Why obtain a crowdfunding authorisation in Latvia?
The process of obtaining authorisation for the operation of crowdfunding service providers is set out in Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business (hereinafter – the Regulation). In turn, on the basis of the Regulation, the European Securities and Markets Authority and the European Banking Authority have developed the regulatory technical standards setting out detailed requirements for various processes, for example, requirements for submission of the application for authorisation, reporting, etc.
If the process is standardised and laid down in the regulatory framework of the European Union, does it matter in which country the application for authorisation as a crowdfunding service provider is submitted?
In this article, we will explain why to choose Latvia for obtaining authorisation for the operation of crowdfunding: how Latvijas Banka ensures a convenient and smooth process of obtaining authorisation and, in addition, what type of support mechanisms and benefits are available for start-up companies in Latvia.
Cooperation and communication
Mutual cooperation and communication are the key principles we follow when Latvijas Banka is addressed by someone interested in obtaining the authorisation for the provision of crowdfunding services. Our experience shows that for those companies that have actively used the cooperation possibilities offered by Latvijas Banka, the process of obtaining authorisation is more efficient and smoother.
Any person who has expressed interest in providing crowdfunding services and obtaining authorisation in Latvia is invited to a meeting, where we discuss the intention of service provision, the possible compliance thereof with the requirements of regulatory framework, as well as explain the process of obtaining authorisation and its steps.
To make the introductory conversation more effective, we always encourage the authorisation applicants to do preliminary work, i. e. to prepare a description of the intended operation and planned services, as well as information about the persons who will implement the operation concerned – both about the originators (authors of the idea) and investors, and potential management persons, if already known. In the introductory conversation, the originators are invited to tell us about themselves, their previous experience and the intended operation and services, as well as to outline the degree of their preparedness, i.e.:
- whether the preparation of the documents to be submitted has already been started, whether consultants will be involved;
- whether the information systems required to ensure the operation have been selected or they are yet to be developed;
- whether negotiations have taken place on a potential payment service provider with whom the cooperation will be established (unless the provision of payment services is carried out by own efforts, which requires a separate authorisation for the operation), etc.
During the introductory conversation, we, in our turn, provide an overview of the key requirements or regulatory framework and the process of obtaining the authorisation.
If consultants will be involved in the preparation of the application for authorisation and the necessary documents, and they have already been selected, please come to a meeting together with the consultants. However, our experience shows that, despite the involvement of consultants, the originators also need to be actively involved in the preparation of the documents. Thus, documents will not be prepared using general templates, but will be tailored to the specificities of the project concerned and the process of obtaining the authorisation will be more efficient and smooth.
If during the first conversation we see that the planned operation could meet the requirements laid down in the Regulation and there are no obvious obstacles to discontinuing the authorisation process, we provide information about the support offered by Latvijas Banka in the preparatory stage before submission of the application for obtaining the authorisation.
Free advisory support before applying for obtaining the authorisation
At this stage, the author of the application has the possibility to receive guidance and recommendations in order to prepare more effectively for the official process of obtaining the authorisation. We offer several options to the potential service provider.
If an entrepreneur during the process of the preparation of the documents has any unclear questions about the compliance of the operational model with the requirements or has other questions related to the preparation of the documents, the author of the application can send those questions by e-mail at any time and we will provide answers. If necessary, we are always ready to arrange a meeting both remotely, which is usually faster, and also onsite, if a more efficient outcome is expected in such case.
There is no limit to the number of such consultations and meetings. The stakeholders, who have used this stage, consider it a great advantage, i.e. we are always open to communication, and it is very easy to arrange a meeting if needed.
As an effective support mechanism, you are also welcome to use the possibility we offer to review drafted documents (e.g. business plans, policies, procedures, regulations, etc.) to be submitted later, during the official process of obtaining the authorisation. Following the examination of the draft documents, we provide guidance on the necessary supplements or corrections needed, as well as organise a meeting to discuss them. When such reviewed documents are already submitted as part of the official process, the examination thereof is more efficient and takes less time.
We are sometimes asked by the potential financial market participants in which language should the documents be submitted. There are often situations where at least part of the documents is already prepared in English. At the stage before submission of the application for obtaining the authorisation, we also accept for examination the documents prepared in English. Thus, the applicant does not incur additional expenses for translation while it is not yet known whether changes will need to be introduced in the documents. The possibility to submit draft documents in English is very much appreciated by entrepreneurs.
Within the scope of the official process of obtaining the authorisation for the operation, the application for obtaining the authorisation for the operation and basic documents must be submitted in Latvian, but practice shows that if the draft documents have been reviewed at the stage before obtaining the authorisation for operation the changes to be introduced to the translated documents are insignificant. By mutual agreement, it is possible to submit certain documents (usually, certain internal rules of procedure of the company, CVs, education documents) only in English.
We are convinced that the advisory support provided by Latvijas Banka to companies before they officially apply for obtaining the authorisation for the operation has already proven its effectiveness. You can also read about this in the story of experience of the company that has already made use of this possibility – CrowdedHero's way to obtaining a licence.
An additional advantage of no lesser importance to the applicants is that the use of the pre-licensing stage is free of charge.
Guide to obtaining the authorisation for the operation
To facilitate the preparatory stage of the process and help entrepreneurs draw up a high quality application for authorisation, we have developed a guide to obtaining the authorisation for the operation. It familiarises entrepreneurs, in a simplified manner, with the process of obtaining the authorisation for the operation, the stages thereof, as well as the steps taken by an entrepreneur and Latvijas Banka at each stage. The guide is available on the website fintechlatvia.eu under the section Crowdfunding.
Latvijas Banka’s team of experts
For cooperation with the potential crowdfunding service provider to be a as effective as possible, in case of each and every application for obtaining the authorisation for the operation, Latvijas Banka’s team of experts is set up for work with the project concerned. Thereby, already at the very beginning of the project, the potential service providers will meet the experts with whom they will cooperate in the stage before obtaining the authorisation and during the official process of obtaining the authorisation, and whom they will be able to approach if any questions arise also after becoming a crowdfunding market participant. Namely, after obtaining the authorisation for the operation, Latvijas Banka’s experts will also be available for cooperation as easily as during the stage before obtaining the authorisation for the operation.
Advantages and support to start-up companies in Latvia
Entrepreneurs willing to obtain the authorisation for provision of crowdfunding services should also pay attention to other advantages of Latvia and support mechanisms available to start-up companies in Latvia:
- the Law on Aid for the Activities of Start-up Companies provides for state aid to start-up companies, for example, the possibility to reduce labour costs;
- there are rights to buy capital shares of the companies or stock options for employees;
- there is a possibility for the founders of the start-up companies, who are not citizens of the European Union, to receive a start-up company visa, enabling them to obtain a temporary residence permit for up to three years.
Read more about these and other support mechanisms for start-up companies and Latvia's advantages on the website fintechlatvia.eu.
Do not hesitate to apply for the authorisation for the operation
The transitional stage for the application of the Regulation, during which the existing crowdfunding service providers can operate without obtaining authorisation, will end in November this year, so we encourage companies not to postpone obtaining the authorisation for the operation until the last minute and to approach Latvijas Banka in a timely manner to agree upon the most efficient process to obtain the authorisation for the operation of crowdfunding service provider.
We look forward to welcoming you at Latvijas Banka! Apply for a consultation by writing to the e-mail address: fintech@bank.lv or by filling in the application form on the website of Latvijas Banka.
