While we are in the hustle and bustle of elections with millions lost and ambitions insulted in Lithuania, the Court of Justice of the European Union (CJEU) has issued a historic ruling.
The CJEU found that the Bank of Lithuania’s decision to revoke the licence of the payment company ABC Projektai (formerly BrucBond UAB) was incorrect – the payment company’s activities could not be classified as issuing electronic money, and the accusation that the company had issued e-money without an e-money institution licence was unfounded.
This decision is of fundamental importance for the Lithuanian and pan-European fintech market, where the ABC Projektai (formerly BrucBond UAB) story was proof that a number of payment institutions registered in Lithuania were facing a threat to their business continuity.
Let us briefly recall the history of ABC Projektai.
ABC Projektai (formerly BrucBond UAB) was one of the early fintech wave companies to be granted an electronic payment institution licence by the Bank of Lithuania. It was also one of the first to have its licence revoked when the love affair between the regulator and the fintech market turned into a routine of bickering and relationship clarification.
In April 2020, the Bank of Lithuania revoked the licence of ABC Projektai (formerly BrucBond) on one of the grounds that the company had issued electronic money without having the status of an Electronic Money Institution (EMI). The Bank of Lithuania argued that the company was holding customer funds longer than necessary for payment transactions or technical reasons. The supervisory authority considers these actions to be the authorisation of electronic money. The fintech firm did not dispute that it held the money longer than necessary for payment transactions but informed customers that they had to provide payment instructions on what to do with the money. In the absence of such instructions, the institution refunded the funds.
ABC Projecktai took the case to court, which saw the dispute as having a much broader context than the disagreement between the sanctioned market participant and the regulator. The relevant European Union Directives govern these aspects. The Supreme Administrative Court of Lithuania therefore granted BrucBond’s request by order of 19 October 2022 and decided to refer the matter to the Court of Justice of the European Union for an answer to the fundamental question raised in the case: in circumstances where a payment institution accepts funds without a specific payment and the funds remain in the payment institution’s payment transaction account for longer than the period prescribed by law for the performance of the payment service, could the actions of the payment institution be considered to be the authorisation of electronic money?
In February, the CJEU ruled in favour of ABC Projektai (formerly BrucBond UAB) – the activities carried out do not constitute the issuance of electronic money, so the accusation that the company issued electronic money without an e-money institution licence is unfounded. June 19, 2024, the Supreme Administrative Court of Lithuania fully confirmed these findings, stating, among other things, that the sanction imposed – the revocation of the payment institution’s licence – is too severe and disproportionate.
Once again, this is a decision that defines the rules of the game not only for Lithuania, but also for the EU market as a whole, and this precedent is therefore extremely important.
Following the Bank of Lithuania’s decision in the ABC Projektai (formerly BrucBond UAB) case, uncertainty has arisen in Lithuania and other EU Member States regarding the boundaries of the activities of payment institutions. The Bank of Lithuania set a dangerous precedent where the regulator, by interpreting the legislation more broadly, started to treat the normal activities of many payment institutions as the issuance of electronic money. A payment institution does not have the right to issue electronic money; such activities require a separate electronic money institution licence. This threatened to expose some payment institutions operating in the EU to sanctions by regulators.
Already during the proceedings, it was good to see the overwhelming support of other Member States for our arguments – the European Commission, Germany, Poland and the Czech Republic decided to join the case and fully supported our client’s arguments in the case against the Bank of Lithuania. In addition, the Advocate General of the CJEU subsequently endorsed our position in a favourable opinion. Finally, the CJEU and the Supreme Administrative Court of Lithuania put an end to this situation.
It is important to note that the Republic of Lithuania was the only one that defended the position of the Bank of Lithuania and contradicted our arguments. This embarrassment was perhaps unavoidable. We, however, seem to be taking the fight to those investing in Lithuania on an equal footing by making unfounded accusations and creating significant reputational, legal and financial problems.
We often hear it said that Lithuania is a fintech hub. I won’t argue. Lithuania has indeed done a lot to attract dozens of fintech companies of all stripes, which have found here a favourable environment, a tolerant regulator and a skilled ecosystem.
A few years ago, the regulatory environment changed dramatically – the Bank of Lithuania, which had always been the most important fintech beacon in the country, suddenly decided to take the belt off the buckle and show who was the master of the house. Again, I won’t argue. The market has seen the emergence of some not-so-honest players and it is time to turn quantity into quality.
The process is still ongoing, but, as in many similar cases, the dramatic change in the rules of the game has caused the referee himself to overstep his mark. The sad and instructive story suffered by ABC Projektai (formerly BrucBond UAB) is a perfect illustration of the imbalances in the fintech market.
It is sad because ABC Projektai (formerly BrucBond UAB), although it won, has been eliminated from the Lithuanian economy for more than four years, thus not providing well-paid jobs and making a healthy contribution to the economy. It is instructive because it also teaches that you have to fight for your rights, even if your opponent is someone many say is too big to fight.
