAL ACTS
Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council.
