Lithuania’s Investment Environment: How a Strict Regulatory Framework Ensures Stable Growth

Lithuania’s investment landscape has remained stable and increasingly attractive in recent years, offering unique opportunities for both local and foreign investors. In 2023, foreign direct investment (FDI) reached €32.7 billion, marking a 12.1% increase compared to the previous year. These impressive figures demonstrate investor confidence in Lithuania’s economy, supported by rapidly growing sectors such as FinTech and artificial intelligence startups.

Vilnius has become the country’s economic hub, attracting 75.6% of total FDI. The largest investment sectors include financial and insurance services (€11.3 billion), manufacturing (€5 billion), and real estate (€3.2 billion). Key investors from Germany, Estonia, and Sweden highlight Lithuania’s strong economic ties with these nations.

To maintain this investment appeal and ensure transparency, Lithuania’s regulatory framework, along with licensing and supervision by the Bank of Lithuania, serves as a key mechanism for protecting investor interests.

In this article, Prevence business law firm experts Gintarė Daukšė and Simonas Milašius will explore strict disclosure requirements, operational standards for management companies and depositaries, and the regulatory sanctions imposed by the Bank of Lithuania to promote a transparent and reliable investment environment. Additionally, we will examine international cooperation and preventive measures that contribute to the effective operation of collective investment schemes and market stability.

Lithuania’s regulatory environment is complex but designed to meet investor expectations. A particular focus is placed on collective investment schemes (CIS), which are subject to stringent regulations. Investment funds and companies managing assets for individuals and businesses must operate responsibly, ensuring clear operational, remuneration, and accountability principles.

The primary legal framework governing CIS in Lithuania includes:

• The Law on Collective Investment Undertakings (KISĮ)
• The Law on Managers of Alternative Collective Investment Undertakings (AKISVĮ)
• The Law on Collective Investment Undertakings Intended for Informed Investors (IISKISĮ)

These laws largely align with EU regulations, ensuring that Lithuania adheres to European investor protection standards. Below, we outline key investor protection measures, including strict disclosure requirements, governance of collective investment entities, and the role of depositaries.

To ensure transparent and fair capital management, disclosure requirements play a crucial role in Lithuania’s regulatory framework. Legal provisions mandate that CIS management companies and investment firms disclose key information to protect investors and enable informed decision-making.

Each investment company or management firm must publish a prospectus, an annual financial report, and a semi-annual report for every fund they manage. The prospectus provides essential details for investors to assess risks and make informed investment choices. It must clearly outline all potential fees and costs, including management, performance, depositary, and distribution fees. These measures not only enhance market confidence but also strengthen investors’ ability to make data-driven decisions.

To safeguard capital, CIS governance in Lithuania is strictly regulated. Legal requirements define standards for CIS management bodies and responsible individuals.

Key governance aspects include:

• Individuals holding shares or voting rights in a management company must have impeccable reputations and relevant expertise.
• CIS executives must possess the necessary qualifications and experience to perform their roles effectively.
• The board is responsible for ensuring the proper execution of CIS investment activities and investor protection.

Superficial or passive board participation is not tolerated. Instead, governance structures must actively oversee decision-making and compliance with legal obligations.

Investment funds established in Lithuania or the EU under AKISVĮ or KISĮ must appoint a depositary when managed assets exceed €100 million.

The depositary’s main function is to safeguard investor assets, ensure fair fund management, and verify compliance with investment rules. Key depositary responsibilities include:

• Safekeeping financial instruments
• Verifying asset ownership and record-keeping
• Ensuring accurate net asset value calculations
• Monitoring transactions and fund operations
• Overseeing the issuance and redemption of fund units
• Tracking cash flows

By law, depositaries are liable for asset loss and must compensate investors for any damages incurred. They may only delegate asset safekeeping to third parties under exceptional circumstances.

Deposited assets cannot be used for personal purposes, adding an extra layer of investor protection. However, even with these safeguards, strict compliance with market regulations remains crucial.

As the primary financial market regulator, the Bank of Lithuania oversees collective investment schemes, safeguards investor interests, and maintains financial system stability. Licensing is a fundamental tool that ensures firms operate according to strict legal and ethical standards.

Management companies play a crucial role in investment fund operations, making their licensing and supervision essential for ensuring market reliability and investor protection. Only private or public limited liability companies holding a regulatory license can engage in fund management activities.

The Bank of Lithuania enforces compliance through:

• Regular reporting and on-site inspections
• Sanctions for regulatory breaches (fines up to €5 million or 10% of annual revenue)
• License revocation for severe or repeated violations

In addition to enforcement, the Bank of Lithuania applies preventive measures, offering guidance and recommendations to help firms maintain transparency and meet legal obligations. This proactive approach fosters compliance and minimizes potential violations.

Collaboration with international regulatory bodies further enhances oversight effectiveness, facilitates information sharing, and ensures Lithuania’s alignment with EU financial standards.