The Bank of Lithuania, as supervisory authority of the financial market participants, has been recently putting focus on requirements regarding safeguarding of clients‘ funds. As a result of that, on 11th of May, 2020 the Bank of Lithuania has prepared draft amendments of the Resolution No. 03-247 as well the draft amendments of the Resolution No. 03-259. The financial market participants were invited to provide their remarks and comments regarding these drafts until 29th of May, 2020. The proposed amendments will come into force from 1st of November, 2020. Below are the amendments proposed by the Bank of Lithuania in the draft Resolutions. However, it is likely that there will be minor changes after the Bank of Lithuania evaluates the remarks (if any) received from financial makrket participants.
The main amendments of the Resolution No. 03-247 are the following:
- certain clauses have to be indicated in the agreement with credit institution – it has to be clearly indicated that the account is opened solely for the purpose of safeguarding of clients funds, that these funds remain the ownership of the clients and that no execution may be levied according to arrears of the Company;
- The Company is allowed to keep its own funds in the safeguarding account only in order to cover bank account administration fee applicable by the credit institution. It is only applicable in cases where the credit institution within which the safeguarding account is opened, does not provide any other options to pay such fees;
- Obligation to proceed the reconciliation process is set. Reconciliation procedure shall be documented;
- If the Company acts through the agent, the Company shall ensure that the clients’ funds would be properly safeguarded in the separate account opened on behalf of the Company in case these funds received by the agent are not transferred to the payee by the end of the following business day. In addition, the Company shall ensure that the agent has documented policies on clients‘ funds safeguarding. In case the agent by the end of the following business day neither transfers the funds to the payee not transfers them to the safeguarding account, the Company shall transfer it’s own funds in this amount to the safeguarding account;
- Cash and cash equivalents as well as time deposits are no more considered as secure, liquid and low risk assets;
- In case the Company safeguards clients’ funds by investing clients’ funds in secure, liquid low-risk assets, investment policy shall be in place.
The main amendment of the Resolution No. 03-259:
- New reporting form has been included in this resolution. By filling this form, the Company shall report to the Bank of Lithuania about major changes in the safeguarding of clients’ funds. Such changes shall be considered as termination of the agreement, cease of the agreement, foreseen conclusion of the new agreement in regards of safeguarding of clients’ funds, change of the method of safeguarding of client’s funds.
Following these requirements is extremely important for all financial market participants. According to the financial market participants inspection plan for 2020, prepared by the Bank of Lithuania, financial market participants are being inspected in regards to the issues of proper segregation and safeguarding of clients‘ funds. It is worth mentioning that this year already several financial market participants have been imposed with the fines due to breaches of such legal requirements. Keeping the above mentioned in mind, financial market participants shall make sure they have proper internal procedures on safeguarding of clients‘ funds which are practically implemented.