What to consider when preparing for an activity license and cross-border provision of services authorisation proceedings?

The preparation for applying for authorisation from the financial supervision authority should focus not only on the drafting of the documents required and compliance with the requirements under the law but also on the preparation of the organisation for when authorisation has been granted.

Communication with the financial supervision authority is important before submitting the application as well as during the authorisation procedure.

Before submitting an activity license authorisation application, it is worthwhile considering a meeting with the financial supervision authority to introduce the business plans of the applicant and the team who will be managing the applicant after the authorisation has been granted. It enables to provide an overview of the planned activities to the body conducting the proceedings as well as take note during the discussions which are the primary topics regarding the applicant that might come up during the proceedings. This way potential issues can be taken into account already when preparing for the authorisation procedure and solved before submitting the application, which prevents the proceedings being delayed and anything unexpected occurring during the proceedings and the resulting additional costs. Already operating financial institutions who wish to provide their services cross-border should introduce their plans to the financial supervision authority if such plans have not been previously presented in the business plan or in communication with the supervision authority.

Estonian legislation does not require the applicant to be proactive, the assumption is that it is necessary to answer the questions of the supervisory body and provide the requested information. Today, the requirements in most sectors are so detailed that with this approach alone, it may be difficult to keep to the time limit of the proceedings. The basis of a successful authorisation proceeding is the applicant’s proactivity in communication with the body conducting the proceedings. This enables to focus on the more important concerns in the proceedings while keeping the focus the body conducting the proceedings also focused at all times. The same thing applies to both an activity license and cross-border provision of services authorisation  proceedings as well as other authorisation proceedings (for example, the eligibility proceedings of managers or qualifying holding proceedings).

 Submit more information and documents in the authorisation proceeding than the minimum required under the law.

When preparing for the authorisation proceeding, in addition to the minimum requirements set out in the law, it should also be considered which information or documents could be or are usually requested in the proceedings. For example, in case of an activity license authorisation proceedings, the legal acts regulating the financial sector set out a list of information and documents that should be submitted when applying for an activity license. However, often the legal act itself or the guidelines of the European Union/Estonian supervisory body include additional regulatory requirements that are not outlined in the application list (e.g. additional internal rules, contracts, registries etc.). It is likely that during the proceedings, questions are asked about compliance with these regulatory requirements or already completed general terms of service are required. Preparing additional information during the proceedings could be pressed for time.

Submit all the requested information and documents in the authorisation proceeding and comply with the deadlines.

The authorisation proceedings comprises of so-called rounds of questions by the body conducting the proceedings to which the applicant needs to reply during the required deadline. In such case, the answers to the questions should include all relevant information and documents so that the questions by the authority are given a comprehensive answer. Otherwise, the same question (from a different viewpoint) could be asked again in a following round of questions. This takes up the time of the proceedings and time resources in general that could be used to answer new questions. If a question is asked again, it is worth being proactive and finding out what the authority expects from the answer. It is also important to follow the deadlines provided by the authority. The supervisory body tends to assume that those who are granted the authorisation always need to comply with the deadlines and this ability needs to be demonstrated already when applying for the authorisation. The duration of the proceedings is limited under the law and postponing answers could eventually lead to the lapse of the proceeding time without having covered all the necessary topics. This in turn could result in a negative outcome for the authorisation proceeding.

When preparing for a cross-border provision of services authorisation application, determine the form of activity for providing cross-border services.

Financial institutions that are permitted by the law to extend their authorisation to other countries can provide their services in another country on a cross-border basis or by establishing a branch for this purpose. It is important to consider which form of activity suits the services and plans of the financial institution the best. For example, if the financial institution wants to have employees and a permanent representation in the target country, it is probably necessary to establish a branch. If the services are provided online and it is not necessary to have employees in the target country, applying for the authorisation to provide the services on a cross-border basis could suffice. The planned form of activity in the target country determines for which authorisation is applied for, the requirements for the information and documents to be submitted and often also the application process.

Requirements of the target country should also be taken into account when preparing for a cross-border provision of services authorisation proceedings.

Before submitting the application for a cross-border provision of services authorisation, the applicant should map the requirements that are applicable to the applicant’s provision of financial services in the target country. It is likely that the financial supervision authority also wants to make sure that the financial institution has an overview of the requirements of the target country to ensure that the activity of the financial institution complies with the law also after being authorised for cross-border activity. The requirements of the target country should be taken into account in the internal documentation and processes. Thus, already in the submission of the application the applicant should outline that the financial institution is aware of the requirements and provides an overview of the relevant changes that the applicant has introduced or plans to introduce to its internal documentation and processes in relation thereto.

The article was written by Ellex experts Anneli Krunks, Marion Müürsepp and Marko Kairjak.