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EU’s Fintech Hub Tightens Supervision After Massive Expansion
(Bloomberg) -- Lithuania is tightening the screws on fintech with bolstered oversight and additional resources after an ambitious foray into next-generation financial services created outsize risk for the Baltic nation.
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Gediminas Simkus, the central bank governor tasked with regulating the industry that’s made Lithuania a fintech hub, touted the effort to add staff and place a greater emphasis on anti-money laundering and terrorism financing. The Bank of Lithuania has been imposing more fines, suspending operations and revoking licenses.
“The central bank must act — and it does act — decisively, including decisions that entail revoking licenses,” Simkus said in an interview in Vilnius. The fines show that “supervision is effective — but also that some problems were addressed,” he said.
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Urgency to crack down in the fintech payment industry gained traction in 2021, when it emerged that a Lithuanian startup, Finolita Unio, was used to funnel more than €100 million ($107 million) out of Wirecard AG weeks before the payment firm collapsed. The central bank revoked Finolita’s license less than a month after the information became public.
It was a wakeup call in the nation of 2.8 million, which aimed six years ago to shake up a banking industry once dominated by Nordic lenders by offering simplified, English-language licensing that validated startups across the European Union.
Lithuania has since issued 138 payment and electronic money institution licenses, the most in the 27-member bloc.
Fintech transactions have swallowed an ever larger share of banking in the country. Revolut Ltd., the fast-growing UK startup that got its start in Lithuania on a payments license, was the Baltic nation’s third-largest bank last year, prompting the central bank to recognize it as a systemically important entity. It may eventually be supervised directly by the European Central Bank.
The rapid growth has triggered an effort to put in place guard rails with new guidelines, while boosting the resilience of the fast-growing ecosystem of payment companies. Some financial players have not paid enough attention to supervisory compliance and risk management, Simkus said.
“Leadership comes with responsibility to make sure that Lithuania is and remains a safe and trusted jurisdiction to grow businesses,” the central banker said. Still there will be “no ceiling” on the number of market entrants, he said.
--With assistance from Aaron Eglitis.
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