Victory in a Fintech case concerning unlawful detention of funds

Our Dispute Resolution team represented clients who had concluded agreements for opening and holding settlement accounts with an electronic money institution registered in Lithuania.

Without prior warning, the electronic money institution terminated access to the clients’ settlement accounts and the funds held therein. The company did not respond to the clients’ requests for an explanation and the return of access to the funds.

It was only when the clients took the matter to court, almost a year after the out-of-court dispute, through an exchange of claims and a complaint to the Bank of Lithuania, that the electronic money institution stated that the funds were detained due to an instruction given by the UK supervisory authority to its sister company licensed in the UK. During the legal proceedings, the Lithuanian company returned most of the funds withheld from the clients but refused to pay interest. The e-money institution defended its actions by claiming it had lawfully withheld the funds in compliance with an order issued by the UK regulator to its sister company.

The Vilnius Regional Court fully agreed with our arguments that an electronic money institution established and licensed in Lithuania is not entitled to withdraw access to a settlement account from its clients in response to instructions given by the supervisory authority of a non-EU Member State to its sister company. Accordingly, the action brought was upheld in its entirety, awarding not only the remaining funds withheld but also interest for the unlawful and unjustified withholding of funds.

This case sets a significant precedent post-Brexit, as many e-money institutions or banks in the EU operate with a European Union presence but have sister institutions licensed in both the UK and other territories. Instructions from a non-EU supervisory authority to sister companies are not grounds for freezing clients’ funds held in an EU Member State-licensed institution.