Australian AFSL vs EMI in Lithuania: pros and cons

In today’s increasingly globalized financial landscape, businesses are exploring various licensing options to operate across different jurisdictions. Two popular licenses for financial institutions are the Australian FSL and the E-Money (EMI) permit in Lithuania. Each permit comes with its own set of advantages and challenges, depending on the business’s goals, geographic focus, and regulatory compliance needs. Below we’ll explore the key differences, benefits, and drawbacks of both the AFSL and EMI in Lithuania.

Australian AFSL: Pros and Cons

AFSL is a regulatory requirement issued by the ASIC. This permit is necessary for businesses involved in providing financial services, such as investment advice, financial products, account keeping, or management services, within Australia.

Advantages of Getting an Australian AFSL

1. Global Reputation for Secure Money Transfer: Australia has a well-regarded financial regulatory system, making an AFSL a valuable asset for companies looking to establish credibility on the global stage.
2. Access to the Australian Market: Holding an AFSL allows businesses to tap into Australia’s developed financial services sector and large, sophisticated client base.
3. Comprehensive Permit: An AFSL covers a wide range of financial activities, from investment management and insurance to banking and lending service. This makes it versatile for businesses looking to diversify their offerings.
4. Investor and Customer Protection: Australia has stringent consumer protection laws, and holding an AFSL demonstrates that a business adheres to these high standards, which can build trust with clients.
5. Stable Regulatory Environment: Australia’s stable and transparent regulatory framework provides predictability for long-term business operations.

Challenges and Considerations for an Australian AFSL

1. High Regulatory Standards: The process of getting and maintaining an AFSL is rigorous, requiring businesses to meet stringent compliance, governance, and capital requirements. Ongoing reporting and audits are mandatory.
2. Cost of Compliance: AFSL-holders for operating and sending e-money are subject to substantial compliance costs, including legal fee, capital requirements, and regulatory levies. These can be burdensome, especially for smaller businesses.
3. Time-Consuming Process: The application process for an AFSL might take several months, requiring extensive documentation, including business plans, financial models, and compliance frameworks.
4. Australian Focus: AFSL is primarily designed for businesses targeting the Australian market, limiting its appeal for companies with a global focus unless they intend to expand into Australia.

EMI in Lithuania: Pros and Cons

EMI-license in Lithuania is issued by the Bank of Lithuania and allows organizations to issue e-money, provide payment services, and offer financial products across the European Union (EU). Lithuania became a hub for fintech and crypto-exchange companies due to its streamlined licensing process and access to the EU market.

Benefits of Operating as an EMI in Lithuania

1. Access to the EU-Market to Send and Expand Products: Holding a specific permit for operating e-currency in Lithuania grants companies passporting rights, enabling them to operate across the 30 countries in the European Economic Area (EEA) without extra licenses.
2. Favorable Regulatory Environment: Lithuanian Bank is known for its supportive regulatory approach, especially towards fintechs, which reduces bureaucratic hurdles and facilitates quicker licensing.
3. Cost Efficiency for Further Use: Compared to other jurisdictions, Lithuania offers a cost-effective solution for obtaining and maintaining an EMI-license, with lower application charge and operational costs.
4. Faster Licensing Process: The process is typically faster than many other jurisdictions, often taking around three to six months.
5. Tax Benefits: Lithuania offers a competitive tax environment, including relatively low corporate tax rate, making it an attractive destination for fintech companies seeking tax efficiency.

Drawbacks and Points to Consider for EMI in Lithuania

1. Regulatory Scrutiny: While the Bank of Lithuania is supportive, companies must still adhere to EU-wide regulations like AMLD. Non-compliance can result in heavy penalties.
2. Limited Global Reach: Unlike an AFSL, which offers a globally recognized credential, an EMI-license is primarily valuable within the EU. For businesses targeting markets outside Europe, additional licenses may be required.
3. Capital Amount: While the costs in Lithuania are generally lower, EMI license-holders still face minimum capital requirements, which can be a barrier for smaller startups.
4. Ongoing Compliance Costs: Like the AFSL, EMI holders must meet stringent ongoing compliance requirements, including reporting obligations, audits, and regular supervision by the Bank of Lithuania.

Regulatory Framework and Compliance Requirements

• AFSL: ASIC governs AFSL holders. ASIC enforces strict guidelines on financial management, client protection, and reporting standards. Businesses must adhere to a range of consumer protection laws, including those related to fraud prevention, risk management, and dispute resolution.
• EMI in Lithuania: Lithuanian Bank oversees EMI-license holders, and they must comply with EU-regulations, including PSD2 and AMLD. These regulations mandate strict guidelines on payment processing, fraud prevention, data protection, and risk management, ensuring transparency and security within the financial ecosystem.

Financial and Tax Considerations

• AFSL: Australia’s tax rates are relatively high, with a corporate tax rate of 30% for large companies. Additionally, the cost of compliance can be significant, impacting profitability, especially for a smaller financial provider.
• EMI in Lithuania: Lithuania offers a more favorable tax environment, with a standard corporate tax rate of 15%, and tax incentives for smaller organizations. It might provide significant financial savings, especially for startups and growing fintech companies.

Choosing between an Australian AFSL and an EMI-license in Lithuania depends on your business-goals, target market, and the regulative environment you are willing to operate within.

1. AFSL: Ideal for a company looking to operate in Australia’s well-regulated fin-markets and gain global credibility. However, it comes with high compliance costs and rigorous regulatory scrutiny.
2. EMI: Offers easier access to the EU-market with cost-effective licensing and tax benefits, but may limit global reach compared to an AFSL.

Both licensing options offer unique advantages, and understanding the pros and cons of each will allow businesses to make informed decisions about where to base their operations and how to structure their growth strategy effectively.