IBF license: what do you need to know?

IBF license: what do you need to know?

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This year is set to bring fundamental changes to the investing world as you know it – as the industry is shifting to a regulated and more transparent environment, we are beyond excited to announce that VIAINVEST is becoming a regulated member of the finance market by acquiring the investment brokerage firm (IBF) license in following months. So, what changes will the licensing bring?

1. The time frame
Once VIAINVEST formally acquires the IBF license issued by the Financial and Capital Market Commission (FCMC), the company will be considered to enter a transition period set to 6 months. Within this timeframe our main goal will be to polish up the platform to get it ready for offering a new investment product – notes. To ensure smooth transition for those who will, at that time, be invested in consumer and business loans, current investments will remain active until the loan closing date or until the end of the transition period (particular repayment date will be confirmed once the license is received). After that investments will be closed / buybacked and repaid according to the agreement/-s as usual. Once the technical solution (new platform for notes) is ready to go live, you will also be able to start exploring the new product by using an advanced version of the dashboard updated with a separate section for investing in notes.

2. The essence of the product and legal setup
The licensing process will completely change the product and legal setup determining relationships between the platform (VIAINVEST), loan originators (LOs) and investors. You may have already heard that prospective investment brokerage firms aim to offer customers to invest in notes. So, what is the concept of a note? Basically, the note is a securitized consumer or business loan. As IBFs will no longer work directly with LOs as used to, the licensing will introduce another party – the issuer – which will execute the loan securitization process by acquiring the portfolio of LOs and transferring it to VIAINVEST in the form of asset-backed notes. For VIAINVEST this process will be conducted by the VIAINVEST assets Ltd. (currently in the registration process) which will be 100% owned by VIA SMS Group. Peculiarity of notes is that investing terms for this particular financial instrument must be publicly available in the form of prospectus. Each LO which loans will be securitized and listed for investments, will have a separate, year long prospectus available on VIAINVEST website which will include information on LOs portfolio and financial indicators, as well as investing terms.
Another change applies to establishing relationships between investors and the platform itself – until now you were used to signing the bilateral user agreement when registering and generating new tripartite agreements with each investment made. With IBS this process will be simpler – each investor will sign one agreement per initial registration on the platform or transfer from the old concept platform to the new one. Investment terms for listed notes will be described within the public agreement – prospectus – which will be approved by the regulator (FCMC), will require no separate signing and will be publicly available on the VIAINVEST website.

3. Some extra effort from your side
As a licensed member of finance and capital market, VIAINVEST aims to step up its efforts regarding anti-money laundering and counter terrorism financing risk management. This is where we hope you will step in and help us collect information on sources of funds and planned investment volume effectively. It is legally binding for us to make sure if our investment products are suitable for you. For this reason we expect you to actively participate in filling in a suitability and appropriateness questionnaire to verify if our investment products are appropriate for you. Provided information will allow us to evaluate your knowledge and experience with investing.
Both questionnaires will be available in your investor profile shortly. Please pay attention when filling those in as results may affect your access to investment opportunities (e.g. auto invest function).

4. Investing
Once the license is granted, the main aim of VIAINVEST will be to ensure placing notes on the platform in order to make financial instruments available for investments. During the transition period (6 months after receiving the license) you will be able to invest in both products – loans (that you are used to) and notes that will eventually become the only product available on the platform. To ensure smooth transaction management, your investor profile dashboard and operational sections (e.g. auto invest section) will consist of two parts for separate operations with each product type. Dashboard will also be updated with another investor account overview for investments in loans and notes to be accounted separately. Other than that we aim to keep the user interface as close to the existing one as possible for continuous convenience of usage.

5. Mitigating risks
As the licensed company VIAINVEST will be subject to the requirements of the Investor Protection Law. In the highly unlikely event when the company has not registered financial instruments or the financial instruments have been permanently lost, the statutory class of investors will be entitled to compensation of 90% of the invested amount up to EUR 20 000 ensured by FKTK. Investor class will be determined based on an appropriateness questionnaire filled in by each investor.

List of key terms to keep in mind:

AML Anti-money laundering (AML) refers to all policies and pieces of legislation that force financial institutions to monitor their clients to prevent money laundering. AML laws require that financial institutions report any financial crime they detect to relevant regulators.
Appropriateness questionnaire Questionnaire about client’s knowledge and experience with financial instruments that allow financial institutions to evaluate if offered investment products are appropriate for a particular client.
Financial instruments Financial instruments are contracts for monetary assets that can be purchased, traded, created, modified, or settled for. In terms of contracts, there is a contractual obligation between involved parties during a financial instrument transaction.
The Financial and Capital Market Commission (FCMC) The Financial and Capital Market Commission is an autonomous public institution, which carries out the supervision of Latvian banks, credit unions, insurance companies and insurance brokerage companies, participants of the financial instruments market, as well as private pension funds, payment institutions and electronic money institutions. More info: www.fktk.lv
Investment Brokerage Firm (IBF) A company that is providing investment services on a regular and professional basis.
Investor Protection Law Law in force in the Republic of Latvia which is developed with an aim to protect the rights of investors. Full law text available here.
Issuer An issuer is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments. Issuers make available securities such as equity shares, bonds, and warrants.
MIFID The Markets in Financial Instruments Directive (MiFID) is a European regulation that increases the transparency across the European Union’s financial markets and standardizes the regulatory disclosures required for firms operating in the European Union.
Note Note is a financial instrument backed by a loan or pool of loans. Notes have similar features to bonds in which investors receive interest payments for holding the note and are repaid the original amount invested—called the principal—at a future date. Notes can obligate issuers to repay creditors the principal amount of a loan, in addition to any interest payments, at a predetermined date.
Prospectus A prospectus is a formal document that provides details about an investment offering to the public. The document can help investors make more informed investment decisions because it contains a host of relevant information about the investment security.
Securitization Securitization is the procedure where an issuer designs a marketable financial instrument by merging or pooling various financial assets into one group.
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